We have previously commented on how the U.S. Court of Appeals for the Fifth Circuit, in Oscar Private Equity Investments v. Allegiance Telecom Inc., 487 F.3d 261 (5th Cir. 2007), imposed a stringent burden on putative class plaintiffs to demonstrate a meritorious loss causation theory to obtain class certification in a securities fraud case.1 Recently, another panel of the Fifth Circuit, in rejecting class certification due to the plaintiff’s failure to “prove” loss causation, has made clear that the Oscar rule is firmly entrenched. Archdiocese of Milwaukee Supporting Fund Inc. v. Halliburton Co., 2010 WL 481407, *1 & n.2 (5th Cir. Feb. 12, 2010). The Fifth Circuit’s rigorous requirement has not been adopted by the U.S. Court of Appeals for the Second Circuit or the district courts within it.
Market Fraud Reliance
In Basic Inc. v. Levinson, 485 U.S. 224, 241-42, 247 (1988), the U.S. Supreme Court endorsed the use of the “fraud on the market” theory to satisfy the reliance requirement of a securities fraud claim by creating a presumption of a purchaser’s reliance on a misrepresentation or omission that affects the value of a security traded in an open and developed market. The doctrine assumes that, in an efficient market, the stock price reflects all material information known to the market.
