by Richard A. Booth
Cato Institute
April 09, 2014
Regulation
Early last year, the U.S. Supreme Court missed another opportunity to make sense out of securities litigation. In Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, buyers of the biotech stock sued, claiming the company had misrepresented concerns about two flagship drugs. Amgen argued that the market was aware of the facts and that it should not be subject to a class-action lawsuit unless the alleged misrepresentations affected its shares’ market price, which should be determined prior to certification to proceed to class-action. Securities fraud class actions depend on the idea that an investor may be presumed to have relied on a material misrepresentation even if he was unaware of it because the misrepresentation would have affected market price. This fraud-on-the market (FOTM) presumption makes class actions possible. The Supreme Court’s decision against Amgen means defendant corporations will be induced to settle many cases that would never succeed at trial.



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