The U.S. Supreme Court recently issued a decision in a securities fraud case which may ease the way investors in California and across the country bring class action lawsuits against allegedly fraudulent stockbrokers, firms or companies.
A securities class action lawsuit allows multiple investors to bring common claims against an alleged wrongdoer on behalf of all similarly harmed investors. In other words, it's an efficient way for the court system to resolve a large-scale dispute, rather than hearing multiple individual lawsuits arising from the same common set of facts or issues.
In the Supreme Court case, the class of plaintiffs was seeking certification so that they could proceed as a class action lawsuit. The plaintiffs alleged that Amgen, a drug company, had made material misstatements about the safety of two of its red blood cell production drugs. In a public securities market that requires disclosure of all publicly available information about a company and its products, a misrepresentation upon which investors act -- and subsequently lose money -- could be deemed fraud on the market and give rise to a securities fraud lawsuit.
The issue decided by the Supreme Court in the Amgen case was whether the class of plaintiffs needed to prove the materiality of an alleged misrepresentation before receiving class certification. The Court determined that the plaintiffs simply needed to assert materiality, rather than prove it, to be certified. The rationale for that decision seems to be practical: There is no need to hold up a lawsuit, and class certification, by requiring proof up front, since materiality is a common question upon which all of the plaintiffs would either prevail or fail in unison later on in the litigation.
As this post illustrates, the road to class certification is not automatic for wronged investors. Such large-scale disputes typically require the experience of a securities fraud attorney, who will know all of the applicable procedural requirements in mounting an aggressive class action lawsuit.
Source: New York Times, "Supreme Court Decides 2 Securities Fraud Cases," Adam Liptak, Feb. 27, 2013