432 F.3d 1 (2005)
The investors claimed that the corporation made false statements about earnings and that the statements artificially inflated the price of its stock, and they filed a motion for class certification and relied on the fraud-on-the market presumption of reliance to satisfy the requirement of Fed. R. Civ. P. 23(b)(3) that common questions of law and fact predominated over individual questions. Defendants opposed the motion, arguing that the investors were not entitled to a presumption of reliance because the market in the corporation's stock was not efficient.
- The court of appeals held that
- (1) the district court properly looked beyond the pleadings when it evaluated the applicability of the fraud-on-the-market presumption of reliance and its resolution of the class-certification question; but
- (2) the definition of market efficiency adopted by the district court was inconsistent with the presumption of investor reliance at the heart of the fraud-on-the-market theory, i.e., that a stock's price rapidly reflected all publicly available material information, and because the district court applied the wrong standard, its judgment granting class certification had to be vacated.
The court of appeals vacated the district court's judgment granting class certification and remanded the case for further proceedings.
Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials