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Court Requires Showing of Stock Price Movement to Allow Class Action

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.

http://www.law.com/jsp/nylj/CaseDecisionNY.jsp?id=1202471663410&slreturn=1&hbxlogin=1

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