Public Citizen, a national nonprofit organization that represents consumer interests, recently published a report extolling the benefits and advantages of securities class action lawsuits. Read more…
The Investor’s Insider:
Protecting Against Securities Fraud
The United States Supreme Court has granted certiori in Fifth Third Bancorp v. Dudenhoeffer, No. 12-751. The question before the court is whether plaintiffs must allege that the fiduciaries of a stock plan abused their discretion by remaining invested in employer stock to overcome the presumption that the decision to invest in employer stock was reasonable. Read more…
Last week, the United States Supreme Court accepted review (certiorari) of the Fifth Circuit’s decision in Halliburton Co. v. Erica P. John Fund, Inc. The Supreme Court will consider whether to overrule or limit its prior holding in Basic Inc. v. Levinson, 485 U.S. 224 (1987).
In Basic, the Supreme Court held that a plaintiff asserting a federal securities fraud claim under SEC Rule 10b-5 does not have to prove individual reliance on a particular misrepresentation to recover. Instead, investors are presumed to rely on the market price of an actively traded security because the price reflects the material public information known about the company. The presumption is rebuttable under certain circumstances.
This is known as the “fraud-on-the-market” doctrine. Essentially, the market, including Wall Street analysts and other professional investors, reviews the material public information about the company and set the price for the security based on that information.
Basic has been established precedent for over twenty-five years. The Supreme Court has cited and relied upon Basic in a number of subsequent securities fraud cases. Just this year, a majority of the Supreme Court reaffirmed its commitment to Basic in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, 113 S. Ct 1184, 1192-93 (2013).
Halliburton will test the Supreme Court’s adherence to precedent and the principle of stare decisis. The case is significant because, without a presumption of reliance, it will be more difficult to certify federal securities 10b-5 class cases and hold companies accountable for fraud. Without the fraud-on-the-market doctrine, companies could, with relative impunity, provide fraudulent financial statements to the market – and thus increase their stock price – with almost no risk of being held fully accountable for the cost of that fraud.
Interestingly, the Oregon Supreme Court recently held that the Oregon Securities Law, ORS 59.137, also incorporates the fraud-on-the-market doctrine as a matter of state securities law. Oregon v. Marsh & McLennan Co’s, Inc, 353 Or. 1 (2012).* The United States Supreme Court’s decision in Halliburton, which interprets federal law, can have no impact on the Oregon Supreme Court’s decision in Marsh, which interprets what the Oregon legislature intended with respect to state law when it enacted ORS 59.137 in 2003. Marsh is based on state statutory interpretation and not principles of federal law.
* Along with the Oregon Department of Justice, Stoll Berne represents the State of Oregon in this matter.
FINRA Settles Case Against Oppenheimer & Co., Inc. Relating to Alleged Sales of Over One Billion Shares of Unregistered Penny Stocks
On August 5, 2013, the Financial Industry Regulatory Authority (“FINRA”) agreed to settle a case in which the regulatory organization alleged that Oppenheimer & Co., Inc. (“Oppenheimer”) had sold unregistered securities in violation of Section 5 of the Securities Act of 1933, failed to adequately supervise the sale of low-priced securities, failed to follow up on red flags involving the customers, sales and account activity, and failed to monitor patterns of suspicious activity that should have been identified and investigated through the company’s anti-money laundering program. Read more…
In a case mentioned on this blog last December, Second Circuit Considers Statute of Repose, the Second Circuit ruled last week that the American Pipe tolling doctrine does not toll the statute of repose for absent class members’ claims under the 1933 Securities Act. Police and Fire Retirement System of the City of Detroit v. IndyMac MBS, Inc., 2013 WL 3214588 (2nd Cir. 2013). Read more…
Fifth Circuit Rejects Halliburton’s Attempt to Defeat Class Certification With Price Impact Evidence
On April 30, 2013, the U.S. Court of Appeals for the Fifth Circuit, on remand from the U.S. Supreme Court, issued a decision in the securities fraud case of Erica P. John Fund, Inc. v. Halliburton Co. In EPJ Fund, the Fifth Circuit rejected Halliburton’s attempt to defeat class certification by offering evidence of the absence of price impact. Relying on the earlier decision of the Supreme Court in Amgen v. Conn. Ret. Plans and Trust Funds, 133 S. Ct. 1184 (2013), the Fifth Circuit first explained that, while a misrepresentation’s materiality must at some point be proven in order to invoke the “fraud-on-the-market” presumption of reliance, the resolution of the question presents a common issue that affects all class members’ claims equally. Next, the court held that because Halliburton’s price impact evidence was offered only for the purpose of generally rebutting the presumption of reliance, and affected the ability of all class members to succeed on the merits of their claim, it could not be considered at class certification.
On February 27, 2013, the United States Supreme Court decided Amgen Inc., et al. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085. By a 6-3 majority, the Court held that investors in a securities class action do not need to prove the materiality of a company’s alleged misrepresentations at the class certification stage.
Oregon Supreme Court Rules That Proof of Reliance in Oregon Securities Law Action Can Be Established Via the Fraud-on-the-Market Doctrine
On December 13, 2012, the Oregon Supreme Court ruled unanimously that a plaintiff who brings a claim for damages based on misrepresentations under ORS 59.137(1) must establish that the plaintiff relied on the misrepresentations, but that proof of reliance can be established through the rebuttable presumption available under the fraud-on-the-market doctrine. Read more…
A federal judge in the Central District of California has certified a class of investors in a pending securities fraud lawsuit against Radient Pharmaceuticals. Read more…