Supreme Court Holds That 10b-5 Plaintiffs Need Not Prove “Materiality” at Class Certification Stage


On February 27, 2013, the Supreme Court of the United States held that plaintiffs are not required to prove that alleged misrepresentations or omissions are “material” in order to secure class certification in securities litigation. The decision lowers the hurdle for the plaintiffs’ bar to certify investor classes, and raises the risk that marginal claims survive. The result is that the in terrorem settlement value of securities claims may increase, exposing issuers, corporate officers and directors, and their insurers to additional risk and cost.

Amgen Inc. v. Connecticut Retirement Plans and Trust Funds arose out of a claim by investors that allegedly false statements and omissions by Amgen “artificially inflated” the market price for Amgen’s stock, inducing losses for purchasers when the “truth” was revealed. The District Court certified a class of investors even though Amgen presented substantial evidence that the market had been fully alerted to the risks the plaintiffs alleged were undisclosed. According to Amgen, since the market was actually aware of the information the plaintiffs claimed was omitted, any ostensible misstatements could not have affected the stock price. The Ninth Circuit affirmed certification of the class, holding that a class action plaintiff need not prove that allegedly false statements or omissions are “material” to justify certification of a class. That decision created a split with the Second Circuit, which had held the opposite – proof of “material” misstatements is a prerequisite to class certification in securities litigation.

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