In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 2013 WL 691001 (U.S. Feb. 27, 2013), the United States Supreme Court resolved a split in the Circuit Courts by holding that a securities fraud plaintiff need not prove that alleged false statements made by a defendant were material in order to invoke the fraud-on-the-market presumption of reliance established by Basic, Inc. v. Levinson, 485 U.S. 224 (1988), at the class certification stage of a Rule 10b-5 claim.
The securities fraud action in Amgen involved allegations of fraudulent statements concerning the safety of two of Amgen’s drugs. Amgen claimed that the information concerning the drugs was already in the marketplace, making the alleged misrepresentations immaterial. Plaintiffs moved for class certification, which turned on the question of plaintiffs’ common reliance on Amgen’s alleged misstatements.
In Basic, the Supreme Court endorsed a rebuttable presumption of reliance by all class members if the fraud-onthe- market theory, which states that all public material information is reflected in the price of a security in an efficient market, applies. The plaintiffs in Amgen submitted expert evidence to establish the efficiency of the Amgen stock to obtain the fraud-on-the-market theory. However, the plaintiffs did not make an evidentiary showing that Amgen’s statements were material, and Amgen opposed class certification primarily on this basis.
The Supreme Court held that while plaintiffs must prove materiality of the misstatements or omissions to prevail on the merits of a Rule 10b-5 claim, the Basic decision cannot be read to require proof of materiality at class certification to obtain the fraud-on-the-market presumption. The Court stated that “[b]ecause materiality is judged according to an objective standard, the materiality of Amgen’s alleged misrepresentations and omissions is a question common to all members of the class….” Thus, the existence of this common question itself supported class certification.
Public companies should note that the Amgen holding eliminates one method of defeating a Rule 10b-5 claim before fact discovery and, thus, gives plaintiffs more leverage in earlier settlement discussions. Additionally, at least three justices indicated that they would be open to reconsidering Basic in a later case, which could change the outcome of cases that turn on the fraud-on-the-market theory.