Securities: investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson, 485 U. S. 224, this Court held that investors could satisfy this reliance requirement by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misrepresentations. The Court also held, however, that a defendant could rebut this presumption by showing that the alleged misrepresentation did not actually affect the stock price—that is, that it had no “price impact.” For the same reasons the Court declines to overrule Basic’s presumption of reliance, it also declines to modify the prerequisites for invoking the presumption by requiring plaintiffs to prove “price impact” directly at the class certification stage. The Basic presumption incorporates two constituent presumptions: first, if a plaintiff shows that the defendant’s misrepresentation was public and material and that the stock traded in a generally efficient market, he is entitled to a presumption that the misrepresentation affected the stock price.
Second, if the plaintiff also shows that he purchased the stock at the market price during the relevant period, he is entitled to a further presumption that he purchased the stock in reliance on the defendant’s misrepresentation. Requiring plaintiffs to prove price impact directly would take away the first constituent presumption.
The Court agrees with Halliburton, however, that defendants must be afforded an opportunity to rebut the presumption of reliance before class certification with evidence of a lack of price impact. Defendants may already introduce such evidence at the merits stage to rebut the Basic presumption, as well as at the class certification stage to counter a plaintiff’s showing of market efficiency. (…) The fact that a misrepresentation has price impact is “Basic’s fundamental premise.” It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption, the publicity and market efficiency prerequisites must be proved before class certification. Given that such indirect evidence of price impact will be before the court at the class certification stage in any event, there is no reason to artificially limit the inquiry at that stage by excluding direct evidence of price impact (U.S.S.Ct., 23.06.2014, Halliburton Co. v. Erica P. John Fund, Inc., Docket 13-317, C.J. Roberts).