Court Requires Showing of Stock Price Movement to Allow Class Action
The U.S. District Court for the Southern District of New York rejected class certification in a securities fraud case, because the plaintiffs could not demonstrate that the alleged misstatements had an effect on defendant’s stock price. The plaintiffs argued that reliance as a class should be presumed rather than proved on an individual basis. The court rejected this “fraud-on-the-market” theory because the defendant’s stock price did not materially move when the New York Attorney General announced an investigation into the facts underlying the alleged misrepresentations. The Court concluded: “[I]ssues subject to individualized proof would predominate over common issues with respect to each of [plaintiff’s] claims.”
OUR TAKE: Requiring proof of individual reliance where a purported class cannot demonstrate stock price movement will make class certification very difficult.