Second Circuit To Hear IPO Allocation Appeal

The IPO allocation cases (brought against the underwriters of over 300 initial public offerings) generally allege that the defendants ramped up trading commissions in exchange for providing access to IPO shares and required investors allocated IPO shares to buy additional shares in the after-market to help push up the share price. Last year, Judge Scheindlin (S.D.N.Y.) granted class certification in six “focus” cases that have been used to test the sufficiency of the overall allegations.

A reader points out that the Second Circuit has agreed to hear an appeal from that grant (by order dated June 30, 2005). Moreover, the court has specifically asked for briefing on two hot-button issues:

(1) Whether the Second Circuit’s previous position that plaintiffs are only required to make “some showing” that the proposed class comports with all of the elements of Federal Rule of Civil Procedure 23 is consistent with the 2003 amendments to that rule.

(2) Whether the presumption of reliance established in Basic v. Levinson, 485 U.S. 224 (1988) (i.e., the fraud-on-the-market theory) was properly extended to plaintiffs’ claims against the non-issuer defendants and to the market manipulation claims.

The Second Circuit has come close to addressing the scope of the fraud-on-the-market theory before, but was thwarted by a settlement. The resolution of this issue has wide-ranging implications for securities fraud litigation. Take a look, for example, at The 10b-5 Daily’s discussion of two opposing district court decisions in cases brought against research analysts. Stay tuned.

Leave a comment

Filed under Appellate Monitor

Comments are closed.