James Beha and Judson Lobdell authored an article for the Daily Journal discussing the upcoming U.S. Supreme Court case Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, where the court will address the application of the Basic presumption during class certification.
“Reliance on an alleged misrepresentation when entering into a securities transaction is an essential element of a federal securities fraud claim,” the authors wrote. “As a result, securities fraud lawsuits cannot be certified as class actions unless the plaintiffs can show that the reliance element can be proven on a class-wide basis. To do so, plaintiffs generally seek to invoke the ‘fraud-on-the-market’ presumption of class-wide reliance recognized in Basic Inc. v. Levinson, 485 U.S. 224 (1988). Under the Basic presumption, a plaintiff is presumed to rely on a statement if it is incorporated in the market price when the plaintiff buys the stock. In essence, Basic held that a misrepresentation that distorts a stock’s market price operates as a ‘fraud on the market.’”
Read the full article.