7 Private Securities Class Actions (Part 1) (Reliance) 7 Private Securities Class Actions (Part 1) (Reliance)
7.1 Basic Inc. v. Levinson 7.1 Basic Inc. v. Levinson
BASIC INC. ET AL.
v.
LEVINSON ET AL.
Supreme Court of United States.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
[225] Joel W. Sternman argued the cause for petitioners. With him on the briefs were H. Stephen Madsen, Norman S. Jeavons, William W. Golub, Ambrose Doskow, Arnold I. Roth, and Katherine M. Blakeley.
[226] Wayne A. Cross argued the cause for respondents. With him on the brief were David S. Elkind and Lee A. Pickard.[*]
Solicitor General Fried, Deputy Solicitor General Cohen, Jerrold J. Ganzfried, Daniel L. Goelzer, Paul Gonson, Jacob H. Stillman, Eric Summergrad, Katharine B. Gresham, and Max Berueffy filed a brief for the United States as amicus curiae.
JUSTICE BLACKMUN delivered the opinion of the Court.
This case requires us to apply the materiality requirement of § 10(b) of the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 881, as amended, 15 U. S. C. § 78a et seq., and the Securities and Exchange Commission's Rule 10b-5, 17 CFR § 240.10b-5 (1987), promulgated thereunder, in the context of preliminary corporate merger discussions. We must also determine whether a person who traded a corporation's shares on a securities exchange after the issuance of a materially misleading statement by the corporation may invoke a rebuttable presumption that, in trading, he relied on the integrity of the price set by the market.
I
Prior to December 20, 1978, Basic Incorporated was a publicly traded company primarily engaged in the business of manufacturing chemical refractories for the steel industry. As early as 1965 or 1966, Combustion Engineering, Inc., a company producing mostly alumina-based refractories, expressed some interest in acquiring Basic, but was deterred from pursuing this inclination seriously because of antitrust concerns it then entertained. See App. 81-83. In 1976, however, regulatory action opened the way to a renewal of [227] Combustion's interest.[1] The "Strategic Plan," dated October 25, 1976, for Combustion's Industrial Products Group included the objective: "Acquire Basic Inc. $30 million." App. 337.
Beginning in September 1976, Combustion representatives had meetings and telephone conversations with Basic officers and directors, including petitioners here,[2] concerning the possibility of a merger.[3] During 1977 and 1978, Basic made three public statements denying that it was engaged in merger negotiations.[4] On December 18, 1978, Basic asked [228] the New York Stock Exchange to suspend trading in its shares and issued a release stating that it had been "approached" by another company concerning a merger. Id., at 413. On December 19, Basic's board endorsed Combustion's offer of $46 per share for its common stock, id., at 335, 414-416, and on the following day publicly announced its approval of Combustion's tender offer for all outstanding shares.
Respondents are former Basic shareholders who sold their stock after Basic's first public statement of October 21, 1977, and before the suspension of trading in December 1978. Respondents brought a class action against Basic and its directors, asserting that the defendants issued three false or misleading public statements and thereby were in violation of § 10(b) of the 1934 Act and of Rule 10b-5. Respondents alleged that they were injured by selling Basic shares at artificially depressed prices in a market affected by petitioners' misleading statements and in reliance thereon.
The District Court adopted a presumption of reliance by members of the plaintiff class upon petitioners' public statements that enabled the court to conclude that common questions of fact or law predominated over particular questions pertaining to individual plaintiffs. See Fed. Rule Civ. Proc. 23(b)(3). The District Court therefore certified respondents' class.[5] On the merits, however, the District Court granted [229] summary judgment for the defendants. It held that, as a matter of law, any misstatements were immaterial: there were no negotiations ongoing at the time of the first statement, and although negotiations were taking place when the second and third statements were issued, those negotiations were not "destined, with reasonable certainty, to become a merger agreement in principle." App. to Pet. for Cert. 103a.
The United States Court of Appeals for the Sixth Circuit affirmed the class certification, but reversed the District Court's summary judgment, and remanded the case. 786 F. 2d 741 (1986). The court reasoned that while petitioners were under no general duty to disclose their discussions with Combustion, any statement the company voluntarily released could not be " `so incomplete as to mislead.' " Id., at 746, quoting SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 862 (CA2 1968) (en banc), cert. denied sub nom. Coates v. SEC, 394 U. S. 976 (1969). In the Court of Appeals' view, Basic's statements that no negotiations were taking place, and that it knew of no corporate developments to account for the heavy trading activity, were misleading. With respect to materiality, the court rejected the argument that preliminary merger discussions are immaterial as a matter of law, and held that "once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue." 786 F. 2d, at 749.
The Court of Appeals joined a number of other Circuits in accepting the "fraud-on-the-market theory" to create a rebuttable presumption that respondents relied on petitioners' material [230] misrepresentations, noting that without the presumption it would be impractical to certify a class under Federal Rule of Civil Procedure 23(b)(3). See 786 F. 2d, at 750-751.
We granted certiorari, 479 U. S. 1083 (1987), to resolve the split, see Part III, infra, among the Courts of Appeals as to the standard of materiality applicable to preliminary merger discussions, and to determine whether the courts below properly applied a presumption of reliance in certifying the class, rather than requiring each class member to show direct reliance on Basic's statements.
II
The 1934 Act was designed to protect investors against manipulation of stock prices. See S. Rep. No. 792, 73d Cong., 2d Sess., 1-5 (1934). Underlying the adoption of extensive disclosure requirements was a legislative philosophy: "There cannot be honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and secrecy." H. R. Rep. No. 1383, 73d Cong., 2d Sess., 11 (1934). This Court "repeatedly has described the `fundamental purpose' of the Act as implementing a `philosophy of full disclosure.' " Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 477-478 (1977), quoting SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 186 (1963).
Pursuant to its authority under § 10(b) of the 1934 Act, 15 U. S. C. § 78j, the Securities and Exchange Commission promulgated Rule 10b-5.[6] Judicial interpretation and application, [231] legislative acquiescence, and the passage of time have removed any doubt that a private cause of action exists for a violation of § 10(b) and Rule 10b-5, and constitutes an essential tool for enforcement of the 1934 Act's requirements. See, e. g., Ernst & Ernst v. Hochfelder, 425 U. S. 185, 196 (1976); Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730 (1975).
The Court previously has addressed various positive and common-law requirements for a violation of § 10(b) or of Rule 10b-5. See, e. g., Santa Fe Industries, Inc. v. Green, supra ("manipulative or deceptive" requirement of the statute); Blue Chip Stamps v. Manor Drug Stores, supra ("in connection with the purchase or sale" requirement of the Rule); Dirks v. SEC, 463 U. S. 646 (1983) (duty to disclose); Chiarella v. United States, 445 U. S. 222 (1980) (same); Ernst & Ernst v. Hochfelder, supra (scienter). See also Carpenter v. United States, 484 U. S. 19 (1987) (confidentiality). The Court also explicitly has defined a standard of materiality under the securities laws, see TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 (1976), concluding in the proxy-solicitation context that "[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." Id., at 449.[7] Acknowledging that certain information concerning corporate developments could well be of "dubious significance," id., at 448, the Court was careful not to set too low a standard of materiality; it was concerned that a minimal standard might bring an overabundance of information within its reach, and lead management "simply to bury the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decisionmaking." Id., at 448-449. It further explained that to fulfill the materiality requirement "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the [232] reasonable investor as having significantly altered the `total mix' of information made available." Id., at 449. We now expressly adopt the TSC Industries standard of materiality for the § 10(b) and Rule 10b-5 context.[8]
III
The application of this materiality standard to preliminary merger discussions is not self-evident. Where the impact of the corporate development on the target's fortune is certain and clear, the TSC Industries materiality definition admits straightforward application. Where, on the other hand, the event is contingent or speculative in nature, it is difficult to ascertain whether the "reasonable investor" would have considered the omitted information significant at the time. Merger negotiations, because of the ever-present possibility that the contemplated transaction will not be effectuated, fall into the latter category.[9]
A
Petitioners urge upon us a Third Circuit test for resolving this difficulty.[10] See Brief for Petitioners 20-22. Under this [233] approach, preliminary merger discussions do not become material until "agreement-in-principle" as to the price and structure of the transaction has been reached between the would-be merger partners. See Greenfield v. Heublein, Inc., 742 F. 2d 751, 757 (CA3 1984), cert. denied, 469 U. S. 1215 (1985). By definition, then, information concerning any negotiations not yet at the agreement-in-principle stage could be withheld or even misrepresented without a violation of Rule 10b-5.
Three rationales have been offered in support of the "agreement-in-principle" test. The first derives from the concern expressed in TSC Industries that an investor not be overwhelmed by excessively detailed and trivial information, and focuses on the substantial risk that preliminary merger discussions may collapse: because such discussions are inherently tentative, disclosure of their existence itself could mislead investors and foster false optimism. See Greenfield v. Heublein, Inc., 742 F. 2d, at 756; Reiss v. Pan American World Airways, Inc., 711 F. 2d 11, 14 (CA2 1983). The other two justifications for the agreement-in-principle standard are based on management concerns: because the requirement of "agreement-in-principle" limits the scope of disclosure obligations, it helps preserve the confidentiality of merger discussions where earlier disclosure might prejudice the negotiations; and the test also provides a usable, bright-line rule for determining when disclosure must be made. See Greenfield v. Heublein, Inc., 742 F. 2d, at 757; Flamm [234] v. Eberstadt, 814 F. 2d 1169, 1176-1178 (CA7), cert. denied, 484 U. S. 853 (1987).
None of these policy-based rationales, however, purports to explain why drawing the line at agreement-in-principle reflects the significance of the information upon the investor's decision. The first rationale, and the only one connected to the concerns expressed in TSC Industries, stands soundly rejected, even by a Court of Appeals that otherwise has accepted the wisdom of the agreement-in-principle test. "It assumes that investors are nitwits, unable to appreciate — even when told — that mergers are risky propositions up until the closing." Flamm v. Eberstadt, 814 F. 2d, at 1175. Disclosure, and not paternalistic withholding of accurate information, is the policy chosen and expressed by Congress. We have recognized time and again, a "fundamental purpose" of the various Securities Acts, "was to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry." SEC v. Capital Gains Research Bureau, Inc., 375 U. S., at 186. Accord, Affiliated Ute Citizens v. United States, 406 U. S. 128, 151 (1972); Santa Fe Industries, Inc. v. Green, 430 U. S., at 477. The role of the materiality requirement is not to "attribute to investors a child-like simplicity, and inability to grasp the probabilistic significance of negotiations," Flamm v. Eberstadt, 814 F. 2d, at 1175, but to filter out essentially useless information that a reasonable investor would not consider significant, even as part of a larger "mix" of factors to consider in making his investment decision. TSC Industries, Inc. v. Northway, Inc., 426 U. S., at 448-449.
The second rationale, the importance of secrecy during the early stages of merger discussions, also seems irrelevant to an assessment whether their existence is significant to the trading decision of a reasonable investor. To avoid a "bidding war" over its target, an acquiring firm often will insist that negotiations remain confidential, see, e. g., In re Carnation [235] Co., Exchange Act Release No. 22214, 33 S. E. C. Docket 1025 (1985), and at least one Court of Appeals has stated that "silence pending settlement of the price and structure of a deal is beneficial to most investors, most of the time." Flamm v. Eberstadt, 814 F. 2d, at 1177.[11]
We need not ascertain, however, whether secrecy necessarily maximizes shareholder wealth — although we note that the proposition is at least disputed as a matter of theory and empirical research[12] — for this case does not concern the timing of a disclosure; it concerns only its accuracy and completeness.[13] We face here the narrow question whether information concerning the existence and status of preliminary merger discussions is significant to the reasonable investor's trading decision. Arguments based on the premise that some disclosure would be "premature" in a sense are more properly considered under the rubric of an issuer's duty to disclose. The "secrecy" rationale is simply inapposite to the definition of materiality.
[236] The final justification offered in support of the agreement-in-principle test seems to be directed solely at the comfort of corporate managers. A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the light of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of the Securities Acts and Congress' policy decisions. Any approach that designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily be overinclusive or underinclusive. In TSC Industries this Court explained: "The determination [of materiality] requires delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him . . . ." 426 U. S., at 450. After much study, the Advisory Committee on Corporate Disclosure cautioned the SEC against administratively confining materiality to a rigid formula.[14] Courts also would do well to heed this advice.
We therefore find no valid justification for artificially excluding from the definition of materiality information concerning merger discussions, which would otherwise be considered significant to the trading decision of a reasonable investor, merely because agreement-in-principle as to price and structure has not yet been reached by the parties or their representatives.
B
[237] The Sixth Circuit explicitly rejected the agreement-in-principle test, as we do today, but in its place adopted a rule that, if taken literally, would be equally insensitive, in our view, to the distinction between materiality and the other elements of an action under Rule 10b-5:
"When a company whose stock is publicly traded makes a statement, as Basic did, that `no negotiations' are underway, and that the corporation knows of `no reason for the stock's activity,' and that `management is unaware of any present or pending corporate development that would result in the abnormally heavy trading activity,' information concerning ongoing acquisition discussions becomes material by virtue of the statement denying their existence. . . .
.....
". . . In analyzing whether information regarding merger discussions is material such that it must be affirmatively disclosed to avoid a violation of Rule 10b-5, the discussions and their progress are the primary considerations. However, once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue." 786 F. 2d, at 748-749 (emphasis in original).[15]
[238] This approach, however, fails to recognize that, in order to prevail on a Rule 10b-5 claim, a plaintiff must show that the statements were misleading as to a material fact. It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise insignificant.
C
Even before this Court's decision in TSC Industries, the Second Circuit had explained the role of the materiality requirement of Rule 10b-5, with respect to contingent or speculative information or events, in a manner that gave that term meaning that is independent of the other provisions of the Rule. Under such circumstances, materiality "will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity." SEC v. Texas Gulf Sulphur Co., 401 F. 2d, at 849. Interestingly, neither the Third Circuit decision adopting the agreement-in-principle test nor petitioners here take issue with this general standard. Rather, they suggest that with respect to preliminary merger discussions, there are good reasons to draw a line at agreement on price and structure.
In a subsequent decision, the late Judge Friendly, writing for a Second Circuit panel, applied the Texas Gulf Sulphur probability/magnitude approach in the specific context of preliminary merger negotiations. After acknowledging that materiality is something to be determined on the basis of the particular facts of each case, he stated:
"Since a merger in which it is bought out is the most important event that can occur in a small corporation's life, to wit, its death, we think that inside information, as regards a merger of this sort, can become material at an earlier stage than would be the case as regards lesser transactions — and this even though the mortality rate of mergers in such formative stages is doubtless high." SEC v. Geon Industries, Inc., 531 F. 2d 39, 47-48 (1976).
[239] We agree with that analysis.[16]
Whether merger discussions in any particular case are material therefore depends on the facts. Generally, in order to assess the probability that the event will occur, a factfinder will need to look to indicia of interest in the transaction at the highest corporate levels. Without attempting to catalog all such possible factors, we note by way of example that board resolutions, instructions to investment bankers, and actual negotiations between principals or their intermediaries may serve as indicia of interest. To assess the magnitude of the transaction to the issuer of the securities allegedly manipulated, a factfinder will need to consider such facts as the size of the two corporate entities and of the potential premiums over market value. No particular event or factor short of closing the transaction need be either necessary or sufficient by itself to render merger discussions material.[17]
[240] As we clarify today, materiality depends on the significance the reasonable investor would place on the withheld or misrepresented information.[18] The fact-specific inquiry we endorse here is consistent with the approach a number of courts have taken in assessing the materiality of merger negotiations.[19] Because the standard of materiality we have [241] adopted differs from that used by both courts below, we remand the case for reconsideration of the question whether a grant of summary judgment is appropriate on this record.[20]
IV
A
We turn to the question of reliance and the fraud-on-the-market theory. Succinctly put:
"The fraud on the market theory is based on the hypothesis that, in an open and developed securities market, the price of a company's stock is determined by the available material information regarding the company and its business. . . . Misleading statements will therefore [242] defraud purchasers of stock even if the purchasers do not directly rely on the misstatements. . . . The causal connection between the defendants' fraud and the plaintiffs' purchase of stock in such a case is no less significant than in a case of direct reliance on misrepresentations." Peil v. Speiser, 806 F. 2d 1154, 1160-1161 (CA3 1986).
Our task, of course, is not to assess the general validity of the theory, but to consider whether it was proper for the courts below to apply a rebuttable presumption of reliance, supported in part by the fraud-on-the-market theory. Cf. the comments of the dissent, post, at 252-255.
This case required resolution of several common questions of law and fact concerning the falsity or misleading nature of the three public statements made by Basic, the presence or absence of scienter, and the materiality of the misrepresentations, if any. In their amended complaint, the named plaintiffs alleged that in reliance on Basic's statements they sold their shares of Basic stock in the depressed market created by petitioners. See Amended Complaint in No. C79-1220 (ND Ohio), ¶¶ 27, 29, 35, 40; see also id., ¶ 33 (alleging effect on market price of Basic's statements). Requiring proof of individualized reliance from each member of the proposed plaintiff class effectively would have prevented respondents from proceeding with a class action, since individual issues then would have overwhelmed the common ones. The District Court found that the presumption of reliance created by the fraud-on-the-market theory provided "a practical resolution to the problem of balancing the substantive requirement of proof of reliance in securities cases against the procedural requisites of [Federal Rule of Civil Procedure] 23." The District Court thus concluded that with reference to each public statement and its impact upon the open market for Basic shares, common questions predominated over individual questions, as required by Federal Rules of Civil Procedure 23(a)(2) and (b)(3).
[243] Petitioners and their amici complain that the fraud-on-the-market theory effectively eliminates the requirement that a plaintiff asserting a claim under Rule 10b-5 prove reliance. They note that reliance is and long has been an element of common-law fraud, see, e. g., Restatement (Second) of Torts § 525 (1977); W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 108 (5th ed. 1984), and argue that because the analogous express right of action includes a reliance requirement, see, e. g., § 18(a) of the 1934 Act, as amended, 15 U. S. C. § 78r(a), so too must an action implied under § 10(b).
We agree that reliance is an element of a Rule 10b-5 cause of action. See Ernst & Ernst v. Hochfelder, 425 U. S., at 206 (quoting Senate Report). Reliance provides the requisite causal connection between a defendant's misrepresentation and a plaintiff's injury. See, e. g., Wilson v. Comtech Telecommunications Corp., 648 F. 2d 88, 92 (CA2 1981); List v. Fashion Park, Inc., 340 F. 2d 457, 462 (CA2), cert. denied sub nom. List v. Lerner, 382 U. S. 811 (1965). There is, however, more than one way to demonstrate the causal connection. Indeed, we previously have dispensed with a requirement of positive proof of reliance, where a duty to disclose material information had been breached, concluding that the necessary nexus between the plaintiffs' injury and the defendant's wrongful conduct had been established. See Affiliated Ute Citizens v. United States, 406 U. S., at 153-154. Similarly, we did not require proof that material omissions or misstatements in a proxy statement decisively affected voting, because the proxy solicitation itself, rather than the defect in the solicitation materials, served as an essential link in the transaction. See Mills v. Electric Auto-Lite Co., 396 U. S. 375, 384-385 (1970).
The modern securities markets, literally involving millions of shares changing hands daily, differ from the face-to-face [244] transactions contemplated by early fraud cases,[21] and our understanding of Rule 10b-5's reliance requirement must encompass these differences.[22]
"In face-to-face transactions, the inquiry into an investor's reliance upon information is into the subjective pricing of that information by that investor. With the presence of a market, the market is interposed between seller and buyer and, ideally, transmits information to the investor in the processed form of a market price. Thus the market is performing a substantial part of the valuation process performed by the investor in a face-to-face transaction. The market is acting as the unpaid agent of the investor, informing him that given all the information available to it, the value of the stock is worth the market price." In re LTV Securities Litigation, 88 F. R. D. 134, 143 (ND Tex. 1980).
Accord, e. g., Peil v. Speiser, 806 F. 2d, at 1161 ("In an open and developed market, the dissemination of material misrepresentations or withholding of material information typically affects the price of the stock, and purchasers generally rely on the price of the stock as a reflection of its value"); Blackie [245] v. Barrack, 524 F. 2d 891, 908 (CA9 1975) ("[T]he same causal nexus can be adequately established indirectly, by proof of materiality coupled with the common sense that a stock purchaser does not ordinarily seek to purchase a loss in the form of artificially inflated stock"), cert. denied, 429 U. S. 816 (1976).
B
Presumptions typically serve to assist courts in managing circumstances in which direct proof, for one reason or another, is rendered difficult. See, e. g., 1 D. Louisell & C. Mueller, Federal Evidence 541-542 (1977). The courts below accepted a presumption, created by the fraud-on-the-market theory and subject to rebuttal by petitioners, that persons who had traded Basic shares had done so in reliance on the integrity of the price set by the market, but because of petitioners' material misrepresentations that price had been fraudulently depressed. Requiring a plaintiff to show a speculative state of facts, i. e., how he would have acted if omitted material information had been disclosed, see Affiliated Ute Citizens v. United States, 406 U. S., at 153-154, or if the misrepresentation had not been made, see Sharp v. Coopers & Lybrand, 649 F. 2d 175, 188 (CA3 1981), cert. denied, 455 U. S. 938 (1982), would place an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market. Cf. Mills v. Electric Auto-Lite Co., 396 U. S., at 385.
Arising out of considerations of fairness, public policy, and probability, as well as judicial economy, presumptions are also useful devices for allocating the burdens of proof between parties. See E. Cleary, McCormick on Evidence 968-969 (3d ed. 1984); see also Fed. Rule Evid. 301 and Advisory Committee Notes, 28 U. S. C. App., p. 685. The presumption of reliance employed in this case is consistent with, and, by facilitating Rule 10b-5 litigation, supports, the congressional policy embodied in the 1934 Act. In drafting that Act, [246] Congress expressly relied on the premise that securities markets are affected by information, and enacted legislation to facilitate an investor's reliance on the integrity of those markets:
"No investor, no speculator, can safely buy and sell securities upon the exchanges without having an intelligent basis for forming his judgment as to the value of the securities he buys or sells. The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings [sic] about a situation where the market price reflects as nearly as possible a just price. Just as artificial manipulation tends to upset the true function of an open market, so the hiding and secreting of important information obstructs the operation of the markets as indices of real value." H. R. Rep. No. 1383, at 11.
See Lipton v. Documation, Inc., 734 F. 2d 740, 748 (CA11 1984), cert. denied, 469 U. S. 1132 (1985).[23]
The presumption is also supported by common sense and probability. Recent empirical studies have tended to confirm Congress' premise that the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.[24] It has been noted that "it is hard to imagine that [247] there ever is a buyer or seller who does not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?" Schlanger v. Four-Phase Systems Inc., 555 F. Supp. 535, 538 (SDNY 1982). Indeed, nearly every court that has considered the proposition has concluded that where materially misleading statements have been disseminated into an impersonal, well-developed market for securities, the reliance of individual plaintiffs on the integrity of the market price may be presumed.[25] Commentators generally have applauded the adoption of one variation or another of the fraud-on-the-market theory.[26] An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor's reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action.
C
[248] The Court of Appeals found that petitioners "made public, material misrepresentations and [respondents] sold Basic stock in an impersonal, efficient market. Thus the class, as defined by the district court, has established the threshold facts for proving their loss." 786 F. 2d, at 751.[27] The court acknowledged that petitioners may rebut proof of the elements giving rise to the presumption, or show that the misrepresentation in fact did not lead to a distortion of price or that an individual plaintiff traded or would have traded despite his knowing the statement was false. Id., at 750, n. 6.
Any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance. For example, if petitioners could show that the "market makers" were privy to the truth about the merger discussions here with Combustion, and thus that the market price would not have been affected by their misrepresentation, the causal connection could be broken: the basis for finding that the fraud had been transmitted through market price would be gone.[28] Similarly, if, despite petitioners' allegedly fraudulent attempt [249] to manipulate market price, news of the merger discussions credibly entered the market and dissipated the effects of the misstatements, those who traded Basic shares after the corrective statements would have no direct or indirect connection with the fraud.[29] Petitioners also could rebut the presumption of reliance as to plaintiffs who would have divested themselves of their Basic shares without relying on the integrity of the market. For example, a plaintiff who believed that Basic's statements were false and that Basic was indeed engaged in merger discussions, and who consequently believed that Basic stock was artificially underpriced, but sold his shares nevertheless because of other unrelated concerns, e. g., potential antitrust problems, or political pressures to divest from shares of certain businesses, could not be said to have relied on the integrity of a price he knew had been manipulated.
V
In summary:
1. We specifically adopt, for the § 10(b) and Rule 10b-5 context, the standard of materiality set forth in TSC Industries, Inc. v. Northway, Inc., 426 U. S., at 449.
2. We reject "agreement-in-principle as to price and structure" as the bright-line rule for materiality.
3. We also reject the proposition that "information becomes material by virtue of a public statement denying it."
[250] 4. Materiality in the merger context depends on the probability that the transaction will be consummated, and its significance to the issuer of the securities. Materiality depends on the facts and thus is to be determined on a case-by-case basis.
5. It is not inappropriate to apply a presumption of reliance supported by the fraud-on-the-market theory.
6. That presumption, however, is rebuttable.
7. The District Court's certification of the class here was appropriate when made but is subject on remand to such adjustment, if any, as developing circumstances demand.
The judgment of the Court of Appeals is vacated, and the case is remanded to that court for further proceedings consistent with this opinion.
It is so ordered.
THE CHIEF JUSTICE, JUSTICE SCALIA, and JUSTICE KENNEDY took no part in the consideration or decision of this case.
JUSTICE WHITE, with whom JUSTICE O'CONNOR joins, concurring in part and dissenting in part.
I join Parts I-III of the Court's opinion, as I agree that the standard of materiality we set forth in TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449 (1976), should be applied to actions under § 10(b) and Rule 10b-5. But I dissent from the remainder of the Court's holding because I do not agree that the "fraud-on-the-market" theory should be applied in this case.
I
Even when compared to the relatively youthful private cause-of-action under § 10(b), see Kardon v. National Gypsum Co., 69 F. Supp. 512 (ED Pa. 1946), the fraud-on-the-market theory is a mere babe.[1] Yet today, the Court embraces [251] this theory with the sweeping confidence usually reserved for more mature legal doctrines. In so doing, I fear that the Court's decision may have many adverse, unintended effects as it is applied and interpreted in the years to come.
A
At the outset, I note that there are portions of the Court's fraud-on-the-market holding with which I am in agreement. Most importantly, the Court rejects the version of that theory, heretofore adopted by some courts,[2] which equates "causation" with "reliance," and permits recovery by a plaintiff who claims merely to have been harmed by a material misrepresentation which altered a market price, notwithstanding proof that the plaintiff did not in any way rely on that price. Ante, at 248. I agree with the Court that if Rule 10b-5's reliance requirement is to be left with any content at all, the fraud-on-the-market presumption must be capable of being rebutted by a showing that a plaintiff did not "rely" on the market price. For example, a plaintiff who decides, months in advance of an alleged misrepresentation, to purchase a stock; one who buys or sells a stock for reasons unrelated to its price; one who actually sells a stock "short" days before the misrepresentation is made — surely none of these people can state a valid claim under Rule 10b-5. Yet, some federal courts have allowed such claims to stand under one variety or another of the fraud-on-the-market theory.[3]
[252] Happily, the majority puts to rest the prospect of recovery under such circumstances. A nonrebuttable presumption of reliance — or even worse, allowing recovery in the face of "affirmative evidence of nonreliance," Zweig v. Hearst Corp., 594 F. 2d 1261, 1272 (CA9 1979) (Ely, J., dissenting) — would effectively convert Rule 10b-5 into "a scheme of investor's insurance." Shores v. Sklar, 647 F. 2d 462, 469, n. 5 (CA5 1981) (en banc), cert. denied, 459 U. S. 1102 (1983). There is no support in the Securities Exchange Act, the Rule, or our cases for such a result.
B
But even as the Court attempts to limit the fraud-on-the-market theory it endorses today, the pitfalls in its approach are revealed by previous uses by the lower courts of the broader versions of the theory. Confusion and contradiction in court rulings are inevitable when traditional legal analysis is replaced with economic theorization by the federal courts.
[253] In general, the case law developed in this Court with respect to § 10(b) and Rule 10b-5 has been based on doctrines with which we, as judges, are familiar: common-law doctrines of fraud and deceit. See, e. g., Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 471-477 (1977). Even when we have extended civil liability under Rule 10b-5 to a broader reach than the common law had previously permitted, see ante, at 244, n. 22, we have retained familiar legal principles as our guideposts. See, e. g., Herman & MacLean v. Huddleston, 459 U. S. 375, 389-390 (1983). The federal courts have proved adept at developing an evolving jurisprudence of Rule 10b-5 in such a manner. But with no staff economists, no experts schooled in the "efficient-capital-market hypothesis," no ability to test the validity of empirical market studies, we are not well equipped to embrace novel constructions of a statute based on contemporary microeconomic theory.[4]
The "wrong turns" in those Court of Appeals and District Court fraud-on-the-market decisions which the Court implicitly rejects as going too far should be ample illustration of the dangers when economic theories replace legal rules as the basis for recovery. Yet the Court today ventures into this area beyond its expertise, beyond — by its own admission — the confines of our previous fraud cases. See ante, at 243-244. Even if I agreed with the Court that "modern securities [254] markets . . . involving millions of shares changing hands daily" require that the "understanding of Rule 10b-5's reliance requirement" be changed, ibid., I prefer that such changes come from Congress in amending § 10(b). The Congress, with its superior resources and expertise, is far better equipped than the federal courts for the task of determining how modern economic theory and global financial markets require that established legal notions of fraud be modified. In choosing to make these decisions itself, the Court, I fear, embarks on a course that it does not genuinely understand, giving rise to consequences it cannot foresee.[5]
For while the economists' theories which underpin the fraud-on-the-market presumption may have the appeal of mathematical exactitude and scientific certainty, they are — in the end — nothing more than theories which may or may not prove accurate upon further consideration. Even the most earnest advocates of economic analysis of the law recognize this. See, e. g., Easterbrook, Afterword: Knowledge and Answers, 85 Colum. L. Rev. 1117, 1118 (1985). Thus, while the majority states that, for purposes of reaching its result it need only make modest assumptions about the way in which "market professionals generally" do their jobs, and how the conduct of market professionals affects stock prices, ante, at 246, n. 23, I doubt that we are in much of a position [255] to assess which theories aptly describe the functioning of the securities industry.
Consequently, I cannot join the Court in its effort to reconfigure the securities laws, based on recent economic theories, to better fit what it perceives to be the new realities of financial markets. I would leave this task to others more equipped for the job than we.
C
At the bottom of the Court's conclusion that the fraud-on-the-market theory sustains a presumption of reliance is the assumption that individuals rely "on the integrity of the market price" when buying or selling stock in "impersonal, well-developed market[s] for securities." Ante, at 247. Even if I was prepared to accept (as a matter of common sense or general understanding) the assumption that most persons buying or selling stock do so in response to the market price, the fraud-on-the-market theory goes further. For in adopting a "presumption of reliance," the Court also assumes that buyers and sellers rely — not just on the market price — but on the "integrity" of that price. It is this aspect of the fraud-on-the-market hypothesis which most mystifies me.
To define the term "integrity of the market price," the majority quotes approvingly from cases which suggest that investors are entitled to " `rely on the price of a stock as a reflection of its value.' " Ante, at 244 (quoting Peil v. Speiser, 806 F. 2d 1154, 1161 (CA3 1986)). But the meaning of this phrase eludes me, for it implicitly suggests that stocks have some "true value" that is measurable by a standard other than their market price. While the scholastics of medieval times professed a means to make such a valuation of a commodity's "worth,"[6] I doubt that the federal courts of our day are similarly equipped.
[256] Even if securities had some "value" — knowable and distinct from the market price of a stock — investors do not always share the Court's presumption that a stock's price is a "reflection of [this] value." Indeed, "many investors purchase or sell stock because they believe the price inaccurately reflects the corporation's worth." See Black, Fraud on the Market: A Criticism of Dispensing with Reliance Requirements in Certain Open Market Transactions, 62 N. C. L. Rev. 435, 455 (1984) (emphasis added). If investors really believed that stock prices reflected a stock's "value," many sellers would never sell, and many buyers never buy (given the time and cost associated with executing a stock transaction). As we recognized just a few years ago: "[I]nvestors act on inevitably incomplete or inaccurate information, [consequently] there are always winners and losers; but those who have `lost' have not necessarily been defrauded." Dirks v. SEC, 463 U. S. 646, 667, n. 27 (1983). Yet today, the Court allows investors to recover who can show little more than that they sold stock at a lower price than what might have been.[7]
I do not propose that the law retreat from the many protections that § 10(b) and Rule 10b-5, as interpreted in our prior cases, provide to investors. But any extension of these laws, to approach something closer to an investor insurance [257] scheme, should come from Congress, and not from the courts.
II
Congress has not passed on the fraud-on-the-market theory the Court embraces today. That is reason enough for us to abstain from doing so. But it is even more troubling that, to the extent that any view of Congress on this question can be inferred indirectly, it is contrary to the result the majority reaches.
A
In the past, the scant legislative history of § 10(b) has led us to look at Congress' intent in adopting other portions of the Securities Exchange Act when we endeavor to discern the limits of private causes of action under Rule 10b-5. See, e. g., Ernst & Ernst v. Hochfelder, 425 U. S. 185, 204-206 (1976). A similar undertaking here reveals that Congress flatly rejected a proposition analogous to the fraud-on-the-market theory in adopting a civil liability provision of the 1934 Act.
Section 18 of the Act expressly provides for civil liability for certain misleading statements concerning securities. See 15 U. S. C. § 78r(a). When the predecessor of this section was first being considered by Congress, the initial draft of the provision allowed recovery by any plaintiff "who shall have purchased or sold a security the price of which may have been affected by such [misleading] statement." See S. 2693, 73d Cong., 2d Sess., § 17(a) (1934). Thus, as initially drafted, the precursor to the express civil liability provision of the 1934 Act would have permitted suits by plaintiffs based solely on the fact that the price of the securities they bought or sold was affected by a misrepresentation: a theory closely akin to the Court's holding today.
Yet this provision was roundly criticized in congressional hearings on the proposed Securities Exchange Act, because it failed to include a more substantial "reliance" requirement.[8] [258] Subsequent drafts modified the original proposal, and included an express reliance requirement in the final version of the Act. In congressional debates over the redrafted version of this bill, the then-Chairman of the House Committee, Representative Sam Rayburn, explained that the "bill as originally written was very much challenged on the ground that reliance should be required. This objection has been met." 78 Cong. Rec. 7701 (1934). Moreover, in a previous case concerning the scope of § 10(b) and Rule 10b-5, we quoted approvingly from the legislative history of this revised provision, which emphasized the presence of a strict reliance requirement as a prerequisite for recovery. See Ernst & Ernst v. Hochfelder, supra, at 206 (citing S. Rep. No. 792, 73d Cong., 2d Sess., 12-13 (1934)).
Congress thus anticipated meaningful proof of "reliance" before civil recovery can be had under the Securities Exchange Act. The majority's adoption of the fraud-on-the-market theory effectively eviscerates the reliance rule in actions brought under Rule 10b-5, and negates congressional intent to the contrary expressed during adoption of the 1934 Act.
B
A second congressional policy that the majority's opinion ignores is the strong preference the securities laws display for widespread public disclosure and distribution to investors of material information concerning securities. This congressionally adopted policy is expressed in the numerous and varied disclosure requirements found in the federal securities [259] law scheme. See, e. g., 15 U. S. C. §§ 78m, 78o(d) (1982 ed. and Supp. IV).
Yet observers in this field have acknowledged that the fraud-on-the-market theory is at odds with the federal policy favoring disclosure. See, e. g., Black, 62 N. C. L. Rev., at 457-459. The conflict between Congress' preference for disclosure and the fraud-on-the-market theory was well expressed by a jurist who rejected the latter in order to give force to the former:
"[D]isclosure . . . is crucial to the way in which the federal securities laws function. . . . [T]he federal securities laws are intended to put investors into a position from which they can help themselves by relying upon disclosures that others are obligated to make. This system is not furthered by allowing monetary recovery to those who refuse to look out for themselves. If we say that a plaintiff may recover in some circumstances even though he did not read and rely on the defendants' public disclosures, then no one need pay attention to those disclosures and the method employed by Congress to achieve the objective of the 1934 Act is defeated." Shores v. Sklar, 647 F. 2d, at 483 (Randall, J., dissenting).
It is no surprise, then, that some of the same voices calling for acceptance of the fraud-on-the-market theory also favor dismantling the federal scheme which mandates disclosure. But to the extent that the federal courts must make a choice between preserving effective disclosure and trumpeting the new fraud-on-the-market hypothesis, I think Congress has spoken clearly — favoring the current prodisclosure policy. We should limit our role in interpreting § 10(b) and Rule 10b-5 to one of giving effect to such policy decisions by Congress.
III
Finally, the particular facts of this case make it an exceedingly poor candidate for the Court's fraud-on-the-market theory, [260] and illustrate the illogic achieved by that theory's application in many cases.
Respondents here are a class of sellers who sold Basic stock between October 1977 and December 1978, a 14-month period. At the time the class period began, Basic's stock was trading at $20 a share (at the time, an all-time high); the last members of the class to sell their Basic stock got a price of just over $30 a share. App. 363, 423. It is indisputable that virtually every member of the class made money from his or her sale of Basic stock.
The oddities of applying the fraud-on-the-market theory in this case are manifest. First, there are the facts that the plaintiffs are sellers and the class period is so lengthy — both are virtually without precedent in prior fraud-on-the-market cases.[9] For reasons I discuss in the margin, I think these two facts render this case less apt to application of the fraud-on-the-market hypothesis.
Second, there is the fact that in this case, there is no evidence that petitioner Basic's officials made the troublesome misstatements for the purpose of manipulating stock prices, or with any intent to engage in underhanded trading of Basic stock. Indeed, during the class period, petitioners do not [261] appear to have purchased or sold any Basic stock whatsoever. App. to Pet. for Cert. 27a. I agree with amicus who argues that "[i]mposition of damages liability under Rule 10b-5 makes little sense . . . where a defendant is neither a purchaser nor a seller of securities." See Brief for American Corporate Counsel Association as Amicus Curiae 13. In fact, in previous cases, we had recognized that Rule 10b-5 is concerned primarily with cases where the fraud is committed by one trading the security at issue. See, e. g., Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 736, n. 8 (1975). And it is difficult to square liability in this case with § 10(b)'s express provision that it prohibits fraud "in connection with the purchase or sale of any security." See 15 U. S. C. § 78j(b) (emphasis added).
Third, there are the peculiarities of what kinds of investors will be able to recover in this case. As I read the District Court's class certification order, App. to Pet. for Cert. 123a-126a; ante, at 228-229, n. 5, there are potentially many persons who did not purchase Basic stock until after the first false statement (October 1977), but who nonetheless will be able to recover under the Court's fraud-on-the-market theory. Thus, it is possible that a person who heard the first corporate misstatement and disbelieved it — i. e., someone who purchased Basic stock thinking that petitioners' statement was false — may still be included in the plaintiff-class on remand. How a person who undertook such a speculative stock-investing strategy — and made $10 a share doing so (if he bought on October 22, 1977, and sold on December 15, 1978) — can say that he was "defrauded" by virtue of his reliance on the "integrity" of the market price is beyond me.[10] [262] And such speculators may not be uncommon, at least in this case. See App. to Pet. for Cert. 125a.
Indeed, the facts of this case lead a casual observer to the almost inescapable conclusion that many of those who bought or sold Basic stock during the period in question flatly disbelieved the statements which are alleged to have been "materially misleading." Despite three statements denying that merger negotiations were underway, Basic stock hit record-high after record-high during the 14-month class period. It seems quite possible that, like Casca's knowing disbelief of Caesar's "thrice refusal" of the Crown,[11] clever investors were skeptical of petitioners' three denials that merger talks were going on. Yet such investors, the saviest of the savvy, will be able to recover under the Court's opinion, as long as they now claim that they believed in the "integrity of the market price" when they sold their stock (between September and December 1978).[12] Thus, persons who bought after hearing and relying on the falsity of petitioners' statements may be able to prevail and recover money damages on remand.
And who will pay the judgments won in such actions? I suspect that all too often the majority's rule will "lead to large judgments, payable in the last analysis by innocent investors, for the benefit of speculators and their lawyers." Cf. SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 867 (CA2 1968) (en banc) (Friendly, J., concurring), cert. denied, 394 U. S. 976 (1969). This Court and others have previously recognized that "inexorably broadening . . . the class of plaintiff[s] who may sue in this area of the law will ultimately result in more harm than good." Blue Chip Stamps v. Manor Drug Stores, supra, at 747-748. See also Ernst & Ernst v. Hochfelder, 425 U. S., at 214; Ultramares Corp. v. Touche, [263] 255 N. Y. 170, 179-180, 174 N. E. 441, 444-445 (1931) (Cardozo, C. J.). Yet such a bitter harvest is likely to be the reaped from the seeds sewn by the Court's decision today.
IV
In sum, I think the Court's embracement of the fraud-on-the-market theory represents a departure in securities law that we are ill suited to commence — and even less equipped to control as it proceeds. As a result, I must respectfully dissent.
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[*] Briefs of amici curiae urging reversal were filed for the American Corporate Counsel Association by Stephen M. Shapiro, Andrew L. Frey, Kenneth S. Geller, Daniel Harris, and Mark I. Levy; for Arthur Andersen & Co. et al. by Victor M. Earle III, Carl D. Liggio, Donald Dreyfus, Harris J. Amhowitz, Kenneth H. Lang, Richard H. Murray, Leonard P. Novello, and Eldon Olson; and for the American Institute of Certified Public Accountants by Louis A. Craco.
[1] In what are known as the Kaiser-Lavino proceedings, the Federal Trade Commission took the position in 1976 that basic or chemical refractories were in a market separate from nonbasic or acidic or alumina refractories; this would remove the antitrust barrier to a merger between Basic and Combustion's refractories subsidiary. On October 12, 1978, the Initial Decision of the Administrative law Judge confirmed that position. See In re Kaiser Aluminum & Chemical Corp., 93 F. T. C. 764, 771, 809-810 (1979). See also the opinion of the Court of Appeals in this case, 786 F. 2d 741, 745 (CA6 1986).
[2] In addition to Basic itself, petitioners are individuals who had been members of its board of directors prior to 1979: Anthony M. Caito, Samuel Eels, Jr., John A. Gelbach, Harley C. Lee, Max Muller, H. Chapman Rose, Edmund G. Sylvester, and John C. Wilson, Jr. Another former director, Mathew J. Ludwig, was a party to the proceedings below but died on July 17, 1986, and is not a petitioner here. See Brief for Petitioners ii.
[3] In light of our disposition of this case, any further characterization of these discussions must await application, on remand, of the materiality standard adopted today.
[4] On October 21, 1977, after heavy trading and a new high in Basic stock, the following news item appeared in the Cleveland Plain Dealer:
"[Basic] President Max Muller said the company knew no reason for the stock's activity and that no negotiations were under way with any company for a merger. He said Flintkote recently denied Wall Street rumors that it would make a tender offer of $25 a share for control of the Cleveland-based maker of refractories for the steel industry." App. 363.
On September 25, 1978, in reply to an inquiry from the New York Stock Exchange, Basic issued a release concerning increased activity in its stock and stated that
"management is unaware of any present or pending company development that would result in the abnormally heavy trading activity and price fluctuation in company shares that have been experienced in the past few days." Id., at 401.
On November 6, 1978, Basic issued to its shareholders a "Nine Months Report 1978." This Report stated:
"With regard to the stock market activity in the Company's shares we remain unaware of any present or pending developments which would account for the high volume of trading and price fluctuations in recent months." Id., at 403.
[5] Respondents initially sought to represent all those who sold Basic shares between October 1, 1976, and December 20, 1978. See Amended Complaint in No. C79-1220 (ND Ohio), ¶ 5. The District Court, however, recognized a class period extending only from October 21, 1977, the date of the first public statement, rather than from the date negotiations allegedly commenced. In its certification decision, as subsequently amended, the District Court also excluded from the class those who had purchased Basic shares after the October 1977 statement but sold them before the September 1978 statement, App. to Pet. for Cert. 123a-124a, and those who sold their shares after the close of the market on Friday, December 15, 1978. Id., at 137a.
[6] In relevant part, Rule 10b-5 provides:
"It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
.....
"(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . ,
.....
"in connection with the purchase or sale of any security."
[7] TSC Industries arose under § 14(a), as amended, of the 1934 Act, 15 U. S. C. § 78n(a), and Rule 14a-9, 17 CFR § 240.14a-9 (1975).
[8] This application of the § 14(a) definition of materiality to § 10(b) and Rule 10b-5 is not disputed. See Brief for Petitioners 17, n. 12; Brief for Respondents 30, n. 10; Brief for SEC as Amicus Curiae 8, n. 4. See also McGrath v. Zenith Radio Corp., 651 F. 2d 458, 466, n. 4 (CA7), cert. denied, 454 U. S. 835 (1981), and Goldberg v. Meridor, 567 F. 2d 209, 218-219 (CA2 1977), cert. denied, 434 U. S. 1069 (1978).
[9] We do not address here any other kinds of contingent or speculative information, such as earnings forecasts or projections. See generally Hiler, The SEC and the Courts' Approach to Disclosure of Earnings Projections, Asset Appraisals, and Other Soft Information: Old Problems, Changing Views, 46 Md. L. Rev. 1114 (1987).
[10] See Staffin v. Greenberg, 672 F. 2d 1196, 1207 (CA3 1982) (defining duty to disclose existence of ongoing merger negotiations as triggered when agreement-in-principle is reached); Greenfield v. Heublein, Inc., 742 F. 2d 751 (CA3 1984) (applying agreement-in-principle test to materiality inquiry), cert. denied, 469 U. S. 1215 (1985). Citing Staffin, the United States Court of Appeals for the Second Circuit has rejected a claim that defendant was under an obligation to disclose various events related to merger negotiations. Reiss v. Pan American World Airways, Inc., 711 F. 2d 11, 13-14 (1983). The Seventh Circuit recently endorsed the agreement-in-principle test of materiality. See Flamm v. Eberstadt, 814 F. 2d 1169, 1174-1179 (describing agreement-in-principle as an agreement on price and structure), cert. denied, 484 U. S. 853 (1987). In some of these cases it is unclear whether the court based its decision on a finding that no duty arose to reveal the existence of negotiations, or whether it concluded that the negotiations were immaterial under an interpretation of the opinion in TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 (1976).
[11] Reasoning backwards from a goal of economic efficiency, that Court of Appeals stated: "Rule 10b-5 is about fraud, after all, and it is not fraudulent to conduct business in a way that makes investors better off . . . ." 814 F. 2d, at 1177.
[12] See, e. g., Brown, Corporate Secrecy, the Federal Securities Laws, and the Disclosure of Ongoing Negotiations, 36 Cath. U. L. Rev. 93, 145-155 (1986); Bebchuk, The Case for Facilitating Competing Tender Offers, 95 Harv. L. Rev. 1028 (1982); Flamm v. Eberstadt, 814 F. 2d, at 1177, n. 2 (citing scholarly debate). See also In re Carnation Co., Exchange Act Release No. 22214, 33 S. E. C. Docket 1025, 1030 (1985) ("The importance of accurate and complete issuer disclosure to the integrity of the securities markets cannot be overemphasized. To the extent that investors cannot rely upon the accuracy and completeness of issuer statements, they will be less likely to invest, thereby reducing the liquidity of the securities markets to the detriment of investors and issuers alike").
[13] See SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 862 (CA2 1968) (en banc) ("Rule 10b-5 is violated whenever assertions are made, as here, in a manner reasonably calculated to influence the investing public . . . if such assertions are false or misleading or are so incomplete as to mislead . . ."), cert. denied sub nom. Coates v. SEC, 394 U. S. 976 (1969).
[14] "Although the Committee believes that ideally it would be desirable to have absolute certainty in the application of the materiality concept, it is its view that such a goal is illusory and unrealistic. The materiality concept is judgmental in nature and it is not possible to translate this into a numerical formula. The Committee's advice to the [SEC] is to avoid this quest for certainty and to continue consideration of materiality on a case-by-case basis as disclosure problems are identified." House Committee on Interstate and Foreign Commerce, Report of the Advisory Committee on Corporate Disclosure to the Securities and Exchange Commission, 95th Cong., 1st Sess., 327 (Comm. Print 1977).
[15] Subsequently, the Sixth Circuit denied a petition for rehearing en banc in this case. App. to Pet. for Cert. 144a. Concurring separately, Judge Wellford, one of the original panel members, then explained that he did not read the panel's opinion to create a "conclusive presumption of materiality for any undisclosed information claimed to render inaccurate statements denying the existence of alleged preliminary merger discussions." Id., at 145a. In his view, the decision merely reversed the District Court's judgment, which had been based on the agreement-in-principle standard. Ibid.
[16] The SEC in the present case endorses the highly fact-dependent probability/magnitude balancing approach of Texas Gulf Sulphur. It explains: "The possibility of a merger may have an immediate importance to investors in the company's securities even if no merger ultimately takes place." Brief for SEC as Amicus Curiae 10. The SEC's insights are helpful, and we accord them due deference. See TSC Industries, Inc. v. Northway, Inc., 426 U. S., at 449, n. 10.
[17] To be actionable, of course, a statement must also be misleading. Silence, absent a duty to disclose, is not misleading under Rule 10b-5. "No comment" statements are generally the functional equivalent of silence. See In re Carnation Co., Exchange Act Release No. 22214, 33 S. E. C. Docket 1025 (1985). See also New York Stock Exchange Listed Company Manual § 202.01, reprinted in 3 CCH Fed. Sec. L. Rep. ¶ 23,515 (1987) (premature public announcement may properly be delayed for valid business purpose and where adequate security can be maintained); American Stock Exchange Company Guide §§ 401-405, reprinted in 3 CCH Fed. Sec. L. Rep. ¶¶ 23,124A-23, 124E (1985) (similar provisions).
It has been suggested that given current market practices, a "no comment" statement is tantamount to an admission that merger discussions are underway. See Flamm v. Eberstadt, 814 F. 2d, at 1178. That may well hold true to the extent that issuers adopt a policy of truthfully denying merger rumors when no discussions are underway, and of issuing "no comment" statements when they are in the midst of negotiations. There are, of course, other statement policies firms could adopt; we need not now advise issuers as to what kind of practice to follow, within the range permitted by law. Perhaps more importantly, we think that creating an exception to a regulatory scheme founded on a prodisclosure legislative philosophy, because complying with the regulation might be "bad for business," is a role for Congress, not this Court. See also id., at 1182 (opinion concurring in judgment and concurring in part).
[18] We find no authority in the statute, the legislative history, or our previous decisions for varying the standard of materiality depending on who brings the action or whether insiders are alleged to have profited. See, e. g., Pavlidis v. New England Patriots Football Club, Inc., 737 F. 2d 1227, 1231 (CA1 1984) ("A fact does not become more material to the shareholder's decision because it is withheld by an insider, or because the insider might profit by withholding it"); cf. Aaron v. SEC, 446 U. S. 680, 691 (1980) ("[S]cienter is an element of a violation of § 10(b) and Rule 10b-5, regardless of the identity of the plaintiff or the nature of the relief sought").
We recognize that trading (and profit making) by insiders can serve as an indication of materiality, see SEC v. Texas Gulf Sulphur Co., 401 F. 2d, at 851; General Portland, Inc. v. LaFarge Coppee S. A., [1982-1983] CCH Fed. Sec. L. Rep. ¶ 99,148, p. 95,544 (ND Tex. 1981). We are not prepared to agree, however, that "[i]n cases of the disclosure of inside information to a favored few, determination of materiality has a different aspect than when the issue is, for example, an inaccuracy in a publicly disseminated press release." SEC v. Geon Industries, Inc., 531 F. 2d 39, 48 (CA2 1976). Devising two different standards of materiality, one for situations where insiders have traded in abrogation of their duty to disclose or abstain (or for that matter when any disclosure duty has been breached), and another covering affirmative misrepresentations by those under no duty to disclose (but under the ever-present duty not to mislead), would effectively collapse the materiality requirement into the analysis of defendant's disclosure duties.
[19] See, e. g., SEC v. Shapiro, 494 F. 2d 1301, 1306-1307 (CA2 1974) (in light of projected very substantial increase in earnings per share, negotiations material, although merger still less than probable); Holmes v. Bateson, 583 F. 2d 542, 558 (CA1 1978) (merger negotiations material although they had not yet reached point of discussing terms); SEC v. Gaspar, [1984-1985] CCH Fed. Sec. L. Rep. ¶ 92,004, pp. 90,977-90,978 (SDNY 1985) (merger negotiations material although they did not proceed to actual tender offer); Dungan v. Colt Industries, Inc., 532 F. Supp. 832, 837 (ND Ill. 1982) (fact that defendants were seriously exploring the sale of their company was material); American General Ins. Co. v. Equitable General Corp., 493 F. Supp. 721, 744-745 (ED Va. 1980) (merger negotiations material four months before agreement-in-principle reached). Cf. Susquehanna Corp. v. Pan American Sulphur Co., 423 F. 2d 1075, 1084-1085 (CA5 1970) (holding immaterial "unilateral offer to negotiate" never acknowledged by target and repudiated two days later); Berman v. Gerber Products Co., 454 F. Supp. 1310, 1316, 1318 (WD Mich. 1978) (mere "overtures" immaterial).
[20] The Sixth Circuit rejected the District Court's narrow reading of Basic's "no developments" statement, see n. 4, supra, which focused on whether petitioners knew of any reason for the activity in Basic stock, that is, whether petitioners were aware of leaks concerning ongoing discussions. 786 F. 2d, at 747. See also Comment, Disclosure of Preliminary Merger Negotiations Under Rule 10b-5, 62 Wash. L. Rev. 81, 82-84 (1987) (noting prevalence of leaks and studies demonstrating that substantial trading activity immediately preceding merger announcements is the "rule, not the exception"). We accept the Court of Appeals' reading of the statement as the more natural one, emphasizing management's knowledge of developments (as opposed to leaks) that would explain unusual trading activity. See id., at 92-93; see also SEC v. Texas Gulf Sulphur Co., 401 F. 2d, at 862-863.
[21] W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts 726 (5th ed. 1984) ("The reasons for the separate development of [the tort action for misrepresentation and nondisclosure], and for its peculiar limitations, are in part historical, and in part connected with the fact that in the great majority of the cases which have come before the courts the misrepresentations have been made in the course of a bargaining transaction between the parties. Consequently the action has been colored to a considerable extent by the ethics of bargaining between distrustful adversaries") (footnote omitted).
[22] Actions under Rule 10b-5 are distinct from common-law deceit and misrepresentation claims, see Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 744-745 (1975), and are in part designed to add to the protections provided investors by the common law, see Herman & MacLean v. Huddleston, 459 U. S. 375, 388-389 (1983).
[23] Contrary to the dissent's suggestion, the incentive for investors to "pay attention" to issuers' disclosures comes from their motivation to make a profit, not their attempt to preserve a cause of action under Rule 10b-5. Facilitating an investor's reliance on the market, consistently with Congress' expectations, hardly calls for "dismantling the federal scheme which mandates disclosure." See post, at 259.
[24] See In re LTV Securities Litigation, 88 F. R. D. 134, 144 (ND Tex. 1980) (citing studies); Fischel, Use of Modern Finance Theory in Securities Fraud Cases Involving Actively Traded Securities, 38 Bus. Law. 1, 4, n. 9 (1982) (citing literature on efficient-capital-market theory); Dennis, Materiality and the Efficient Capital Market Model: A Recipe for the Total Mix. 25 Wm. & Mary L. Rev. 373, 374-381, and n. 1 (1984). We need not determine by adjudication what economists and social scientists have debated through the use of sophisticated statistical analysis and the application of economic theory. For purposes of accepting the presumption of reliance in this case, we need only believe that market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices.
[25] See, e. g., Peil v. Speiser, 806 F. 2d 1154, 1161 (CA3 1986); Harris v. Union Electric Co., 787 F. 2d 355, 367, and n. 9 (CA8), cert. denied, 479 U. S. 823 (1986); Lipton v. Documation, Inc., 734 F. 2d 740 (CA11 1984), cert. denied, 469 U. S. 1132 (1985); T. J. Raney & Sons, Inc. v. Fort Cobb, Oklahoma Irrigation Fuel Authority, 717 F. 2d 1330, 1332-1333 (CA10 1983), cert. denied sub nom. Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke v. T. J. Raney & Sons, Inc., 465 U. S. 1026 (1984); Panzirer v. Wolf, 663 F. 2d 365, 367-368 (CA2 1981), vacated and remanded sub nom. Price Waterhouse v. Panzirer, 459 U. S. 1027 (1982); Ross v. A. H. Robins Co., 607 F. 2d 545, 553 (CA2 1979), cert. denied, 446 U. S. 946 (1980); Blackie v. Barrack, 524 F. 2d 891, 905-908 (CA9 1975), cert. denied, 429 U. S. 816 (1976).
[26] See, e. g., Black, Fraud on the Market: A Criticism of Dispensing with Reliance Requirements in Certain Open Market Transactions, 62 N. C. L. Rev. 435 (1984); Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982); Note, Fraud on the Market: An Emerging Theory of Recovery Under SEC Rule 10b-5, 50 Geo. Wash. L. Rev. 627 (1982).
[27] The Court of Appeals held that in order to invoke the presumption, a plaintiff must allege and prove: (1) that the defendant made public misrepresentations; (2) that the misrepresentations were material; (3) that the shares were traded on an efficient market; (4) that the misrepresentations would induce a reasonable, relying investor to misjudge the value of the shares; and (5) that the plaintiff traded the shares between the time the misrepresentations were made and the time the truth was revealed. See 786 F. 2d, at 750.
Given today's decision regarding the definition of materiality as to preliminary merger discussions, elements (2) and (4) may collapse into one.
[28] By accepting this rebuttable presumption, we do not intend conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price. Furthermore, our decision today is not to be interpreted as addressing the proper measure of damages in litigation of this kind.
[29] We note there may be a certain incongruity between the assumption that Basic shares are traded on a well-developed, efficient, and information-hungry market, and the allegation that such a market could remain misinformed, and its valuation of Basic shares depressed, for 14 months, on the basis of the three public statements. Proof of that sort is a matter for trial, throughout which the District Court retains the authority to amend the certification order as may be appropriate. See Fed. Rules Civ. Proc. 23(c)(1) and (c)(4). See 7B C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure 128-132 (1986). Thus, we see no need to engage in the kind of factual analysis the dissent suggests that manifests the "oddities" of applying a rebuttable presumption of reliance in this case. See post, at 259-263.
----------
[1] The earliest Court of Appeals case adopting this theory cited by the Court is Blackie v. Barrack, 524 F. 2d 891 (CA9 1975), cert. denied, 429 U. S. 816 (1976). Moreover, widespread acceptance of the fraud-on-the-market theory in the Courts of Appeals cannot be placed any earlier than five or six years ago. See ante, at 246-247, n. 24; Brief for Securities and Exchange Commission as Amicus Curiae 21, n. 24.
[2] See, e. g., Zweig v. Hearst Corp., 594 F. 2d 1261, 1268-1271 (CA9 1979); Arthur Young & Co. v. United States District Court, 549 F. 2d 686, 694-695 (CA9), cert. denied, 434 U. S. 829 (1977); Pellman v. Cinerama, Inc., 89 F. R. D. 386, 388 (SDNY 1981).
[3] Cases illustrating these factual situations are, respectively, Zweig v. Hearst Corp., supra, at 1271 (Ely, J., dissenting); Abrams v. Johns-Manville Corp., [1981-1982] CCH Fed. Sec. L. Rep. ¶ 98,348, p. 92,157 (SDNY 1981); Fausett v. American Resources Management Corp., 542 F. Supp. 1234, 1238-1239 (Utah 1982).
The Abrams decision illustrates the particular pliability of the fraud-on-the-market presumption. In Abrams, the plaintiff represented a class of purchasers of defendant's stock who were allegedly misled by defendant's misrepresentations in annual reports. But in a deposition taken shortly after the plaintiff filed suit, she testified that she had bought defendant's stock primarily because she thought that favorable changes in the Federal Tax Code would boost sales of its product (insulation).
Two years later, after the defendant moved for summary judgment based on the plaintiff's failure to prove reliance on the alleged misrepresentations, the plaintiff resuscitated her case by executing an affidavit which stated that she "certainly [had] assumed that the market price of Johns-Manville stock was an accurate reflection of the worth of the company" and would not have paid the then-going price if she had known otherwise. Abrams, supra, at 92,157. Based on this affidavit, the District Court permitted the plaintiff to proceed on her fraud-on-the-market theory.
Thus, Abrams demonstrates how easily a post hoc statement will enable a plaintiff to bring a fraud-on-the-market action — even in the rare case where a plaintiff is frank or foolhardy enough to admit initially that a factor other than price led her to the decision to purchase a particular stock.
[4] This view was put well by two commentators who wrote a few years ago:
"Of all recent developments in financial economics, the efficient capital market hypothesis (`ECMH') has achieved the widest acceptance by the legal culture. . . .
"Yet the legal culture's remarkably rapid and broad acceptance of an economic concept that did not exist twenty years ago is not matched by an equivalent degree of understanding." Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549, 549-550 (1984) (footnotes omitted; emphasis added).
While the fraud-on-the-market theory has gained even broader acceptance since 1984, I doubt that it has achieved any greater understanding.
[5] For example, Judge Posner in his Economic Analysis of Law § 15.8, pp. 423-424 (3d ed. 1986), submits that the fraud-on-the-market theory produces the "economically correct result" in Rule 10b-5 cases but observes that the question of damages under the theory is quite problematic. Not withstanding the fact that "[a]t first blush it might seem obvious," the proper calculation of damages when the fraud-on-the-market theory is applied must rest on several "assumptions" about "social costs" which are "difficult to quantify." Ibid. Of course, answers to the question of the proper measure of damages in a fraud-on-the-market case are essential for proper implementation of the fraud-on-the-market presumption. Not surprisingly, the difficult damages question is one the Court expressly declines to address today. Ante, at 248, n. 27.
[6] See E. Salin, Just Price, 8 Encyclopaedia of Social Sciences 504-506 (1932); see also R. de Roover, Economic Thought: Ancient and Medieval Thought, 4 International Encyclopedia of Social Sciences 433-435 (1968).
[7] This is what the Court's rule boils down to in practical terms. For while, in theory, the Court allows for rebuttal of its "presumption of reliance" — a proviso with which I agree, see supra, at 251 — in practice the Court must realize, as other courts applying the fraud-on-the-market theory have, that such rebuttal is virtually impossible in all but the most extraordinary case. See Blackie v. Barrack, 524 F. 2d, at 906-907, n. 22; In re LTV Securities Litigation, 88 F. R. D. 134, 143, n. 4 (ND Tex. 1980).
Consequently, while the Court considers it significant that the fraud-on-the-market presumption it endorses is a rebuttable one, ante, at 242, 248, the majority's implicit rejection of the "pure causation" fraud-on-the-market theory rings hollow. In most cases, the Court's theory will operate just as the causation theory would, creating a nonrebuttable presumption of "reliance" in future Rule 10b-5 actions.
[8] See Stock Exchange Practices, Hearings on S. Res. 84, 56, and 97 before the Senate Committee on Banking and Currency, 73d Cong., 2d Sess., pt. 15, p. 6638 (1934) (statement of Richard Whitney, President of the New York Stock Exchange); Stock Exchange Regulation, Hearing on H. R. 7852 and 8720, before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d Sess., 226 (1934) (statement of Richard Whitney).
[9] None of the Court of Appeals cases the Court cites as endorsing the fraud-on-the-market theory, ante, at 246-247, n. 24, involved seller-plaintiffs. Rather, all of these cases were brought by purchasers who bought securities in a short period following some material misstatement (or similar act) by an issuer, which was alleged to have falsely inflated a stock's price.
Even if the fraud-on-the-market theory provides a permissible link between such a misstatement and a decision to purchase a security shortly thereafter, surely that link is far more attenuated between misstatements made in October 1977, and a decision to sell a stock the following September, 11 months later. The fact that the plaintiff-class is one of sellers, and that the class period so long, distinguish this case from any other cited in the Court's opinion, and make it an even poorer candidate for the fraud-on-the-market presumption. Cf., e. g., Schlanger v. Four-Phase Systems Inc., 555 F. Supp. 535 (SDNY 1982) (permitting class of sellers to use fraud-on-the-market theory where the class period was eight days long).
[10] The Court recognizes that a person who sold his Basic shares believing petitioners' statements to be false may not be entitled to recovery. Ante, at 249. Yet it seems just as clear to me that one who bought Basic stock under this same belief — hoping to profit from the uncertainty over Basic's merger plans — should not be permitted to recover either.
[11] See W. Shakespeare, Julius Caesar, Act I, Scene II.
[12] The ease with which such a post hoc claim of "reliance on the integrity of the market price" can be made, and gain acceptance by a trial court, is illustrated by Abrams v. Johns-Manville Corp., discussed in n. 3, supra.
7.2 Affiliated Ute Citizens v. United States 7.2 Affiliated Ute Citizens v. United States
AFFILIATED UTE CITIZENS OF UTAH et al. v. UNITED STATES et al.
No. 70-78.
Argued October 18, 1971
Decided April 24, 1972
*131Blackmxjn, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, Stewart, White, and Marshall, JJ., joined. Douglas, J., filed an opinion concurring in part and dissenting in part, post, p. 157. Powell and Rehnquist, JJ., took no part in the consideration or decision of the case.
*132 Parker M. Nielson argued the cause and filed briefs for petitioners.
A. Raymond Randolph, Jr., argued the cause for the United States pro hoc vice. With him on the brief for the United States and brief for the Securities and Exchange Commission as amicus curiae for petitioner Rey os were Solicitor General Griswold, Assistant Attorney General Kashiwa, Edmund B. Clark, G. Bradford Cook, Walter P. North, Theodore Sonde, and Richard S. Seltzer. Marvin J. Bertoch argued the cause for respondents First Security Bank of Utah, N. A., et al., and filed a brief for First Security Bank of Utah. Richard Clare Cahoon filed a brief for respondent Gale. Hardin A. Whitney filed a brief for respondent Haslem.
Briefs of amici curiae were filed by John S. Boyden, Stephen G. Boyden, and George C. Morris for the Ute Indian Tribe of the Uintah and Ouray Reservations et al.; by Arthur Lazarus, Jr., and Milton Eisenberg for the Association on American Indian Affairs, Inc.; and by David H. Getches and Wallace L. Duncan for the Native American Rights Fund.
These two consolidated cases center in the Ute Indian Supervision Termination Act of August 27, 1954 (hereafter Partition Act), 68 Stat. 868, as amended, 70 Stat. 936 and 76 Stat. 597, 25 U. S. C. §§ 677-677aa; the Securities Exchange Act of 1934, 48 Stat. 881, as amended, §§ 3 (a)(4) and (5), 10(b) and 15(c)(1), 15 U. S. C. §§ 78c (a)(4) and (5), 78j (b) and 78o (c)(1); the emergence of Affiliated Ute Citizens of the State of Utah (AUC), an unincorporated association, and of Ute Distribution Corp. (UDC), a Utah corporation; and the alleged victimization of Indian shareholders in their sales of UDC shares.
*133I
Background
The Ute Partition Act1 pertained to the Ute Indian Tribe of the Uintah and Ouray Reservation in Utah. At the time of the Act’s adoption the tribe had a membership of about 1,765,2 consisting of 439 mixed-bloods 3 *134and 1,326 full-bloods. Section 1 of the Act stated its purpose, namely “to provide for the partition and distribution of the assets of the . . . Tribe . . . between the mixed-blood and full-blood members thereof; for the termination of Federal supervision over the trust, and restricted property, of the mixed-blood members of said tribe; and for a development program for the full-blood members thereof, to assist them in preparing for termination of Federal supervision over their property.” 25 U. S. C. § 677. The then-estimated value of the cash, accounts receivable, and land owned by the tribe was $20,702,885.4 The tribe possessed additional assets consisting of oil, gas, and mineral rights (principally oil shale deposits underlying the reservation), and unadju-dicated and unliquidated claims against the United States.
Section 8 of the Act, 25 U. S. C. § 677g, called for the preparation of the rolls of full-blood members and mixed-blood members, and for the finality of those rolls. Section 5, as amended, 25 U. S. C. § 677d, provided that upon the publication of the final rolls “the tribe shall thereafter consist exclusively of full-blood members,” and that mixed-blood members “shall have no interest therein except as otherwise provided” in the Act.
Section 10, 25 U. S. C. § 677i, stated that when the final membership rolls had been published, the tribal business committee, representing the full-bloods, and the “authorized representatives” of the mixed-bloods were to “commence a division of the assets of the tribe that are then susceptible to equitable and practicable *135distribution.” This was to be based “upon the relative number of persons comprising the final membership roll of each group.” 5 Upon the adoption of a plan of division, the mixed-bloods were to prepare a further plan for the distribution of their group’s assets to the individual members. § 13 of the Act, 25 U. S. C. § 6771. After each mixed-blood had received his distributive share, directly or in whole or in part through the device of a corporation or other entity in which he had an interest, federal restrictions were to be removed except as to any remaining interest in tribal property, that is, the un-adjudicated or unliquidated claims against the United States, gas, oil, and mineral rights, and other tribal assets not susceptible of equitable and practicable distribution. § 16, 25 U. S. C. § 677o. The Secretary of the Interior then was to issue a proclamation “declaring that the Federal trust relationship to such individual is terminated.” § 23, 25 U. S. C. § 677v. Those assets, such as the mineral estate, excepted from the division plans, were to be “managed jointly by the Tribal Business Committee and the authorized representatives of the mixed-blood group.” § 10, 25 U. S. C. § 677i.
Section 6 of the Act, 25 U. S. C. § 677e, authorized the mixed-bloods to organize, to adopt a constitution and bylaws, and to provide, by that constitution, for the selection of authorized representatives with power “to take any action that is required by [the Act] to be taken by the mixed-blood members as a group.”
Pursuant to this grant of power the mixed-bloods, in 1956, organized AUC as an unincorporated association. AUC’s constitution, Art. V, § 1 (b), empowered its board *136of directors to delegate to corporations organized in accordance with the Act “such powers and authority as may be necessary or desirable in the accomplishment of the objects and purposes for which said corporations may be so organized.”
UDC was incorporated in 1958 with the stated purpose “to manage jointly with the Tribal Business Committee of the full-blood members of the Ute Indian Tribe ... all unadjudicated or unliquidated claims against the United States, all gas, oil, and mineral rights of every kind, and all other assets not susceptible to equitable and practicable distribution to which the mixed-blood members of the said tribe . . . are now, or may hereafter become entitled . . . and to receive the proceeds therefrom and to distribute the same to the stockholders of this corporation . . . .”
The formation of UDC was part of the plan formulated by the mixed-bloods for the distribution of assets to the individual members of their group. By a resolution adopted by a 42-5 vote at a special meeting at which a quorum was present and voting, AUC approved the articles of UDC. The Secretary also approved them. In January 1959 the AUC directors by a unanimous vote (5-0) irrevocably delegated authority to UDC— and, indeed, to two other Utah corporations of the mixed-bloods, Antelope-Sheep Range Company and Rock Creek Cattle Range Company, see § 13 of the Act, 25 U. S. C. § 6771 (3) — to accomplish the purposes for which they were formed. UDC then issued 10 shares of its capital stock in the name of each mixed-blood Ute, a total of 4,900 shares. UDC and First Security Bank of Utah, N. A. (the bank), executed a written agreement dated December 31, 1958, by which the bank became transfer agent for UDC stock. UDC apparently also decided at this time not to deliver the certificates for its *137shares to the shareholders but, instead, to deposit them with the bank; the bank was then to issue receipts to the respective shareholders. Counsel advised the bank that this was “because- of some rather unfavorable experiences had in the Indian service with the loss of valuable instruments.”
UDC’s articles provided that if a mixed-blood shareholder determined to sell or dispose of his UDC stock at any time prior to August 27, 1964, that is, within 10 years from the date of the Partition Act, he was first to offer it to members of the tribe, both mixed-blood and full-blood, in a form approved by the Secretary; that no sale of stock prior to that date was valid unless and until that offer was made; and that if the offer was not accepted by any member of the tribe, the sale to a nonmember could then be made but at a price no lower than that offered to the members.6 The articles further provided that all UDC stock certificates should have stamped thereon a prescribed legend referring to those sale conditions.7 The certificates so issued bore that legend. In addition, each certificate had on its face, in red lettering, a warning that the certificate did not represent stock in an ordinary business corporation, that its future value or return could not be determined, and that the stock should not be sold or encumbered by its owner, *138but should be retained and preserved for the benefit of the shareholder and his family.8
The UDC shareholders were advised of the substance of this warning on several occasions after the stock had been issued. UDC’s president testified that many responded by saying that their shares were their business and that they could do as they pleased with them.
In August 1960 the Secretary promulgated regulations setting forth the procedure a mixed-blood should follow before effecting a pre-August 27, 1964, sale of his stock to an outsider. 25 Fed. Reg. 7620; 25 CFR §§ 243.1-243.12 (1962). These prescribed for the sale of the stock essentially the same procedure required under §15 of the Act, 25 U. S. C. § 677n, for a mixed-blood’s disposal of his interest in real property. 25 CFR §243.12 (1962). The seller first notified the superintendent of the reservation of the price and terms on which his offer was made. 25 CFR § 243.5 (1962). The superintendent then notified UDC and the business committee of the tribe and posted notices about the reservation. 25 CFR §243.6 (1962). If no member accepted the offer, the superintendent so informed the offeror, who was then free to sell “at any time within six months thereafter to any person at the same or greater price and upon the same terms and conditions *139upon which it was offered to the members.” 25 CFR § 243.8 (1962). Upon the sale to a nonmember, the seller furnished an affidavit to the superintendent stating the amount he had received. The superintendent prepared a certificate that the stock had first been offered to members and sent the certificate to the bank. The bank attached it to the stock book.
The termination proclamation, contemplated by § 23 of the Act, 25 U. S. C. § 677v, was issued and published by the Secretary effective at midnight August 27, 1961. 26 Fed. Reg. 8042. This, of course, did not purport to terminate the trust status of the undivided assets. Cf. Menominee Tribe v. United States, 391 U. S. 404 (1968).
II
The Present Litigation
A. The AUC Case. In April 1968 AUC, on its own behalf and as representative of its 490 mixed-blood members, instituted suit against the United States seeking (1) pro rata distribution to the individual members of the 27.16186% 9 of the mineral estate underlying the reservation, and (2) a determination that AUC and not UDC is entitled to manage that property jointly with the business committee of the full-bloods. Jurisdiction was asserted under 25 U. S. C. § 345 (authorizing an action against the United States for an Indian allotment claim, see n. 11, infra), and under 28 U. S. C. §§ 1399 and 2409 (authorizing a partition action where the United States is a tenant in common or a joint tenant).
The United States moved to dismiss the complaint for want of subject matter jurisdiction and for failure to *140state a claim. The District Court granted this motion on both grounds. The Tenth Circuit affirmed. 431 F. 2d 1349 (1970).
B. The Reyos Case. In February 1965 Anita It. Reyos and 84 other mixed-bloods sued the bank, two of the bank’s employee-officers, John B. Gale and Yerl Haslem, and certain automobile dealers,10 charging violations of the Securities Exchange Act of 1934 and of Rule 10b-5 of the Securities and Exchange Commission. By subsequent amendment to the complaint the United States was added as a party defendant. Jurisdiction was asserted under 28 U. S. C. §§ 1331 and 1346 (b).
The parties selected 12 “bellwether plaintiffs” from among the 85 for purposes of initial trial. These plaintiffs had sold UDC shares to various nonmembers including the defendants Gale and Haslem. The sales took place after the proclamation of termination of the federal trust relationship.
The District Court held the bank and the two officer defendants liable for damages to each of the 12 plaintiffs. It also ruled that the United States possessed, and did not fulfill, a duty to prevent the sales and thus, under the Federal Tort Claims Act, 28 U. S. C. §§ 2671-2680, was liable for damages with respect to sales that had taken place before August 27, 1964. It also ruled, however, that the United States was not liable with respect to sales after that date or to two plaintiffs whom the court found to be contributorily negligent. The court determined that the fair value of the UDC stock at the times of the plaintiffs’ sales was $1,500 per share. The damages against the two individuals and the bank were fixed in the aggregate at $129,519.56. Damages against the United States were fixed in the aggregate at *141$77,947.35. Judgment was entered accordingly under Fed. Rule Civ. Proc. 54 (b).
The several defendants appealed and the 12 plaintiffs whose cases were tried cross-appealed. The Tenth Circuit reversed and remanded- 431 F. 2d 1337 (1970).
C. On the petition of AUC and the 12 plaintiffs this Court granted certiorari in both cases because of the importance of the issues for Indians whose federal supervision is in the course of termination. 402 U. S. 905 (1971).
Ill
The AUC Case
The two cases, although different, have their roots in the formation of UDC, and it is not inappropriate that the cases were consolidated and are here together.
A. As hereinabove noted, AUC in its litigation seeks two things: outright distribution of the mixed-bloods’ percentage of the mineral estate, and a determination that AUC is entitled to participate in management with the business committee of the full-bloods.
There is, and can be, no dispute that the United States holds title to the land, including the mineral interest, constituting the Uintah and Ouray Reservation. Prior to the 1954 Act all members of the tribe were the beneficial owners of that mineral interest. The division of the interest between the full-bloods, on the one hand, and the mixed-bloods, on the other, came about by reason of the Act and of the procedures set in motion by the Act. To the extent, therefore, that AUC, by its suit, seeks distribution to the individual mixed-bloods whom it purports to represent, it is necessarily a suit against the United States.
The United States, of course, may not be sued without its consent. United States v. Sherwood, 312 U. S. 584, 586 (1941). This long-established principle has been *142applied in actions for the possession or conveyance of real estate. Malone v. Bowdoin, 369 U. S. 643 (1962). It has been applied to Indian lands the title to which the United States holds in trust. Minnesota v. United States, 305 U. S. 382 (1939); Oregon v. Hitchcock, 202 U. S. 60, 70 (1906). It has been applied, specifically, in a suit by an Indian who has a beneficial interest in land. Naganab v. Hitchcock, 202 U. S. 473 (1906). Naganab, therefore,' controls the distribution aspect of the AUC case unless the United States has consented to be sued.
The consent, it is claimed, exists in 25 U. S. C. § 345.11 This, however, is an allotment statute. Allotment is a term of art in Indian law. U. S. Dept, of the Interior, Federal Indian Law 774 (1958). It means a selection of specific land awarded to an individual allottee from a common holding. Reynolds v. United States, 174 F. 212 (CA8 1909). See the Act of February 8, 1887, 24 Stat. 388, as amended, 25 U. S. C. §§ 331-334. Section 345 authorizes, and provides governmental consent for, only actions for allotment. First Moon v. White Tail, 270 U. S. 243 (1926); Harkins v. United States, 375 F. 2d 239 (CA 10 1967); United States v. Preston, 352 F. 2d 352, 355 (CA9 1965). See Arenas v. United States, 322 U. S. 419 (1944).
Although the interest in the mineral estate that AUC seeks to have conveyed pro rata to the individual mixed-*143bloods perhaps could be made the subject of an allotment, it has never been so subjected. Neither is it appurtenant to an allotment. The interest relates to the tribal land of the reservation. It remains tribal property. Further, § 10 of the 1954 Act, 25 U. S. C. § 677i, itself contemplates and provides specifically for the non-allocation of that interest.
We therefore readily conclude that § 345 has no application here. Neither do 28 U. S. C. §§ 1399 and 2409 afford a basis for jurisdiction; they have application only to partition suits where the United States is a tenant in common or a joint tenant. That is not this situation.
The AUC action, therefore, was properly dismissed for want of jurisdiction.
B. AUC’s prayer for a determination as to management rights deserves a further word.
The Ute Partition Act was the result of proposals initiated by the tribe itself. See H. R. Rep. No. 2493, 83d Cong., 2d Sess., 2 (1954); S. Rep. No. 1632, 83d Cong., 2d Sess., 7 (1954). The tribe also drafted the Act. Id., at 3 and 7, respectively. It provided for organization by the mixed-bloods and “for the selection of authorized representatives” with power to take any action the Act required to be taken by the mixed-bloods as a group. § 6, 25 U. S. C. § 677e. AUC was formed in 1956 and was the product of this organizational power. Its constitution and bylaws authorize the delegation of necessary or desirable power or authority to corporations formed by the mixed-bloods. UDC was formed by mixed-bloods in 1958 specifically to manage mineral rights and unadjudicated claims against the United States jointly with the business committee. AUC approved UDC’s articles and by resolution delegated authority to UDC to act in accord with those articles.
These steps were taken pursuant to the Partition Act. *144UDC’s formation and structure were contemplated by the Act, and AUC itself created and breathed life and vigor into UDC. All this was within Congress’ power. United States v. Waller, 243 U. S. 452, 462 (1917); Tiger v. Western Investment Co., 221 U. S. 286 (1911). UDC’s legitimacy was further recognized by its anticipatory exemption from federal income tax, under the Act of August 2, 1956, § 3, 70 Stat. 936; by the freeing of its shares from mortgage, levy, attachment, and the like, so long as the shares remained in the ownership of the original shareholder or his heirs or legatees, under the Act of September 25, 1962, 76 Stat. 597, 598; and by the inclusion of UDC by name as an entity to receive the trust fund resulting from the judgment against the United States in favor of the Confederated Bands of Ute Indians, under the Act of August 1, 1967, 81 Stat. 164, as amended, 82 Stat. 171, 25 U. S. C. § 676a.
Clearly, it is UDC and not AUC that is entitled to manage the oil, gas, and mineral rights with the committee of the full-bloods.
IV
The Reyos Case
In this case the 85 plaintiffs sought damages for alleged violations by the defendants, in connection with sales by the plaintiffs of their UDC shares, of § 10 (b) of the Securities Exchange Act of 1934, 15 U. S. C. § 78j (b),12 *145and of Rule 10b-513 promulgated thereunder by the Securities and Exchange Commission, 17 CFR § 240.10b-5. The sales in question were effected in 1963 and 1964; some were made before, and some were made after, the expiration of the Secretary’s specified 10-year period following the passage of the Ute Partition Act.
The claims center in the facts that the bank, by its agreement with UDC, was the transfer agent for UDC shares; that it had physical possession of all the stock certificates with their specific legend of caution and warning; that, because of the bank’s possession, a shareholder’s possible contact with, and awareness of, the legend was minimized; that the bank handled the documents implementing the first-refusal procedure; and that the mixed-blood who contemplated the sale of his shares was compelled to deal through the bank.
The District Court made lengthy and meticulously, detailed findings of fact. Some are not challenged by any of the parties. Others are challenged. The following, we conclude, are adequately supported by the record:
1. In 1959, after the bank was retained as transfer agent, UDC’s attorney wrote the bank advising it that UDC’s directors, by formal minute, had instructed him *146to ask the bank “to discourage the sale of stock of the Ute Distribution Corporation by any of its stockholders and to emphasize and stress to the said stockholders the importance of retaining said stock.” The letter further stated, “[W]e trust you will impress upon anyone desiring to make a transfer that there is no possible way of determining the true value of this stock.”
2. The bank maintained a branch office in Roosevelt, Utah. Many mixed-bloods resided in that area. This was, “among other things for the purpose of facilitating and assisting mixed-bloods in the transfer” of the UDC stock. Defendants Gale and Haslem were the bank’s assistant managers at Roosevelt. They were also notaries public.
3. With respect to most of the sales of UDC stock by the 12 plaintiffs to nonmembers of the tribe, either Gale or Haslem prepared and notarized the necessary transfer papers, including signature guarantees and the affidavits of the sellers to the effect that they were receiving not less than the price at which the shares had been offered to members of the tribe. The procedure with respect to the preparation and execution of these affidavits was informal at best. In at least one case the affidavit was signed in blank; in another Gale dissuaded the seller from reading the affidavit before she signed it.
4. Some of the affidavits do not accurately describe the sales to which they relate. Although they state that the sales were for cash, some sellers actually received second-hand automobiles or other tangible property. The superintendent relied on the recitals in the affidavits in preparing his authenticating certificates that were transmitted to the bank as transfer agent.
5. During 1963 and 1964 mixed-bloods sold 1,387 shares of UDC stock. All were sold to nonmembers of the tribe. Haslem purchased 60 of these himself (all after August 27, 1964),.and Gale purchased 63 (44 *147before that date and 19 after). The 113 shares Haslem and Gale purchased constituted 8%% of the total sold by mixed-bloods during those two years. The 12 plaintiffs sold 120 shares; of these Gale purchased 10 and Haslem purchased six.14 They paid cash for the shares they purchased. Thirty-two other white men bought shares from mixed-bloods during the period.
6. In 1964 and 1965 UDC stock was sold by mixed-bloods at prices ranging from $300 to $700 per share. Shares were being transferred between whites, however, at prices from $500 to $700 per share.
7. Gale and Haslem possessed standing orders from non-Indian buyers. About seven of these were from outside the State. Some of the prospective purchasers maintained deposits at the bank for the purpose of ready consummation of any transaction.
8. The two men received various commissions and gratuities for their services in facilitating the transfer of UDC stock from mixed-bloods to non-Indians. Gále supplied some funds as sales advances to the mixed-blood sellers. He and Haslem solicited contracts for open purchases of UDC stock and did so on bank premises and during business hours.
9. In connection with all this, the bank sought individual accounts from the tribal members.
*14810. The United States mails and other instrumen-talities of interstate commerce were employed by the bank and by Gale and Haslem in connection with the transfer of the UDC shares.
The District Court concluded:
1. As to the United States: The Government had reason to know that the mixed-bloods were selling UDC shares to non-Indians under circumstances of a doubtful nature. It owed a duty to the mixed-bloods to discourage and prevent those sales. Its failure to perform that duty was the proximate cause of the sales.
2. As to Gale and Haslem: The two men had devised a plan or scheme to acquire, for themselves and others, shares in UDC from mixed-bloods. In violation of their duty to make a fair disclosure, they succeeded in acquiring shares from mixed-bloods for less than fair value.
3. As to the bank: It was put upon notice of the improper activities of its employees, Gale and Haslem, knowingly created the apparent authority on their part, and was responsible for their conduct. Its liability was joint and several with that of Gale and Haslem.
The District Court then ruled that each of the defendants, that is, the United States, the bank, Gale, and Haslem, was liable to each of the 12 plaintiffs (32 transactions involving 122 shares), except that the Government was not liable with respect to any sale after August 27, 1964, or with respect to sales made by plaintiffs Workman and Oran F. Curry because of their knowledge and contributory negligence. Using a $1,500-per-share value for UDC stock, as of the times of the sales, the above-described judgments for $129,519.56 and $77,947.35 were computed and entered.
The Court of Appeals reversed in substantial part. It held:
1. As to the United States: There was no duty on the part of the Government to the petitioners, in connection *149with their sales of UDC stock, that continued after the 1961 termination. No form of wardship or of federal trust relationship existed with respect to the shares after that date. Thus, damages under the Tort Claims Act were not to be awarded. 431 F. 2d, at 1340-1343.
2. As to Gale and Haslem: They were liable only in those instances where the employee personally purchased shares for his own account or for resale to an undisclosed principal at a higher price. With respect to the other transactions, the two employees performed essentially ministerial functions related to share transfers and their conduct was not sufficient to incur liability. The court remanded the case on the issue of damages, 431 F. 2d, at 1345-1349.
3. As to the bank: There was no violation of any duty it may have had to plaintiffs by its contract with UDC. This was so despite the facts that Gale and Haslem were active in encouraging a market for the UDC stock and that the bank may have had some indirect benefit by way of increased deposits. 431 F. 2d, at 1343-1345. The bank, however, was liable to the extent Gale and Haslem were liable. 431 F. 2d, at 1346-1347.
In summary, then, the Court of Appeals decided the Reyos case in favor of the United States and, in large part, in favor of the bank; held Gale and Haslem personally liable, and the bank also, only with respect to a few sales; and, as to those sales, remanded the case on the issue of damages.
We consider, in turn, the posture of the several defendants.
A. The United States. The proclamation of August 26, 1961, was contemplated by § 23 of the Act, 25 U. S. C. § 677v. To the extent the nature of the property so permitted, this marked the fulfillment of the purpose set forth in § 1 of the Act, 25 U. S. C. § 677, namely, the termination of federal supervision over the trust and *150restricted property of the mixed-bloods. It stated specifically that the mixed-blood thereupon “shall not be entitled to any of the services performed for Indians because of his status as an Indian.” This broad reference obviously included the shares of UDC although the undivided interests in turn held by UDC and shared with the full-bloods remained subject to restrictions after the proclamation. § 16 (a), 25 U. S. C. § 677o(a). The UDC stock itself, however, was free of restriction; as to it, federal termination was complete. Each mixed-blood could sell his shares as he wished and to whom he pleased, subject thereafter only to the restrictions imposed by UDC’s own articles. There was no remaining governmental authority over those shares. And without such authority there can be no liability on the part of the United States for failure to restrain a sale.
The petitioners’ argument that the right of first refusal created a duty on the part of the Government does not persuade us. This first-refusal right with respect to UDC stock is provided for in the corporation’s articles and thus was created by UDC itself. The corporation’s action in this respect imposed no duty on the United States. To be sure, the first-refusal right was undoubtedly patterned after the first refusal provided for a period with respect to real estate in § 15 of the Act, 25 U. S. C. § 677n, and the Secretary’s regulations were made applicable to the first-refusal right in stock “as far as practicable.” 25 CFR § 243.12 (1962). But this parallel created no obligation.
B. Gale and Haslem. Section 10 of the Securities Exchange Act of 1934, 15 U. S. C. § 78j, makes it unlawful “for any person, directly or indirectly,” to “employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention” of any rule “the Commission may prescribe as necessary or appropriate in the public interest *151or for the protection of investors.” One such rule so prescribed is Rule 10b-5. This declares that, in connection with the purchase or sale of any security, it shall be “unlawful for any person, directly or indirectly,” (1) “To employ any device, scheme, or artifice to defraud,” (2) “To make any untrue statement of a material fact” or to omit to state a material fact so that the statements made “in the light of the circumstances,” are misleading, and (3) “To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”
These proscriptions, by statute and rule, are broad and, by repeated use of the word “any,” are obviously meant to be inclusive. The Court has said that the 1934 Act and its companion legislative enactments15 embrace a “fundamental purpose ... to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.” SEC v. Capital Gains Research Bureau, 375 U. S. 180, 186 (1963). In the case just cited the Court noted that Congress intended securities legislation enacted for the purpose of avoiding frauds to be construed “not technically and restrictively, but flexibly to effectuate its remedial purposes.” Id., at 195. This was recently said once again in Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U. S. 6, 12 (1971).
In the light of the congressional philosophy and purpose, so clearly emphasized by the Court, we conclude that the Court of Appeals viewed too narrowly the activities of defendants Gale and Haslem. We would *152agree that if the two men and the employer bank had functioned merely as a transfer agent, there would have been no duty of disclosure here. But, as the Court of Appeals itself observed, the record shows that Gale and Haslem “were active in encouraging a market for the UDC stock among non-Indians.” 431 F. 2d, at 1345. They did this by soliciting and accepting standing orders from non-Indians. They and the bank, as a result, received increased deposits because of the development of this market. The two men also received commissions and gratuities from the expectant non-Indian buyers. The men, and hence the bank, as the Court found, were “entirely familiar with the prevailing market for the shares at all material times.” 431 F. 2d, at 1347. The bank itself had acknowledged, by letter to AUC in January 1958, that “it would be our duty to see that these transfers were properly made” and that, with respect to the sale of shares, “the bank would be acting for the individual stockholders.” The mixed-blood sellers “considered these defendants to be familiar with the market for the shares of stock and relied upon them when they desired to sell their shares.” 431 F. 2d, at 1347.
Clearly, the Court of Appeals was right to the extent that it held that the two employees had violated Rule 1 Ob — 5; in the instances specified in that holding the record reveals a misstatement of a material fact, within the proscription of Rule 10b-5 (2), namely, that the prevailing market price of the UDC shares was the figure at which their purchases were made.
We conclude, however, that the Court of Appeals erred when it held that there was no violation of the Rule unless the record disclosed evidence of reliance on material fact misrepresentations by Gale and Haslem. 431 F. 2d, at 1348. We do not read Rule 10b-5 so restrictively. To be sure, the second subparagraph of the rule *153specifies the making of an untrue statement of a material fact and the omission to state a material fact. The first and third subparagraphs are not so restricted. These defendants’ activities, outlined above, disclose, within the very language of one or the other of those sub-paragraphs, a “course of business” or a “device, scheme, or artifice” that operated as a fraud upon the Indian sellers. Superintendent of Insurance v. Bankers Life & Casualty Co., supra. This is so because the defendants devised a plan and induced the mixed-blood holders of UDC stock to dispose of their shares without disclosing to them material facts that reasonably could have been expected to influence their decisions to sell. The individual defendants, in a distinct sense, were market makers, not only for their personal purchases constituting 8%% of the sales, but for the other sales their activities produced. This being so, they possessed the affirmative duty under the Rule to disclose this fact to the mixed-blood sellers. See Chasins v. Smith, Barney & Co., 438 F. 2d 1167 (CA2 1970). It is no answer to urge that, as to some of the petitioners, these defendants may have made no positive representation or recommendation. The defendants may not stand mute while they facilitate the mixed-bloods’ sales to those seeking to profit in the non-Indian market the defendants had developed and encouraged and with which they were fully familiar. The sellers had the right to know that the defendants were in a position to gain financially from their sales and that their shares were selling for a higher price in that market. Cf., in contrast, § 18 (a) of the Act, 15 U. S. C. § 78r (a), and § 11 (a) of the Securities Act of 1933, 15 U. S. C. § 77k (a).
Under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a *154reasonable investor might have considered them important in the making of this decision. See Mills v. Electric Auto-Lite Co., 396 U. S. 375, 384 (1970); SEC v. Texas Gulf Sulphur Co., 401 F. 2d 833, 849 (CA2 1968), cert. denied sub nom. Coates v. SEC, 394 U. S. 976 (1969); 6 L. Loss, Securities Regulation 3876-3880 (1969 Supp. to 2d ed. of Vol. 3); A. Bromberg, Securities Law, Fraud — SEC Rule 10b-5, §§ 2.6 and 8.6 (1967). This obligation to disclose and this withholding of a material fact establish the requisite element of causation in fact. Chasins v. Smith, Barney & Co., 438 F. 2d, at 1172.
Gale and Haslem engaged in more than ministerial functions. Their acts were clearly within the reach of Rule 10b-5. And they were acts performed when they were obligated to act on behalf of the mixed-blood sellers.16
C. The Bank. The liability of the bank, of course, is coextensive with that of Gale and Haslem.
y
Damages
A. The District Court determined that the measure of damages for each seller was the difference between the fair value of the UDC shares at the time of his sale and the fair value of what the seller received, including any amount paid to him in settlement by the automobile dealers. The Court of Appeals held that the measure was “the profit made by the defendant on resale” or, if no resale was made or if the resale was not at arm’s length, was “the prevailing market price at the time of the purchase from the plaintiffs.” 431 F. 2d, at 1348-1349.
*155In. our view, the correct measure of damages under § 28 of the Act, 15 U. S. C. § 78bb (a), is the difference between the fair value of all that the mixed-blood seller received and the fair value of what he would have received had there been no fraudulent conduct, see Myzel v. Fields, 386 F. 2d 718, 748 (CA8 1967), cert. denied, 390 U. S. 951 (1968), except for the situation where the defendant received more than the seller’s actual loss. In the latter case damages are the amount of the defendant’s profit. See Janigan v. Taylor, 344 F. 2d 781, 786 (CAl 1965), cert. denied, 382 U. S. 879 (1965).
B. The District Court, as has been noted, arrived at a value for the UDC stock of $1,500 per share. The Court of Appeals concluded that this valuation was not substantiated by the record. The petitioners argue for a value in the neighborhood of $28,000 per share, a figure concededly dependent in large part on an estimate of the ultimate worth of oil shale.
We agree with both the District Court and the Court of Appeals that the $28,000 figure is unrealistic and speculative. On the other hand, reasonable inferences may be drawn and the District Court, as the trier of fact on this record, is not restricted to actual sale prices in a market so isolated and so thin as this one. See generally Bigelow v. RKO Radio Pictures, Inc., 327 U. S. 251, 264 (1946); Harry Alter Co. v. Chrysler Corp., 285 F. 2d 903, 907 (CA7 1960); O’Malley v. Ames, 197 F. 2d 256 (CA8 1952).
In arriving at the $1,500 figure the District Court considered the existence of extensive oil shale deposits on the reservation; the possession by those deposits of substantial present value and of great potential value; the presence of gas, coal, and other minerals; the administrative cost deposit retained by the United States with respect to each member of the tribe; each petitioner’s remaining interest in the 1965 award by the Indian *156Claims Commission; the existence of claims against the United States not yet fully adjudicated; and the specific prices at which UDC shares were sold by mixed-bloods and between white persons. The court noted that prices paid for the shares were somewhat influenced by the improper activities of Gale and Haslem; by the excess of sellers over buyers; by the fact the typical Indian seller was not so well informed about the potential value of the stock as was the typical non-Indian buyer; by the fact that the Indian seller was under heavy economic pressure to sell; by opinion evidence as to worth in excess of $700 per share; and by the fact that some portion of the depressant factors in the market was attributable to the defendants. On the other hand, the court noted that not all the market’s depressant factors were so attributable to the defendants and that the tribe itself, despite the opportunity so to do, had declined to purchase UDC shares at prices ranging from $350 to $700.
The court then expressed the belief that the problem was not to determine the ultimate worth of the undivided mineral interest underlying the shares or to be governed solely by the sale prices. It concluded that on the preponderance of the evidence the stock was worth $1,500 per share at the times of the petitioners’ respective sales.
In the light of all this, and on balance, we find ourselves in agreement with the District Court, and in disagreement with the Court of Appeals, and we conclude that the District Court’s $1,500 valuation has sufficient support in the record.
The judgment of the Court of Appeals in the AUC case is affirmed. The judgment of the Court of Appeals in the Reyos case is affirmed insofar as it concerns the United States; insofar as it concerns the bank and the individual defendants, that judgment is affirmed in part and is reversed in part, as hereinabove set forth, and the case is remanded for further proceedings. Costs are *157allowed the individual petitioners as against the bank and the individual defendants.
It is so ordered.
Mr. Justice Powell and Mr. Justice Rehnquist took no part in the consideration or decision of this case.
concurring in part and dissenting in part.
I join in the Court’s opinion and judgment as to the individual and corporate respondents. I would go further, however, and also hold that the United States has waived its sovereign immunity to petitioners’ claims.
Petitioners are an unincorporated association of mixed-blood Utes and individuals of that group. They sought damages, in the District Court, for fraudulent securities transactions, for negligence by agents of the Federal Government, and for the deprivation of statutory rights granted them by Congress. The District Court awarded damages on the first two claims, but dismissed the third for want of jurisdiction and for failure to state a claim. The Court of Appeals reversed the two damage awards and affirmed the dismissal of the third action. 431 F. 2d 1337, 1349 (CA10 1970).
In the Ute Indian Supervision Termination Act of 1954, Congress sought
“to provide for the partition and distribution of the assets of the Ute Indian Tribe of the Uintah and Ouray Reservation in Utah between the mixed-blood and full-blood members thereof; for the termination of Federal supervision over the trust, and restricted property, of the mixed-blood members of said tribe; and for a development program for the full-blood members thereof, to assist them in preparing for termination of Federal supervision over their property.” 25 U. S. C. § 677.
*158That the various property interests in the reservation were to be treated differently is evidenced by the Committee Reports accompanying this legislation:
“An essential provision of the proposed legislation is the division between the two groups, on the basis of their relative numbers, of all tribal assets, except oil, gas, and mineral rights, and unadjudicated claims against the United States. These undivided assets will continue to he owned and administered jointly by the two groups. The responsibility for making this division is on the Indians themselves, but if they fail to agree within 12 months after the rolls are completed, the Secretary of the Interior is authorized to make the division.” S. Rep. No. 1632, 83d Cong., 2d Sess., 6 (1954) (emphasis added).
Accord, H. R. Rep. No. 2493, 83d Cong., 2d Sess. (1954).
Involved here is the mineral estate in the Reservation lands. Because these “gas, oil, and mineral rights” were “not susceptible of equitable and practicable distribution” among the individual Indians, they were to be “managed jointly by the Tribal Business Committee [of the full-blood Utes] and the authorized representatives of the mixed-blood group.” 25 U. S. C. § 677i. The benefits were to be shared proportionately according to the relative numbers of each group on their final membership rolls. Ibid.
Congress set forth an explicit procedure for the selection of the “authorized representatives” of the mixed-blood Utes who, with the Tribal Business Committee, were to have managerial powers over the mineral estate in the reservation. Central to this selection was the requirement for “a majority vote of the adult mixed-blood members of the tribe at a special election authorized and called by the Secretary” of the Interior. 25 U. S. C. § 677e. The petitioner Affiliated Ute Citizens was created under this procedure on April 4, 1956. Two *159years later, the Ute Distribution Corp. was formed and there lies the root of the present litigation.
The Ute Distribution Corp. was not chartered according to the guidelines mandated by Congress. Rather than following the requirement for a majority vote of the mixed-blood members, it was created by the five board members of Affiliated Ute. Approval of its articles of incorporation was by a vote of only 42 to 5— far short of the majority of the 490 mixed-blood Utes required by 25 U. S. C. § 677e. After incorporation, 10 shares of stock were issued to each of the mixed-blood Utes. Despite the flaws in Ute Distribution Corp.’s formation, the Bureau of Indian Affairs treated it, and not Affiliated Ute Citizens, as the “authorized representative.” Payments for mineral rights were thus made to Ute Distribution which, in turn, passed them on to its shareholders as dividends.
Because the Bureau of Indian Affairs viewed the transfer of mineral interests to Ute Distribution as one to the authorized representative, cf. 25 U. S. C. § 677o (a), the restrictions on the transfer of individual property were removed and the federal trust relationship purportedly was terminated. 25 U. S. C. § 677v; 26 Fed. Reg. 8042. It was upon this basis that the courts below held that the individual mixed-blood Utes and the Affiliated Utes no longer had cognizable interests in the mineral estate of the reservation.
Even if the federal trust relationship was terminated as to individual property interests, it does not follow that the trust relationship was also terminated as to the group interest in the mineral rights. The United States continued to owe significant obligations and duties with regard to these mineral interests. See 25 U. S. C. §§ 677i, 677n, and 677o. See Berger, Indian Mineral Interest— A Potential for Economic Advancement, 10 Ariz. L. Rev. 675 (1968). It was to obtain the enjoyment of the *160statutory benefits and to redress their injury that petitioners brought this action against the United States.
The waiver of sovereign immunity for claims relating to land allotments first appeared in an amendment to the Indian Appropriations Act of 1894, 28 Stat. 305, as amended, 25 U. S. C. §345:
“All persons who are in whole or in part of Indian blood or descent who are entitled to an allotment of land under any law of Congress ... or who claim to have been unlawfully denied or excluded from any allotment or any parcel of land to which they claim to be lawfully entitled by virtue of any Act of Congress, may commence and prosecute or defend any action, suit, or proceeding in relation to their right thereto in the proper district court of the United States
By a further amendment in 1901, Congress made explicit what had previously been only implicit: that it intended to allow allotment claimants to bring actions against “the United States as party defendant.” Act of Feb. 6, 1901, § 1, 31 Stat. 760. See H. R. Rep. No. 1714, 56th Cong., 1st Sess. (1900); S. Rep. No. 2040, 56th Cong., 2d Sess. (1901).
Affiliated Ute Citizens argued that their asserted right to a portion of the mineral estate of the reservation was an “allotment or . . . parcel of land” which they had been unlawfully denied and that they were therefore able to bring this action against the United States under § 345. See, e. g., United States v. Pierce, 235 F. 2d 885 (CA9 1956); Gerard v. United States, 167 F. 2d 951 (CA9 1948). The courts below rejected this view, with the Court of Appeals saying:
“This section of the statute is obviously intended to provide relief to the Indians entitled to possession of allotments and similar interests. The cases and *161statutory law have ascribed to the word 'allotment’ a well recognized meaning. The nature of the interest sought to be protected and secured does not resemble that described in the statute.” 431 F. 2d, at 1350.
We owe to the Indians a beneficent interpretation of remedial legislation designed to right past wrongs. United States v. Kagama, 118 U. S. 375, 384-385. The Court of Appeals, however, gave only a limited interpretation to this waiver of sovereign immunity against Indians’ claims. The Solicitor General likewise argues for a limited application of this waiver and would apply it only to claims concerning “a tract of land set aside out of a common holding and awarded to an individual allottee.” 1
“But in the Government’s dealings with the Indians the rule is exactly the contrary. The construction, instead of being strict, is liberal; doubtful expressions, instead of being resolved in favor of the United States, are to be resolved in favor of a weak and defenseless people, who are wards of the nation, and dependent wholly upon its protection and good faith. This rule of construction has been recognized, without exception, for more than a hundred years . . . .” Choate v. Trapp, 224 U. S. 665, 675.
See also Alaska Pacific Fisheries v. United States, 248 U. S. 78, 79; U. S. Dept. of the Interior, Federal Indian Law 565-566 (1958).
“The United States contends that the jurisdictional prerequisite for any action under [§ 345] ... is the existence of a specific allotment selection which has been unlawfully denied by the Secretary of the Interior . . . .” The court rejected this argument saying that it was “based upon an unreasonable limitation as to the purpose of the statute,” ibid., and went on to sustain the Indians’ claims to income from the land.
*162The waiver of sovereign immunity should not be so limited as the Solicitor General and the courts below suggest. The 1894 Act, now codified in 25 U. S. C. § 345, was plainly intended to give Indians a means of enforcing their rights to governmental grants of interests in realty.2 To be sure, the section was enacted in an era during which these grants usually took the form of individual possessory interests in realty, Gilbert & Taylor, Indian Land Questions, 8 Ariz. L. Rev. 102, 112 (1966); but that should not prevent this remedial section from applying to new forms of interests in mineral rights or to other forms of property.3
Nor does the plain language of § 345 suggest a contrary result. It speaks of an “allotment or any parcel of land.”4 Certainly the modern, conventional way of allotting mineral rights is through fractional interests created by contracts or through stock interests in corporations to which those allotments are transferred. If *163Congress has waived sovereign immunity for claims relating to fee interests in realty, it surely could not have intended that formal requirements of the art of conveyancy destroy that waiver of immunity for lesser interests in realty. Particularly is that so where, as here, the lesser interest seems to have been granted through an error by the Bureau of Indian Affairs.
The limited retention of sovereign immunity in the Ute termination act further supports petitioners’ claims. Title 25 U. S. C. § 677i provides that the “partition [of tribal assets] shall give rise to no cause of action against the United States.” The Committee Reports and the statute itself indicate that the mineral interests were not to be the subject of partition as the word is used in that Act. S. Rep. No. 1632, 83d Cong., 2d Sess., 6 (1954); H. R. Rep. No. 2493, 83d Cong., 2d Sess. (1954); 25 U. S. C. § 677i. Thus, the failure of Congress to extend sovereign immunity to the unpartitioned mineral interests here in issue strongly suggests that immunity has been waived as to these claims. Moreover, the only other immunity provision of the Act, 25 U. S. C. § 677h, applies only where there has been consent by the authorized representatives of the mixed-blood group which was necessarily absent because of the defect in the creation of the Ute Distribution Corp.
7.3 Halliburton Co. v. Erica P. John Fund, Inc. 7.3 Halliburton Co. v. Erica P. John Fund, Inc.
HALLIBURTON CO., et al., Petitioners
v.
ERICA P. JOHN FUND, INC., fka Archdiocese of Milwaukee Supporting Fund, Inc.
No. 13-317.
Supreme Court of the United States
Argued March 5, 2014.
Decided June 23, 2014.
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, 108 S.Ct. 978, 99 L.Ed.2d 194, this Court held that investors could satisfy this reliance requirement by *2402invoking 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."
Respondent Erica P. John Fund, Inc. (EPJ Fund), filed a putative class action against Halliburton and one of its executives (collectively Halliburton), alleging that they made misrepresentations designed to inflate Halliburton's stock price, in violation of section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. The District Court initially denied EPJ Fund's class certification motion, and the Fifth Circuit affirmed. But this Court vacated that judgment, concluding that securities fraud plaintiffs need not prove loss causation-a causal connection between the defendants' alleged misrepresentations and the plaintiffs' economic losses-at the class certification stage in order to invoke Basic 's presumption of reliance. On remand, Halliburton argued that class certification was nonetheless inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that its alleged misrepresentations had not affected its stock price. By demonstrating the absence of any "price impact," Halliburton contended, it had rebutted the Basic presumption. And without the benefit of that presumption, investors would have to prove reliance on an individual basis, meaning that individual issues would predominate over common ones and class certification would be inappropriate under Federal Rule of Civil Procedure 23(b)(3). The District Court rejected Halliburton's argument and certified the class. The Fifth Circuit affirmed, concluding that Halliburton could use its price impact evidence to rebut the Basic presumption only at trial, not at the class certification stage.
Held :
1. Halliburton has not shown a "special justification," Dickerson v. United States, 530 U.S. 428, 443, 120 S.Ct. 2326, 147 L.Ed.2d 405, for overruling Basic 's presumption of reliance. Pp. 2407 - 2413.
(a) To recover damages under section 10(b) and Rule 10b-5, a plaintiff must prove, as relevant here, " 'reliance upon the misrepresentation or omission.' " Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U.S. ----, ----, 133 S.Ct. 1184. The Court recognized in Basic, however, that requiring direct proof of reliance from every individual plaintiff "would place an unnecessarily unrealistic evidentiary burden on the ... plaintiff who has traded on an impersonal market," 485 U.S., at 245, 108 S.Ct. 978, and "effectively would" prevent plaintiffs "from proceeding with a class action" in Rule 10b-5 suits, id., at 242, 108 S.Ct. 978. To address these concerns, the Court held that plaintiffs could satisfy the reliance element of a Rule 10b-5 action by invoking a rebuttable presumption of reliance. The Court based that presumption on what is known as the "fraud-on-the-market" theory, which holds that "the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations." Id., at 246, 108 S.Ct. 978. The Court also noted that the typical "investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price." Id., at 247, 108 S.Ct. 978. As a result, whenever an investor buys or sells stock at the market price, his "reliance on any public material misrepresentations ... may be presumed for purposes of a Rule 10b-5 action." Id. at 247, 108 S.Ct. 978.Basic also emphasized that the presumption of *2403reliance was rebuttable rather than conclusive. Pp. 2407 - 2408.
(b) None of Halliburton's arguments for overruling Basic so discredit the decision as to constitute a "special justification." Pp. 2408 - 2411.
(1) Halliburton first argues that the Basic presumption is inconsistent with Congress's intent in passing the 1934 Exchange Act-the same argument made by the dissenting Justices in Basic. The Basic majority did not find that argument persuasive then, and Halliburton has given no new reason to endorse it now. Pp. 2408 - 2409.
(2) Halliburton also contends that Basic rested on two premises that have been undermined by developments in economic theory. First, it argues that the Basic Court espoused "a robust view of market efficiency" that is no longer tenable in light of empirical evidence ostensibly showing that material, public information often is not quickly incorporated into stock prices. The Court in Basic acknowledged, however, the debate among economists about the efficiency of capital markets and refused to endorse "any particular theory of how quickly and completely publicly available information is reflected in market price." 485 U.S., at 248, n. 28, 108 S.Ct. 978. The Court instead based the presumption of reliance on the fairly modest premise that "market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices." Id., at 247, n. 24, 108 S.Ct. 978. Moreover, in making the presumption rebuttable, Basic recognized that market efficiency is a matter of degree and accordingly made it a matter of proof. Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities.
Halliburton also contests the premise that investors "invest 'in reliance on the integrity of [the market] price,' " id., at 247, 108 S.Ct. 978, identifying a number of classes of investors for whom "price integrity" is supposedly "marginal or irrelevant." But Basic never denied the existence of such investors, who in any event rely at least on the facts that market prices will incorporate public information within a reasonable period and that market prices, however inaccurate, are not distorted by fraud. Pp. 2409 - 2411.
(c) The principle of stare decisis has " 'special force' " "in respect to statutory interpretation" because " 'Congress remains free to alter what [the Court has] done.' " John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 139, 128 S.Ct. 750, 169 L.Ed.2d 591. So too with Basic 's presumption of reliance. The presumption is not inconsistent with this Court's more recent decisions construing the Rule 10b-5 cause of action. In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119, and Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 128 S.Ct. 761, 169 L.Ed.2d 627, the Court declined to effectively eliminate the reliance element by extending liability to entirely new categories of defendants who themselves had not made any material, public misrepresentation. The Basic presumption, by contrast, merely provides an alternative means of satisfying the reliance element. Nor is the Basic presumption inconsistent with the Court's recent decisions governing class action certification, which require plaintiffs to prove-not simply plead-that their proposed class satisfies each requirement of Federal Rule of Civil Procedure 23, including, if applicable, the predominance requirement of Rule 23(b)(3). See, e.g., *2404Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ----, ----, 131 S.Ct. 2541. The Basic presumption does not relieve plaintiffs of that burden but rather sets forth what plaintiffs must prove to demonstrate predominance. Finally, Halliburton emphasizes the possible harmful consequences of the securities class actions facilitated by the Basic presumption, but such concerns are more appropriately addressed to Congress, which has in fact responded, to some extent, to many of them. Pp. 2411 - 2413.
2. 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. Halliburton's argument for doing so is the same as its argument for overruling the Basic presumption altogether, and it meets the same fate. Pp. 2413 - 2414.
3. 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. Forbidding defendants to rely on the same evidence prior to class certification for the particular purpose of rebutting the presumption altogether makes no sense, and can readily lead to results that are inconsistent with Basic 's own logic. Basic allows plaintiffs to establish price impact indirectly, by showing that a stock traded in an efficient market and that a defendant's misrepresentations were public and material. But an indirect proxy should not preclude consideration of a defendant's direct, more salient evidence showing that an alleged misrepresentation did not actually affect the stock's price and, consequently, that the Basic presumption does not apply. Amgen does not require a different result. There, the Court held that materiality, though a prerequisite for invoking the Basic presumption, should be left to the merits stage because it does not bear on the predominance requirement of Rule 23(b)(3). In contrast, the fact that a misrepresentation has price impact is "Basic 's fundamental premise." Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ----, ----, 131 S.Ct. 2179, 180 L.Ed.2d 24. 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. Pp. 2414 - 2417.
718 F.3d 423, vacated and remanded.
ROBERTS, C.J., delivered the opinion of the Court, in which KENNEDY, *2405GINSBURG, BREYER, SOTOMAYOR, and KAGAN, JJ., joined. GINSBURG, J., filed a concurring opinion, in which BREYER and SOTOMAYOR, JJ., joined. THOMAS, J., filed an opinion concurring in the judgment, in which SCALIA and ALITO, JJ., joined.
Aaron M. Streett, Austin, TX, for Petitioners.
David Boies, Armonk, NY, for Respondent.
Malcolm L. Stewart, for the United States as amicus curiae, by special leave of the Court, supporting the Respondent.
Evan A. Young, Baker Botts L.L.P., Austin, TX, Wm. Bradford Reynolds, Baker Botts L.L.P., Washington, D.C., David D. Sterling, Aaron M. Streett, Counsel of Record, Benjamin A. Geslison, Shane Pennington, Edmund G. LaCour, Jr., Baker Botts L.L.P., Houston, TX, for Petitioners.
Lewis Kahn, Neil Rothstein, Kahn Swick & Foti, LLC, Madisonville, LA, Kim E. Miller, Esq., Kahn Swick & Foti, LLC, New York, NY, Special Counsel to Lead Plaintiff and the Class, E. Lawrence Vincent, Law Office of Joe H. Staley, Jr., P.C., Dallas, TX, David Boies, Counsel of Record, Boies, Schiller & Flexner LLP, Armonk, NY, Carl E. Goldfarb, Andrew L. Adler, Boies, Schiller & Flexner LLP, Ft. Lauderdale, FL, for Respondent.
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, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), we 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 misstatements. In such a case, we concluded, anyone who buys or sells the stock at the market price may be considered to have relied on those misstatements.
We also held, however, that a defendant could rebut this presumption in a number of ways, including by showing that the alleged misrepresentation did not actually affect the stock's price-that is, that the misrepresentation had no "price impact." The questions presented are whether we should overrule or modify Basic 's presumption of reliance and, if not, whether defendants should nonetheless be afforded an opportunity in securities class action cases to rebut the presumption at the class certification stage, by showing a lack of price impact.
I
Respondent Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a putative class action against Halliburton and one of its executives (collectively Halliburton) alleging violations of section 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 CFR § 240.10b-5 (2013). According to EPJ Fund, between June 3, 1999, and December 7, 2001, Halliburton made a series of misrepresentations regarding its potential liability in asbestos litigation, its expected revenue from certain construction contracts, and the anticipated benefits of its merger with another company-all in an attempt to inflate the price of its stock. Halliburton subsequently made a number *2406of corrective disclosures, which, EPJ Fund contends, caused the company's stock price to drop and investors to lose money.
EPJ Fund moved to certify a class comprising all investors who purchased Halliburton common stock during the class period. The District Court found that the proposed class satisfied all the threshold requirements of Federal Rule of Civil Procedure 23(a): It was sufficiently numerous, there were common questions of law or fact, the representative parties' claims were typical of the class claims, and the representatives could fairly and adequately protect the interests of the class. App. to Pet. for Cert. 54a. And except for one difficulty, the court would have also concluded that the class satisfied the requirement of Rule 23(b)(3) that "the questions of law or fact common to class members predominate over any questions affecting only individual members." See id., at 55a, 98a. The difficulty was that Circuit precedent required securities fraud plaintiffs to prove "loss causation"-a causal connection between the defendants' alleged misrepresentations and the plaintiffs' economic losses-in order to invoke Basic 's presumption of reliance and obtain class certification. App. to Pet. for Cert. 55a, and n. 2. Because EPJ Fund had not demonstrated such a connection for any of Halliburton's alleged misrepresentations, the District Court refused to certify the proposed class. Id., at 55a, 98a. The United States Court of Appeals for the Fifth Circuit affirmed the denial of class certification on the same ground. Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (2010).
We granted certiorari and vacated the judgment, finding nothing in " Basic or its logic" to justify the Fifth Circuit's requirement that securities fraud plaintiffs prove loss causation at the class certification stage in order to invoke Basic 's presumption of reliance. Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ----, ----, 131 S.Ct. 2179, 2185-2186, 180 L.Ed.2d 24 (2011)( Halliburton I ). "Loss causation," we explained, "addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock." Ibid. We remanded the case for the lower courts to consider "any further arguments against class certification" that Halliburton had preserved. Id., at ----, 131 S.Ct., at 2187.
On remand, Halliburton argued that class certification was inappropriate because the evidence it had earlier introduced to disprove loss causation also showed that none of its alleged misrepresentations had actually affected its stock price. By demonstrating the absence of any "price impact," Halliburton contended, it had rebutted Basic 's presumption that the members of the proposed class had relied on its alleged misrepresentations simply by buying or selling its stock at the market price. And without the benefit of the Basic presumption, investors would have to prove reliance on an individual basis, meaning that individual issues would predominate over common ones. The District Court declined to consider Halliburton's argument, holding that the Basic presumption applied and certifying the class under Rule 23(b)(3). App. to Pet. for Cert. 30a.
The Fifth Circuit affirmed. 718 F.3d 423 (2013). The court found that Halliburton had preserved its price impact argument, but to no avail. Id., at 435-436. While acknowledging that "Halliburton's price impact evidence could be used at the trial on the merits to refute the presumption of reliance," id., at 433, the court held that Halliburton could not use such evidence for that purpose at the class certification *2407stage, id., at 435. "[P]rice impact evidence," the court explained, "does not bear on the question of common question predominance [under Rule 23(b)(3) ], and is thus appropriately considered only on the merits after the class has been certified." Ibid.
We once again granted certiorari, 571 U.S. ----, 134 S.Ct. 636, 187 L.Ed.2d 415 (2013), this time to resolve a conflict among the Circuits over whether securities fraud defendants may attempt to rebut the Basic presumption at the class certification stage with evidence of a lack of price impact. We also accepted Halliburton's invitation to reconsider the presumption of reliance for securities fraud claims that we adopted in Basic.
II
Halliburton urges us to overrule Basic 's presumption of reliance and to instead require every securities fraud plaintiff to prove that he actually relied on the defendant's misrepresentation in deciding to buy or sell a company's stock. Before overturning a long-settled precedent, however, we require "special justification," not just an argument that the precedent was wrongly decided. Dickerson v. United States, 530 U.S. 428, 443, 120 S.Ct. 2326, 147 L.Ed.2d 405 (2000) (internal quotation marks omitted). Halliburton has failed to make that showing.
A
Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission's Rule 10b-5 prohibit making any material misstatement or omission in connection with the purchase or sale of any security. Although section 10(b) does not create an express private cause of action, we have long recognized an implied private cause of action to enforce the provision and its implementing regulation. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). To recover damages for violations of section 10(b) and Rule 10b-5, a plaintiff must prove " '(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.' " Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 568 U.S. ----, ----, 133 S.Ct. 1184, 1192, 185 L.Ed.2d 308 (2013) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. ----, ----, 131 S.Ct. 1309, 1317-1318, 179 L.Ed.2d 398 (2011)).
The reliance element " 'ensures that there is a proper connection between a defendant's misrepresentation and a plaintiff's injury.' " 568 U.S., at ----, 133 S.Ct., at 1192 (quoting Halliburton I, 563 U.S., at ----, 131 S.Ct., at 2184-2185). "The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing that he was aware of a company's statement and engaged in a relevant transaction- e.g., purchasing common stock-based on that specific misrepresentation." Id., at ----, 133 S.Ct., at 1192.
In Basic, however, we recognized that requiring such direct proof of reliance "would place an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market." 485 U.S., at 245, 108 S.Ct. 978. That is because, even assuming an investor could prove that he was aware of the misrepresentation, he would still have to "show a speculative state of facts, i.e., how he would have acted ... if the misrepresentation had not been made." Ibid.
We also noted that "[r]equiring proof of individualized reliance" from every securities fraud plaintiff "effectively would ...
*2408prevent [ ] [plaintiffs] from proceeding with a class action" in Rule 10b-5 suits. Id., at 242, 108 S.Ct. 978. If every plaintiff had to prove direct reliance on the defendant's misrepresentation, "individual issues then would ... overwhelm[ ] the common ones," making certification under Rule 23(b)(3) inappropriate. Ibid.
To address these concerns, Basic held that securities fraud plaintiffs can in certain circumstances satisfy the reliance element of a Rule 10b-5 action by invoking a rebuttable presumption of reliance, rather than proving direct reliance on a misrepresentation. The Court based that presumption on what is known as the "fraud-on-the-market" theory, which holds that "the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations." Id., at 246, 108 S.Ct. 978. The Court also noted that, rather than scrutinize every piece of public information about a company for himself, the typical "investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price"-the belief that it reflects all public, material information. Id., at 247, 108 S.Ct. 978. As a result, whenever the investor buys or sells stock at the market price, his "reliance on any public material misrepresentations ... may be presumed for purposes of a Rule 10b-5 action." Ibid.
Based on this theory, a plaintiff must make the following showings to demonstrate that the presumption of reliance applies in a given case: (1) that the alleged misrepresentations were publicly known, (2) that they were material, (3) that the stock traded in an efficient market, and (4) that the plaintiff traded the stock between the time the misrepresentations were made and when the truth was revealed. See id., at 248, n. 27, 108 S.Ct. 978;Halliburton I, supra, at ----, 131 S.Ct., at 2185-2186.
At the same time, Basic emphasized that the presumption of reliance was rebuttable rather than conclusive. Specifically, "[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance." 485 U.S., at 248, 108 S.Ct. 978. So for example, if a defendant could show that the alleged misrepresentation did not, for whatever reason, actually affect the market price, or that a plaintiff would have bought or sold the stock even had he been aware that the stock's price was tainted by fraud, then the presumption of reliance would not apply. Id., at 248-249, 108 S.Ct. 978. In either of those cases, a plaintiff would have to prove that he directly relied on the defendant's misrepresentation in buying or selling the stock.
B
Halliburton contends that securities fraud plaintiffs should always have to prove direct reliance and that the Basic Court erred in allowing them to invoke a presumption of reliance instead. According to Halliburton, the Basic presumption contravenes congressional intent and has been undermined by subsequent developments in economic theory. Neither argument, however, so discredits Basic as to constitute "special justification" for overruling the decision.
1
Halliburton first argues that the Basic presumption is inconsistent with Congress's intent in passing the 1934 Exchange Act. Because "[t]he Section 10(b) action is a 'judicial construct that Congress did not enact,' " this Court, Halliburton insists, "must identify-and borrow from-*2409the express provision that is 'most analogous to the private 10b-5 right of action.' " Brief for Petitioners 12 (quoting Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 164, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008); Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 294, 113 S.Ct. 2085, 124 L.Ed.2d 194 (1993)). According to Halliburton, the closest analogue to section 10(b) is section 18(a) of the Act, which creates an express private cause of action allowing investors to recover damages based on misrepresentations made in certain regulatory filings. 15 U.S.C. § 78r(a). That provision requires an investor to prove that he bought or sold stock "in reliance upon" the defendant's misrepresentation. Ibid. In ignoring this direct reliance requirement, the argument goes, the Basic Court relieved Rule 10b-5 plaintiffs of a burden that Congress would have imposed had it created the cause of action.
EPJ Fund contests both premises of Halliburton's argument, arguing that Congress has affirmed Basic 's construction of section 10(b) and that, in any event, the closest analogue to section 10(b) is not section 18(a) but section 9, 15 U.S.C. § 78i-a provision that does not require actual reliance.
We need not settle this dispute. In Basic, the dissenting Justices made the same argument based on section 18(a) that Halliburton presses here. See 485 U.S., at 257-258, 108 S.Ct. 978 (White, J., concurring in part and dissenting in part). The Basic majority did not find that argument persuasive then, and Halliburton has given us no new reason to endorse it now.
2
Halliburton's primary argument for overruling Basic is that the decision rested on two premises that can no longer withstand scrutiny. The first premise concerns what is known as the "efficient capital markets hypothesis." Basic stated that "the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations." Id., at 246, 108 S.Ct. 978. From that statement, Halliburton concludes that the Basic Court espoused "a robust view of market efficiency" that is no longer tenable, for " 'overwhelming empirical evidence' now 'suggests that capital markets are not fundamentally efficient.' " Brief for Petitioners 14-16 (quoting Lev & de Villiers, Stock Price Crashes and 10b-5 Damages: A Legal, Economic, and Policy Analysis, 47 Stan. L. Rev 7, 20 (1994)). To support this contention, Halliburton cites studies purporting to show that "public information is often not incorporated immediately (much less rationally) into market prices." Brief for Petitioners 17; see id., at 16-20. See also Brief for Law Professors as Amici Curiae 15-18.
Halliburton does not, of course, maintain that capital markets are always inefficient. Rather, in its view, Basic 's fundamental error was to ignore the fact that " 'efficiency is not a binary, yes or no question.' " Brief for Petitioners 20 (quoting Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L.Rev. 151, 167). The markets for some securities are more efficient than the markets for others, and even a single market can process different kinds of information more or less efficiently, depending on how widely the information is disseminated and how easily it is understood. Brief for Petitioners at 20-21. Yet Basic, Halliburton asserts, glossed over these nuances, assuming a false dichotomy that renders the presumption of reliance both underinclusive and overinclusive: A misrepresentation can distort a stock's market price even in a generally inefficient market, and a misrepresentation can leave a stock's market *2410price unaffected even in a generally efficient one. Brief for Petitioners at 21.
Halliburton's criticisms fail to take Basic on its own terms. Halliburton focuses on the debate among economists about the degree to which the market price of a company's stock reflects public information about the company-and thus the degree to which an investor can earn an abnormal, above-market return by trading on such information. See Brief for Financial Economists as Amici Curiae 4-10 (describing the debate). That debate is not new. Indeed, the Basic Court acknowledged it and declined to enter the fray, declaring that "[w]e need not determine by adjudication what economists and social scientists have debated through the use of sophisticated statistical analysis and the application of economic theory." 485 U.S., at 246-247, n. 24, 108 S.Ct. 978. To recognize the presumption of reliance, the Court explained, was not "conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price." Id., at 248, n. 28, 108 S.Ct. 978. The Court instead based the presumption on the fairly modest premise that "market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices." Id., at 247, n. 24, 108 S.Ct. 978.Basic 's presumption of reliance thus does not rest on a "binary" view of market efficiency. Indeed, in making the presumption rebuttable, Basic recognized that market efficiency is a matter of degree and accordingly made it a matter of proof.
The academic debates discussed by Halliburton have not refuted the modest premise underlying the presumption of reliance. Even the foremost critics of the efficient-capital-markets hypothesis acknowledge that public information generally affects stock prices. See, e.g., Shiller, We'll Share the Honors, and Agree to Disagree, N.Y. Times, Oct. 27, 2013, p. BU6 ("Of course, prices reflect available information"). Halliburton also conceded as much in its reply brief and at oral argument. See Reply Brief 13 ("market prices generally respond to new, material information"); Tr. of Oral Arg. 7. Debates about the precise degree to which stock prices accurately reflect public information are thus largely beside the point. "That the ... price [of a stock] may be inaccurate does not detract from the fact that false statements affect it, and cause loss," which is "all that Basic requires." Schleicher v. Wendt, 618 F.3d 679, 685 (C.A.7 2010) (Easterbrook, C.J.). Even though the efficient capital markets hypothesis may have "garnered substantial criticism since Basic," post, at 2420 (THOMAS, J., concurring in judgment), Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities. Contrast State Oil Co. v. Khan, 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997), unanimously overruling Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968).
Halliburton also contests a second premise underlying the Basic presumption: the notion that investors "invest 'in reliance on the integrity of [the market] price.' " Reply Brief 14 (quoting 485 U.S., at 247, 108 S.Ct. 978; alteration in original). Halliburton identifies a number of classes of investors for whom "price integrity" is supposedly "marginal or irrelevant." Reply Brief 14. The primary example is the value investor, who believes that certain stocks are undervalued or overvalued and attempts to "beat the market" by buying the undervalued stocks and selling the overvalued ones. Brief for Petitioners 15-16 (internal quotation marks omitted).
*2411See also Brief for Vivendi S.A. as Amicus Curiae 3-10 (describing the investment strategies of day traders, volatility arbitragers, and value investors). If many investors "are indifferent to prices," Halliburton contends, then courts should not presume that investors rely on the integrity of those prices and any misrepresentations incorporated into them. Reply Brief 14.
But Basic never denied the existence of such investors. As we recently explained, Basic concluded only that "it is reasonable to presume that most investors-knowing that they have little hope of outperforming the market in the long run based solely on their analysis of publicly available information-will rely on the security's market price as an unbiased assessment of the security's value in light of all public information." Amgen, 568 U.S., at ----, 133 S.Ct., at 1192 (emphasis added).
In any event, there is no reason to suppose that even Halliburton's main counterexample-the value investor-is as indifferent to the integrity of market prices as Halliburton suggests. Such an investor implicitly relies on the fact that a stock's market price will eventually reflect material information-how else could the market correction on which his profit depends occur? To be sure, the value investor "does not believe that the market price accurately reflects public information at the time he transacts." Post, at 2423. But to indirectly rely on a misstatement in the sense relevant for the Basic presumption, he need only trade stock based on the belief that the market price will incorporate public information within a reasonable period. The value investor also presumably tries to estimate how undervalued or overvalued a particular stock is, and such estimates can be skewed by a market price tainted by fraud.
C
The principle of stare decisis has " 'special force' " "in respect to statutory interpretation" because " 'Congress remains free to alter what we have done.' " John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 139, 128 S.Ct. 750, 169 L.Ed.2d 591 (2008) (quoting Patterson v. McLean Credit Union, 491 U.S. 164, 172-173, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989)). So too with Basic 's presumption of reliance. Although the presumption is a judicially created doctrine designed to implement a judicially created cause of action, we have described the presumption as "a substantive doctrine of federal securities-fraud law." Amgen, supra, at ----, 133 S.Ct., at 1193. That is because it provides a way of satisfying the reliance element of the Rule 10b-5 cause of action. See, e.g.,Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-342, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). As with any other element of that cause of action, Congress may overturn or modify any aspect of our interpretations of the reliance requirement, including the Basic presumption itself. Given that possibility, we see no reason to exempt the Basic presumption from ordinary principles of stare decisis.
To buttress its case for overruling Basic, Halliburton contends that, in addition to being wrongly decided, the decision is inconsistent with our more recent decisions construing the Rule 10b-5 cause of action. As Halliburton notes, we have held that "we must give 'narrow dimensions ... to a right of action Congress did not authorize when it first enacted the statute and did not expand when it revisited the law.' " Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. ----, ----, 131 S.Ct. 2296, 2302, 180 L.Ed.2d 166 (2011) (quoting Stoneridge, 552 U.S., at 167, 128 S.Ct. 761); see, e.g., *2412Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994) (refusing to recognize aiding-and-abetting liability under the Rule 10b-5 cause of action); Stoneridge, supra (refusing to extend Rule 10b-5 liability to certain secondary actors who did not themselves make material misstatements). Yet the Basic presumption, Halliburton asserts, does just the opposite, expanding the Rule 10b-5 cause of action. Brief for Petitioners 27-29.
Not so. In Central Bank and Stoneridge, we declined to extend Rule 10b-5 liability to entirely new categories of defendants who themselves had not made any material, public misrepresentation. Such an extension, we explained, would have eviscerated the requirement that a plaintiff prove that he relied on a misrepresentation made by the defendant. See Central Bank, supra, at 180, 114 S.Ct. 1439;Stoneridge, supra, at 157, 159, 128 S.Ct. 761. The Basic presumption does not eliminate that requirement but rather provides an alternative means of satisfying it. While the presumption makes it easier for plaintiffs to prove reliance, it does not alter the elements of the Rule 10b-5 cause of action and thus maintains the action's original legal scope.
Halliburton also argues that the Basic presumption cannot be reconciled with our recent decisions governing class action certification under Federal Rule of Civil Procedure 23. Those decisions have made clear that plaintiffs wishing to proceed through a class action must actually prove-not simply plead-that their proposed class satisfies each requirement of Rule 23, including (if applicable) the predominance requirement of Rule 23(b)(3). See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ----, ----, 131 S.Ct. 2541, 2551-2552, 180 L.Ed.2d 374 (2011);Comcast Corp. v. Behrend, 569 U.S. ----, ----, 133 S.Ct. 1426, 1431-1432, 185 L.Ed.2d 515 (2013). According to Halliburton, Basic relieves Rule 10b-5 plaintiffs of that burden, allowing courts to presume that common issues of reliance predominate over individual ones.
That is not the effect of the Basic presumption. In securities class action cases, the crucial requirement for class certification will usually be the predominance requirement of Rule 23(b)(3). The Basic presumption does not relieve plaintiffs of the burden of proving-before class certification-that this requirement is met. Basic instead establishes that a plaintiff satisfies that burden by proving the prerequisites for invoking the presumption-namely, publicity, materiality, market efficiency, and market timing. The burden of proving those prerequisites still rests with plaintiffs and (with the exception of materiality) must be satisfied before class certification. Basic does not, in other words, allow plaintiffs simply to plead that common questions of reliance predominate over individual ones, but rather sets forth what they must prove to demonstrate such predominance.
Basic does afford defendants an opportunity to rebut the presumption of reliance with respect to an individual plaintiff by showing that he did not rely on the integrity of the market price in trading stock. While this has the effect of "leav[ing] individualized questions of reliance in the case," post, at 2424, there is no reason to think that these questions will overwhelm common ones and render class certification inappropriate under Rule 23(b)(3). That the defendant might attempt to pick off the occasional class member here or there through individualized rebuttal does not cause individual questions to predominate.
*2413Finally, Halliburton and its amici contend that, by facilitating securities class actions, the Basic presumption produces a number of serious and harmful consequences. Such class actions, they say, allow plaintiffs to extort large settlements from defendants for meritless claims; punish innocent shareholders, who end up having to pay settlements and judgments; impose excessive costs on businesses; and consume a disproportionately large share of judicial resources. Brief for Petitioners 39-45.
These concerns are more appropriately addressed to Congress, which has in fact responded, to some extent, to many of the issues raised by Halliburton and its amici. Congress has, for example, enacted the Private Securities Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737, which sought to combat perceived abuses in securities litigation with heightened pleading requirements, limits on damages and attorney's fees, a "safe harbor" for certain kinds of statements, restrictions on the selection of lead plaintiffs in securities class actions, sanctions for frivolous litigation, and stays of discovery pending motions to dismiss. See Amgen, 568 U.S., at ----, 133 S.Ct., at 1200-1201. And to prevent plaintiffs from circumventing these restrictions by bringing securities class actions under state law in state court, Congress also enacted the Securities Litigation Uniform Standards Act of 1998, 112 Stat. 3227, which precludes many state law class actions alleging securities fraud. See Amgen, supra, at ----, 133 S.Ct., at 1200-1201. Such legislation demonstrates Congress's willingness to consider policy concerns of the sort that Halliburton says should lead us to overrule Basic.
III
Halliburton proposes two alternatives to overruling Basic that would alleviate what it regards as the decision's most serious flaws. The first alternative would require plaintiffs to prove that a defendant's misrepresentation actually affected the stock price-so-called "price impact"-in order to invoke the Basic presumption. It should not be enough, Halliburton contends, for plaintiffs to demonstrate the general efficiency of the market in which the stock traded. Halliburton's second proposed alternative would allow defendants to rebut the presumption of reliance with evidence of a lack of price impact, not only at the merits stage-which all agree defendants may already do-but also before class certification.
A
As noted, to invoke the Basic presumption, a plaintiff must prove that: (1) the alleged misrepresentations were publicly known, (2) they were material, (3) the stock traded in an efficient market, and (4) the plaintiff traded the stock between when the misrepresentations were made and when the truth was revealed. See Basic, 485 U.S., at 248, n. 27, 108 S.Ct. 978;Amgen, supra, at ----, 133 S.Ct., at 1198. Each of these requirements follows from the fraud-on-the-market theory underlying the presumption. If the misrepresentation was not publicly known, then it could not have distorted the stock's market price. So too if the misrepresentation was immaterial-that is, if it would not have " 'been viewed by the reasonable investor as having significantly altered the "total mix" of information made available,' " Basic, supra, at 231-232, 108 S.Ct. 978 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976))-or if the market in which the stock traded was inefficient. And if the plaintiff did not buy or sell the stock after the misrepresentation was made but before the truth was revealed, *2414then he could not be said to have acted in reliance on a fraud-tainted price.
The first three prerequisites are directed at price impact-"whether the alleged misrepresentations affected the market price in the first place." Halliburton I, 563 U.S., at ----, 131 S.Ct., at 2182. In the absence of price impact, Basic 's fraud-on-the-market theory and presumption of reliance collapse. The "fundamental premise" underlying the presumption is "that an investor presumptively relies on a misrepresentation so long as it was reflected in the market price at the time of his transaction." 563 U.S., at ----, 131 S.Ct., at 2186. If it was not, then there is "no grounding for any contention that [the] investor[ ] indirectly relied on th[at] misrepresentation[ ] through [his] reliance on the integrity of the market price." Amgen, supra, at ----, 133 S.Ct., at 1199.
Halliburton argues that since the Basic presumption hinges on price impact, plaintiffs should be required to prove it directly in order to invoke the presumption. Proving the presumption's prerequisites, which are at best an imperfect proxy for price impact, should not suffice.
Far from a modest refinement of the Basic presumption, this proposal would radically alter the required showing for the reliance element of the Rule 10b-5 cause of action. What is called the Basic presumption actually 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.
By requiring plaintiffs to prove price impact directly, Halliburton's proposal would take away the first constituent presumption. Halliburton's argument for doing so is the same as its primary argument for overruling the Basic presumption altogether: Because market efficiency is not a yes-or-no proposition, a public, material misrepresentation might not affect a stock's price even in a generally efficient market. But as explained, Basic never suggested otherwise; that is why it affords defendants an opportunity to rebut the presumption by showing, among other things, that the particular misrepresentation at issue did not affect the stock's market price. For the same reasons we declined to completely jettison the Basic presumption, we decline to effectively jettison half of it by revising the prerequisites for invoking it.
B
Even if plaintiffs need not directly prove price impact to invoke the Basic presumption, Halliburton contends that defendants should at least be allowed to defeat the presumption at the class certification stage through evidence that the misrepresentation did not in fact affect the stock price. We agree.
1
There is no dispute that defendants may introduce such evidence at the merits stage to rebut the Basic presumption. Basic itself "made clear that the presumption was just that, and could be rebutted by appropriate evidence," including evidence that the asserted misrepresentation (or its correction) did not affect the market price of the defendant's stock. Halliburton I, supra, at ----, 131 S.Ct., at 2185; see Basic,supra, at 248, 108 S.Ct. 978.
Nor is there any dispute that defendants may introduce price impact evidence at the *2415class certification stage, so long as it is for the purpose of countering a plaintiff's showing of market efficiency, rather than directly rebutting the presumption. As EPJ Fund acknowledges, "[o]f course ... defendants can introduce evidence at class certification of lack of price impact as some evidence that the market is not efficient." Brief for Respondent 53. See also Brief for United States as Amicus Curiae 26.
After all, plaintiffs themselves can and do introduce evidence of the existence of price impact in connection with "event studies"-regression analyses that seek to show that the market price of the defendant's stock tends to respond to pertinent publicly reported events. See Brief for Law Professors as Amici Curiae 25-28. In this case, for example, EPJ Fund submitted an event study of various episodes that might have been expected to affect the price of Halliburton's stock, in order to demonstrate that the market for that stock takes account of material, public information about the company. See App. 217-230 (describing the results of the study). The episodes examined by EPJ Fund's event study included one of the alleged misrepresentations that form the basis of the Fund's suit. See id., at 230, 343-344. See also In re Xcelera.com Securities Litigation, 430 F.3d 503, 513 (C.A.1 2005) (event study included effect of misrepresentation challenged in the case).
Defendants-like plaintiffs-may accordingly submit price impact evidence prior to class certification. What defendants may not do, EPJ Fund insists and the Court of Appeals held, is rely on that same evidence prior to class certification for the particular purpose of rebutting the presumption altogether.
This restriction makes no sense, and can readily lead to bizarre results. Suppose a defendant at the certification stage submits an event study looking at the impact on the price of its stock from six discrete events, in an effort to refute the plaintiffs' claim of general market efficiency. All agree the defendant may do this. Suppose one of the six events is the specific misrepresentation asserted by the plaintiffs. All agree that this too is perfectly acceptable. Now suppose the district court determines that, despite the defendant's study, the plaintiff has carried its burden to prove market efficiency, but that the evidence shows no price impact with respect to the specific misrepresentation challenged in the suit. The evidence at the certification stage thus shows an efficient market, on which the alleged misrepresentation had no price impact. And yet under EPJ Fund's view, the plaintiffs' action should be certified and proceed as a class action (with all that entails), even though the fraud-on-the-market theory does not apply and common reliance thus cannot be presumed.
Such a result is inconsistent with Basic 's own logic. Under Basic 's fraud-on-the-market theory, market efficiency and the other prerequisites for invoking the presumption constitute an indirect way of showing price impact. As explained, it is appropriate to allow plaintiffs to rely on this indirect proxy for price impact, rather than requiring them to prove price impact directly, given Basic 's rationales for recognizing a presumption of reliance in the first place. See supra, at 2408, 2413 - 2414.
But an indirect proxy should not preclude direct evidence when such evidence is available. As we explained in Basic, "[a]ny showing that severs the link between the alleged misrepresentation and ... the price received (or paid) by the plaintiff ... will be sufficient to rebut the presumption of reliance" because "the basis for finding that the fraud had been *2416transmitted through market price would be gone." 485 U.S., at 248, 108 S.Ct. 978. And without the presumption of reliance, a Rule 10b-5 suit cannot proceed as a class action: Each plaintiff would have to prove reliance individually, so common issues would not "predominate" over individual ones, as required by Rule 23(b)(3). Id., at 242, 108 S.Ct. 978. Price impact is thus an essential precondition for any Rule 10b-5 class action. While Basic allows plaintiffs to establish that precondition indirectly, it does not require courts to ignore a defendant's direct, more salient evidence showing that the alleged misrepresentation did not actually affect the stock's market price and, consequently, that the Basic presumption does not apply.
2
The Court of Appeals relied on our decision in Amgen in holding that Halliburton could not introduce evidence of lack of price impact at the class certification stage. The question in Amgen was whether plaintiffs could be required to prove (or defendants be permitted to disprove) materiality before class certification. Even though materiality is a prerequisite for invoking the Basic presumption, we held that it should be left to the merits stage, because it does not bear on the predominance requirement of Rule 23(b)(3). We reasoned that materiality is an objective issue susceptible to common, classwide proof. 568 U.S., at ----, 133 S.Ct., at 1195-1196. We also noted that a failure to prove materiality would necessarily defeat every plaintiff's claim on the merits; it would not simply preclude invocation of the presumption and thereby cause individual questions of reliance to predominate over common ones. Ibid. See also id., at ----, 133 S.Ct., at 1199-1200. In this latter respect, we explained, materiality differs from the publicity and market efficiency prerequisites, neither of which is necessary to prove a Rule 10b-5 claim on the merits. Id., at ---- - ----, 133 S.Ct., at 1198-1200.
EPJ Fund argues that much of the foregoing could be said of price impact as well. Fair enough. But price impact differs from materiality in a crucial respect. Given that the other Basic prerequisites must still be proved at the class certification stage, the common issue of materiality can be left to the merits stage without risking the certification of classes in which individual issues will end up overwhelming common ones. And because materiality is a discrete issue that can be resolved in isolation from the other prerequisites, it can be wholly confined to the merits stage.
Price impact is different. The fact that a misrepresentation "was reflected in the market price at the time of [the] transaction"-that it had price impact-is "Basic 's fundamental premise." Halliburton I, 563 U.S., at ----, 131 S.Ct., at 2186. 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. Without proof of those prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.
But as explained, publicity and market efficiency are nothing more than prerequisites for an indirect showing of price impact. There is no dispute that at least such indirect proof of price impact "is needed to ensure that the questions of law or fact common to the class will 'predominate.' " Amgen, 568 U.S., at ----, 133 S.Ct., at 1195 (emphasis deleted); see id., at ----, 133 S.Ct., at 1198-1199. That is *2417so even though such proof is also highly relevant at the merits stage.
Our choice in this case, then, is not between allowing price impact evidence at the class certification stage or relegating it to the merits. Evidence of price impact will be before the court at the certification stage in any event. The choice, rather, is between limiting the price impact inquiry before class certification to indirect evidence, or allowing consideration of direct evidence as well. As explained, we see no reason to artificially limit the inquiry at the certification stage to indirect evidence of price impact. Defendants may seek to defeat the Basic presumption at that stage through direct as well as indirect price impact evidence.
* * *
More than 25 years ago, we held that plaintiffs could satisfy the reliance element of the Rule 10b-5 cause of action by invoking a presumption that a public, material misrepresentation will distort the price of stock traded in an efficient market, and that anyone who purchases the stock at the market price may be considered to have done so in reliance on the misrepresentation. We adhere to that decision and decline to modify the prerequisites for invoking the presumption of reliance. But to maintain the consistency of the presumption with the class certification requirements of Federal Rule of Civil Procedure 23, defendants must be afforded an opportunity before class certification to defeat the presumption through evidence that an alleged misrepresentation did not actually affect the market price of the stock.
Because the courts below denied Halliburton that opportunity, we vacate the judgment of the Court of Appeals for the Fifth Circuit and remand the case for further proceedings consistent with this opinion.
It is so ordered.
Justice GINSBURG, with whom Justice BREYER and Justice SOTOMAYOR join, concurring.
Advancing price impact consideration from the merits stage to the certification stage may broaden the scope of discovery available at certification. See Tr. of Oral Arg. 36-37. But the Court recognizes that it is incumbent upon the defendant to show the absence of price impact. See ante, at 2413 - 2414. The Court's judgment, therefore, should impose no heavy toll on securities-fraud plaintiffs with tenable claims. On that understanding, I join the Court's opinion.
Justice THOMAS, with whom Justice SCALIA and Justice ALITO join, concurring in the judgment.
The implied Rule 10b-5 private cause of action is "a relic of the heady days in which this Court assumed common-law powers to create causes of action," Correctional Services Corp. v. Malesko, 534 U.S. 61, 75, 122 S.Ct. 515, 151 L.Ed.2d 456 (2001) (SCALIA, J., concurring); see, e.g.,J.I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). We have since ended that practice because the authority to fashion private remedies to enforce federal law belongs to Congress alone. Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 164, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). Absent statutory authorization for a cause of action, "courts may not create one, no matter how desirable that might be as a policy matter." Alexander v. Sandoval, 532 U.S. 275, 286-287, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001).
Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), demonstrates *2418the wisdom of this rule. Basic presented the question how investors must prove the reliance element of the implied Rule 10b-5 cause of action-the requirement that the plaintiff buy or sell stock in reliance on the defendant's misstatement-when they transact on modern, impersonal securities exchanges. Were the Rule 10b-5 action statutory, the Court could have resolved this question by interpreting the statutory language. Without a statute to interpret for guidance, however, the Court began instead with a particular policy "problem": for investors in impersonal markets, the traditional reliance requirement was hard to prove and impossible to prove as common among plaintiffs bringing 10b-5 class-action suits. Id., at 242, 245, 108 S.Ct. 978. With the task thus framed as "resol[ving]" that " 'problem' " rather than interpreting statutory text, id., at 242, 108 S.Ct. 978, the Court turned to nascent economic theory and naked intuitions about investment behavior in its efforts to fashion a new, easier way to meet the reliance requirement. The result was an evidentiary presumption, based on a "fraud on the market" theory, that paved the way for class actions under Rule 10b-5.
Today we are asked to determine whether Basic was correctly decided. The Court suggests that it was, and that stare decisis demands that we preserve it. I disagree. Logic, economic realities, and our subsequent jurisprudence have undermined the foundations of the Basic presumption, and stare decisis cannot prop up the façade that remains. Basic should be overruled.
I
Understanding where Basic went wrong requires an explanation of the "reliance" requirement as traditionally understood.
"Reliance by the plaintiff upon the defendant's deceptive acts is an essential element" of the implied 10b-5 private cause of action.1Stoneridge, supra, at 159, 128 S.Ct. 761. To prove reliance, the plaintiff must show " 'transaction causation,' " i.e., that the specific misstatement induced "the investor's decision to engage in the transaction." Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ----, ---- - ----, 131 S.Ct. 2179, 2186, 180 L.Ed.2d 24 (2011). Such proof "ensures that there is a proper 'connection between a defendant's misrepresentation and a plaintiff's injury' "-namely, that the plaintiff has not just lost money as a result of the misstatement, but that he was actually defrauded by it. Id., at ----, 131 S.Ct., at 2184; see also Dirks v. SEC, 463 U.S. 646, 666-667, n. 27, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983) ("[T]o constitute a violation of Rule 10b-5, there must be fraud.... [T]here always are winners and losers; but those who have 'lost' have not necessarily been defrauded"). Without that connection, Rule 10b-5 is reduced to a " 'scheme of investor's insurance,' " because a plaintiff could recover whenever the defendant's misstatement distorted the stock price-regardless of whether the misstatement had actually tricked the plaintiff into buying (or selling) the stock in the first place. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 345, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (quoting *2419Basic, supra, at 252, 108 S.Ct. 978 (White, J., concurring in part and dissenting in part)).
The "traditional" reliance element requires a plaintiff to "sho[w] that he was aware of a company's statement and engaged in a relevant transaction ... based on that specific misrepresentation." Erica P. John Fund, supra, at ----, 131 S.Ct., at 2185. But investors who purchase stock from third parties on impersonal exchanges ( e.g., the New York Stock Exchange) often will not be aware of any particular statement made by the issuer of the security, and therefore cannot establish that they transacted based on a specific misrepresentation. Nor is the traditional reliance requirement amenable to class treatment; the inherently individualized nature of the reliance inquiry renders it impossible for a 10b-5 plaintiff to prove that common questions predominate over individual ones, making class certification improper. See Basic, supra, at 242, 108 S.Ct. 978;Fed. Rule Civ. Proc. 23(b)(3).
Citing these difficulties of proof and class certification, 485 U.S., at 242, 245, 108 S.Ct. 978, the Basic Court dispensed with the traditional reliance requirement in favor of a new one based on the fraud-on-the-market theory.2 The new version of reliance had two related parts.
First, Basic suggested that plaintiffs could meet the reliance requirement " 'indirectly,' " id., at 245, 108 S.Ct. 978. The Court reasoned that " 'ideally, [the market] transmits information to the investor in the processed form of a market price.' " Id., at 244, 108 S.Ct. 978. An investor could thus be said to have "relied" on a specific misstatement if (1) the market had incorporated that statement into the market price of the security, and (2) the investor then bought or sold that security "in reliance on the integrity of the [market] price," id., at 247, 108 S.Ct. 978,i.e., based on his belief that the market price " 'reflect[ed]' " the stock's underlying " 'value,' " id., at 244, 108 S.Ct. 978.
Second, Basic created a presumption that this "indirect" form of "reliance" had been proved. Based primarily on certain assumptions about economic theory and investor behavior, Basic afforded plaintiffs who traded in efficient markets an evidentiary presumption that both steps of the novel reliance requirement had been satisfied-that (1) the market had incorporated the specific misstatement into the market price of the security, and (2) the plaintiff did transact in reliance on the integrity of that price.3Id., at 247, 108 S.Ct. 978. A defendant was ostensibly entitled to rebut the presumption by putting forth evidence that either of those steps was absent. Id., at 248, 108 S.Ct. 978.
II
Basic 's reimagined reliance requirement was a mistake, and the passage of *2420time has compounded its failings. First, the Court based both parts of the presumption of reliance on a questionable understanding of disputed economic theory and flawed intuitions about investor behavior. Second, Basic 's rebuttable presumption is at odds with our subsequent Rule 23 cases, which require plaintiffs seeking class certification to " 'affirmatively demonstrate' " certification requirements like the predominance of common questions. Comcast Corp. v. Behrend, 569 U.S. ----, ----, 133 S.Ct. 1426, 1432, 185 L.Ed.2d 515 (2013) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ----, ----, 131 S.Ct. 2541, 2551-2552, 180 L.Ed.2d 374 (2011)). Finally, Basic 's presumption that investors rely on the integrity of the market price is virtually irrebuttable in practice, which means that the "essential" reliance element effectively exists in name only.
A
Basic based the presumption of reliance on two factual assumptions. The first assumption was that, in a "well-developed market," public statements are generally "reflected" in the market price of securities. 485 U.S., at 247, 108 S.Ct. 978. The second was that investors in such markets transact "in reliance on the integrity of that price." Ibid. In other words, the Court created a presumption that a plaintiff had met the two-part, fraud-on-the-market version of the reliance requirement because, in the Court's view, "common sense and probability" suggested that each of those parts would be met. Id., at 246, 108 S.Ct. 978.
In reality, both of the Court's key assumptions are highly contestable and do not provide the necessary support for Basic 's presumption of reliance. The first assumption-that public statements are "reflected" in the market price-was grounded in an economic theory that has garnered substantial criticism since Basic. The second assumption-that investors categorically rely on the integrity of the market price-is simply wrong.
1
The Court's first assumption was that "most publicly available information"-including public misstatements-"is reflected in [the] market price" of a security. Id., at 247, 108 S.Ct. 978. The Court grounded that assumption in "empirical studies" testing a then-nascent economic theory known as the efficient capital markets hypothesis. Id., at 246-247, 108 S.Ct. 978. Specifically, the Court relied upon the "semi-strong" version of that theory, which posits that the average investor cannot earn above-market returns ( i.e., "beat the market") in an efficient market by trading on the basis of publicly available information. See, e.g., Stout, The Mechanisms of Market Inefficiency: An Introduction to the New Finance, 28 J. Corp. L. 635, 640, and n. 24 (2003) (citing Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, 25 J. Finance 383, 388 (1970)).4 The upshot of the hypothesis is that "the market price of shares traded on well-developed markets [will] reflec[t] all publicly available information, and, hence, any material misrepresentations." Basic, supra, at 246, 108 S.Ct. 978. At the time of Basic, this version of the efficient capital markets hypothesis *2421was "widely accepted." See Dunbar & Heller 463-464.
This view of market efficiency has since lost its luster. See, e.g., Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L.Rev. 151, 175 ("Doubts about the strength and pervasiveness of market efficiency are much greater today than they were in the mid-1980s"). As it turns out, even "well-developed" markets (like the New York Stock Exchange) do not uniformly incorporate information into market prices with high speed. "[F]riction in accessing public information" and the presence of "processing costs" means that "not all public information will be impounded in a security's price with the same alacrity, or perhaps with any quickness at all." Cox, Understanding Causation in Private Securities Lawsuits: Building on Amgen, 66 Vand. L.Rev. 1719, 1732 (2013) (hereinafter Cox). For example, information that is easily digestible (merger announcements or stock splits) or especially prominent (Wall Street Journal articles) may be incorporated quickly, while information that is broadly applicable or technical (Securities and Exchange Commission filings) may be incorporated slowly or even ignored. See Stout, supra, at 653-656; see e.g., In re Merck & Co. Securities Litigation, 432 F.3d 261, 263-265 (C.A.3 2005) (a Wall Street Journal article caused a steep decline in the company's stock price even though the same information was contained in an earlier SEC disclosure).
Further, and more importantly, "overwhelming empirical evidence" now suggests that even when markets do incorporate public information, they often fail to do so accurately. Lev and de Villiers, Stock Price Crashes and 10b-5 Damages: A Legal, Economic and Policy Analysis, 47 Stan. L.Rev. 7, 20-21 (1994); see also id., at 21 ("That many share price movements seem unrelated to specific information strongly suggests that capital markets are not fundamentally efficient, and that wide deviations from fundamentals ... can occur" (footnote omitted)). "Scores" of "efficiency-defying anomalies"-such as market swings in the absence of new information and prolonged deviations from underlying asset values-make market efficiency "more contestable than ever." Langevoort, Taming the Animal Spirits of the Stock Markets: A Behavioral Approach to Securities Regulation, 97 Nw. U.L.Rev. 135, 141 (2002); Dunbar & Heller 476-483. Such anomalies make it difficult to tell whether, at any given moment, a stock's price accurately reflects its value as indicated by all publicly available information. In sum, economists now understand that the price impact Basic assumed would happen reflexively is actually far from certain even in "well-developed" markets. Thus, Basic 's claim that "common sense and probability" support a presumption of reliance rests on shaky footing.
2
The Basic Court also grounded the presumption of reliance in a second assumption: that "[a]n investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price." 485 U.S., at 247, 108 S.Ct. 978. In other words, the Court assumed that investors transact based on the belief that the market price accurately reflects the underlying " 'value' " of the security. See id., at 244, 108 S.Ct. 978 (" '[P]urchasers generally rely on the price of the stock as a reflection of its value' "). The Basic Court appears to have adopted this assumption about investment behavior based only on what it believed to be "common sense." Id., at 246, 108 S.Ct. 978. The Court found it " 'hard to imagine that there ever is a buyer or seller who does *2422not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?' " Id., at 246-247, 108 S.Ct. 978.
The Court's rather superficial analysis does not withstand scrutiny. It cannot be seriously disputed that a great many investors do not buy or sell stock based on a belief that the stock's price accurately reflects its value. Many investors in fact trade for the opposite reason-that is, because they think the market has under- or overvalued the stock, and they believe they can profit from that mispricing. Id., at 256, 108 S.Ct. 978 (opinion of White, J.); see, e.g., Macey, The Fraud on the Market Theory: Some Preliminary Issues, 74 Cornell L.Rev. 923, 925 (1989) (The "opposite" of Basic 's assumption appears to be true; some investors "attempt to locate undervalued stocks in an effort to 'beat the market' ... in essence betting that the market ... is in fact inefficient"). Indeed, securities transactions often take place because the transacting parties disagree on the security's value. See, e.g., Stout, Are Stock Markets Costly Casinos? Disagreement, Market Failure, and Securities Regulation, 81 Va. L.Rev. 611, 619 (1995) ("[A]vailable evidence suggests that ... investor disagreement inspires the lion's share of equities transactions").
Other investors trade for reasons entirely unrelated to price-for instance, to address changing liquidity needs, tax concerns, or portfolio balancing requirements. See id., at 657-658; see also Cox 1739 (investors may purchase "due to portfolio rebalancing arising from its obeisance to an indexing strategy"). These investment decisions-made with indifference to price and thus without regard for price "integrity"-are at odds with Basic 's understanding of what motivates investment decisions. In short, Basic 's assumption that all investors rely in common on "price integrity" is simply wrong.5
The majority tries (but fails) to reconcile Basic 's assumption about investor behavior with the reality that many investors do not behave in the way Basic assumed. It first asserts that Basic rested only on the more modest view that " ' most investors' " rely on the integrity of a security's market price. Ante, at 2411 (quoting not Basic, but Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ----, ----, 133 S.Ct. 1184, 1192-1193, 185 L.Ed.2d 308 (2013) (emphasis added)). That gloss is difficult to square with Basic 's plain language: "An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price." Basic, 458 U.S., at 247, 102 S.Ct. 3057; see also id., at 246-247, 102 S.Ct. 3057 (" '[I]t is hard to imagine that there ever is a buyer or seller who does not rely on market integrity' "). In any event, neither Basic nor the majority offers anything more than a judicial hunch as evidence that even "most" investors rely on price integrity.
The majority also suggests that "there is no reason to suppose" that investors who *2423buy stock they believe to be undervalued are "indifferent to the integrity of market prices." Ante, at 2411. Such "value investor[s]," according to the majority, "implicitly rel[y] on the fact that a stock's market price will eventually reflect material information" and "presumably tr[y] to estimate how undervalued or overvalued a particular stock is" by reference to the market price. Ibid. Whether the majority's unsupported claims about the thought processes of hypothetical investors are accurate or not, they are surely beside the point. Whatever else an investor believes about the market, he simply does not "rely on the integrity of the market price" if he does not believe that the market price accurately reflects public information at the time he transacts. That is, an investor cannot claim that a public misstatement induced his transaction by distorting the market price if he did not buy at that price while believing that it accurately incorporated that public information. For that sort of investor, Basic 's critical fiction falls apart.
B
Basic 's presumption of reliance also conflicts with our more recent cases clarifying Rule 23's class-certification requirements. Those cases instruct that "a party seeking to maintain a class action 'must affirmatively demonstrate his compliance' with Rule 23." Comcast, 569 U.S., at ----, 133 S.Ct., at 1432 (quoting Wal-Mart, 564 U.S., at ----, 131 S.Ct., at 2551). To prevail on a motion for class certification, a party must demonstrate through "evidentiary proof" that " 'questions of law or fact common to class members predominate over any questions affecting only individual members.' " 569 U.S., at ----, 133 S.Ct., at 1432 (quoting Fed. Rule Civ. Proc. 23(b)(3)) .
Basic permits plaintiffs to bypass that requirement of evidentiary proof. Under Basic, plaintiffs who invoke the presumption of reliance (by proving its predicates) are deemed to have met the predominance requirement of Rule 23(b)(3). See ante, at 2412; Amgen, supra, at ----, 133 S.Ct., at 1193 ( Basic "facilitates class certification by recognizing a rebuttable presumption of classwide reliance"); Basic, 485 U.S., at 242, 250, 108 S.Ct. 978 (holding that the District Court appropriately certified the class based on the presumption of reliance). But, invoking the Basic presumption does not actually prove that individual questions of reliance will not overwhelm the common questions in the case. Basic still requires a showing that the individual investor bought or sold in reliance on the integrity of the market price and, crucially, permits defendants to rebut the presumption by producing evidence that individual plaintiffs do not meet that description. See id., at 249, 108 S.Ct. 978 ("Petitioners ... could rebut the presumption of reliance as to plaintiffs who would have divested themselves of their Basic shares without relying on the integrity of the market"). Thus, by its own terms, Basic entitles defendants to ask each class member whether he traded in reliance on the integrity of the market price. That inquiry, like the traditional reliance inquiry, is inherently individualized; questions about the trading strategies of individual investors will not generate " 'common answers apt to drive the resolution of the litigation,' " Wal-Mart Stores, supra, at ----, 131 S.Ct., at 2551. See supra, at 2421 - 2422; see also Cox 1736, n. 55 (Basic 's recognition that defendants could rebut the presumption "by proof the investor would have traded anyway appears to require individual inquiries into reliance").
Basic thus exempts Rule 10b-5 plaintiffs from Rule 23's proof requirement. Plaintiffs *2424who invoke the presumption of reliance are deemed to have shown predominance as a matter of law, even though the resulting rebuttable presumption leaves individualized questions of reliance in the case and predominance still unproved. Needless to say, that exemption was beyond the Basic Court's power to grant.6
C
It would be bad enough if Basic merely provided an end-run around Rule 23. But in practice, the so-called "rebuttable presumption" is largely irrebuttable.
The Basic Court ostensibly afforded defendants an opportunity to rebut the presumption by providing evidence that either aspect of a plaintiff's fraud-on-the-market reliance-price impact, or reliance on the integrity of the market price-is missing. 485 U.S., at 248-249, 108 S.Ct. 978. As it turns out, however, the realities of class-action procedure make rebuttal based on an individual plaintiff's lack of reliance virtually impossible. At the class-certification stage, rebuttal is only directed at the class representatives, which means that counsel only needs to find one class member who can withstand the challenge. See Grundfest, Damages and Reliance Under Section 10(b) of the Exchange Act, 69 Bus. Lawyer 307, 362 (2014). After class certification, courts have refused to allow defendants to challenge any plaintiff's reliance on the integrity of the market price prior to a determination on classwide liability. See Brief for Chamber of Commerce of the United States of America et al. as Amici Curiae 13-14 (collecting cases rejecting postcertification attempts to rebut individual class members' reliance on price integrity as not pertinent to classwide liability). One search for rebuttals on individual-reliance grounds turned up only six cases out of the thousands of Rule 10b-5 actions brought since Basic. Grundfest, supra, at 360.7
The apparent unavailability of this form of rebuttal has troubling implications. Because the presumption is conclusive in practice with respect to investors' reliance on price integrity, even Basic 's watered-down reliance requirement has been effectively eliminated. Once the presumption attaches, the reliance element is no longer an obstacle to prevailing on the claim, even though many class members will not have transacted in reliance on price integrity, see supra, at 2421 - 2422. And without a functional reliance requirement, the "essential element" that ensures the plaintiff *2425has actually been defrauded, see Stoneridge, 552 U.S., at 159, 128 S.Ct. 761, Rule 10b-5 becomes the very " 'scheme of investor's insurance' " the rebuttable presumption was supposed to prevent. See Basic, supra, at 252, 108 S.Ct. 978 (opinion of White, J.).8
For these reasons, Basic should be overruled in favor of the straightforward rule that "[r]eliance by the plaintiff upon the defendant's deceptive acts"-actual reliance, not the fictional "fraud-on-the-market" version-"is an essential element of the § 10(b) private cause of action." Stoneridge, 552 U.S., at 159, 128 S.Ct. 761.
III
Principles of stare decisis do not compel us to save Basic 's muddled logic and armchair economics. We have not hesitated to overrule decisions when they are "unworkable or are badly reasoned," Payne v. Tennessee, 501 U.S. 808, 827, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991); when "the theoretical underpinnings of those decisions are called into serious question," State Oil Co. v. Khan, 522 U.S. 3, 21, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997); when the decisions have become "irreconcilable" with intervening developments in "competing legal doctrines or policies," Patterson v. McLean Credit Union, 491 U.S. 164, 173, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989); or when they are otherwise "a positive detriment to coherence and consistency in the law," ibid. Just one of these circumstances can justify our correction of bad precedent; Basic checks all the boxes.
In support of its decision to preserve Basic, the majority contends that stare decisis "has 'special force' 'in respect to statutory interpretation' because 'Congress remains free to alter what we have done.' " Ante, at 2411 (quoting John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 139, 128 S.Ct. 750, 169 L.Ed.2d 591 (2008); some internal quotation marks omitted). But Basic, of course, has nothing to do with statutory interpretation. The case concerned a judge-made evidentiary presumption for a judge-made element of the implied 10b-5 private cause of action, itself "a judicial construct that Congress did not enact in the text of the relevant statutes." Stoneridge, supra, at 164, 128 S.Ct. 761. We have not afforded stare decisis "special force" outside the context of statutory interpretation, see Michigan v. Bay Mills Indian Community, 572 U.S. ----, ----, n. 6, 134 S.Ct. 2024, 2053-2054, n. 6, 188 L.Ed.2d 1071 (2014) (THOMAS, J. dissenting) and for good reason. In statutory cases, it is perhaps plausible that Congress watches over its enactments and will step in to fix our mistakes, so we may leave to Congress the judgment whether the interpretive question is better left " 'settled' " or " 'settled right,' " Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 424, 106 S.Ct. 1922, 90 L.Ed.2d 413 (1986). But this rationale is untenable when it comes to judge-made law like "implied" private causes of action, which we retain a duty to superintend. See, e.g., *2426Exxon Shipping Co. v. Baker, 554 U.S. 471, 507, 128 S.Ct. 2605, 171 L.Ed.2d 570 (2008) ("[T]he judiciary [cannot] wash its hands of a problem it created ... simply by calling [the judicial doctrine] legislative"). Thus, when we err in areas of judge-made law, we ought to presume that Congress expects us to correct our own mistakes-not the other way around. That duty is especially clear in the Rule 10b-5 context, where we have said that "[t]he federal courts have accepted and exercised the principal responsibility for the continuing elaboration of the scope of the 10b-5 right and the definition of the duties it imposes." Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 292, 113 S.Ct. 2085, 124 L.Ed.2d 194 (1993).
Basic 's presumption of reliance remains our mistake to correct. Since Basic, Congress has enacted two major securities laws: the Private Securities Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737, and the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 112 Stat. 3227. The PSLRA "sought to combat perceived abuses in securities litigation," ante, at 2413, and SLUSA prevented plaintiffs from avoiding the PSLRA's restrictions by bringing class actions in state court, ibid. Neither of these Acts touched the reliance element of the implied Rule 10b-5 private cause of action or the Basic presumption.
Contrary to respondent's argument (the majority wisely skips this next line of defense), we cannot draw from Congress' silence on this matter an inference that Congress approved of Basic. To begin with, it is inappropriate to give weight to "Congress' unenacted opinion" when construing judge-made doctrines, because doing so allows the Court to create law and then "effectively codif[y]" it "based only on Congress' failure to address it." Bay Mills, supra, at ----, 134 S.Ct., at 2053 (THOMAS, J., dissenting). Our Constitution, however, demands that laws be passed by Congress and signed by the President. U.S. Const., Art. I, § 7. Adherence to Basic based on congressional inaction would invert that requirement by insulating error from correction merely because Congress failed to pass a law on the subject. Cf. Patterson, supra, at 175, n. 1, 109 S.Ct. 2363 ("Congressional inaction cannot amend a duly enacted statute").
At any rate, arguments from legislative inaction are speculative at best. "[I]t is ' "impossible to assert with any degree of assurance that congressional failure to act represents" affirmative congressional approval of' one of this Court's decisions." Bay Mills, supra, at ----, 134 S.Ct., at 2052 (THOMAS, J., dissenting) (quoting Patterson, supra, at 175, n. 1, 109 S.Ct. 2363). " 'Congressional inaction lacks persuasive significance' " because it is indeterminate; " 'several equally tenable inferences may be drawn from such inaction.' " Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 187, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994) (quoting Pension Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633, 650, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990)). Therefore, "[i]t does not follow ... that Congress' failure to overturn a ... precedent is reason for this Court to adhere to it." Patterson, supra, at 175, n. 1, 109 S.Ct. 2363.
That is especially true here, because Congress passed a law to tell us not to draw any inference from its inaction. The PSLRA expressly states that "[n]othing in this Act ... shall be deemed to create or ratify any implied private right of action." Notes following 15 U.S.C. § 78j-1, p. 430. If the Act did not ratify even the Rule *242710b-5 private cause of action, it cannot be read to ratify sub silentio the presumption of reliance this Court affixed to that action. Further, the PSLRA and SLUSA operate to curtail abuses of various private causes of action under our securities laws-hardly an indication that Congress approved of Basic 'sexpansion of the 10b-5 private cause of action. Congress' failure to overturn Basic does not permit us to "place on the shoulders of Congress the burden of the Court's own error." Girouard v. United States, 328 U.S. 61, 70, 66 S.Ct. 826, 90 L.Ed. 1084 (1946).
* * *
Basic took an implied cause of action and grafted on a policy-driven presumption of reliance based on nascent economic theory and personal intuitions about investment behavior. The result was an unrecognizably broad cause of action ready made for class certification. Time and experience have pointed up the error of that decision, making it all too clear that the Court's attempt to revise securities law to fit the alleged "new realities of financial markets" should have been left to Congress. 485 U.S., at 255, 108 S.Ct. 978 (opinion of White, J.).
7.4 Amgen Inc. v. Connecticut Retirement Plans & Trust Funds 7.4 Amgen Inc. v. Connecticut Retirement Plans & Trust Funds
AMGEN INC. et al. v. CONNECTICUT RETIREMENT PLANS AND TRUST FUNDS
No. 11-1085.
Argued November 5, 2012
Decided February 27, 2013
*457Ginsburg, J., delivered the opinion of the Court, in which Roberts, C. J., and Breyer, Alito, Sotomayor, and Kagan, JJ., joined. Abito, J., filed a concurring opinion, post, p. 482. Scalia, J., filed a dissenting opinion, post, p. 483. Thomas, J., filed a dissenting opinion, in which Kennedy, J., joined, and in which Scalia, J., joined except for Part I-B, post, p. 486.
Seth P. Waxman argued the cause for petitioners. With him on the briefs were Louis R. Cohen, Andrew N. Vo timer, Daniel S. Volchok, Noah A. Levine, Steven 0. Kramer, John P. Stigi III, John M. Landry, and Jonathan D. Moss.
David C. Frederick argued the cause for respondent. With him on the brief were Derek T. Ho, Emily T. P. Rosen, Edward Labaton, Jonathan M. Plasse, and Christopher J. McDonald.
Melissa Arbus Sherry argued the cause for the United States as amicus curiae in support of respondent. On the brief were Solicitor General Verrilli, Deputy Solicitor General Stewart, Nicole A. Saharsky, Mark D. Cahn, Michael *458 A. Conley, Jacob H. Stillman, John W. Avery, Benjamin L. Schiffrin, and Jeffrey A. Berger. *
delivered the opinion of the Court.
This case involves a securities-fraud complaint filed by Connecticut Retirement Plans and Trust Funds (Connecticut Retirement) against biotechnology company Amgen Inc. and several of its officers (collectively, Amgen). Seeking class-action certification under Federal Rule of Civil Procedure 23, Connecticut Retirement invoked the “fraud-on-the-market” presumption endorsed by this Court in Basic Inc. v. Levinson, 485 U. S. 224 (1988), and recognized most recently in Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. 804 (2011). The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security.
*459Amgen has conceded the efficiency of the market for the securities at issue and has not contested the public character of the allegedly fraudulent statements on which Connecticut Retirement’s complaint is based. Nor does Amgen here dispute that Connecticut Retirement meets all of the class-action prerequisites stated in Rule 23(a): (1) the alleged class “is so numerous that joinder of all members is impracticable”; (2) “there are questions of law or fact common to the class”; (3) Connecticut Retirement’s claims are “typical of the claims ... of the class”; and (4) Connecticut Retirement will “fairly and adequately protect the interests of the class.”
The issue presented concerns the requirement stated in Rule 23(b)(3) that “the questions of .law or fact common to class members predominate over any questions affecting only individual members.” Amgen contends that to meet the predominance requirement, Connecticut Retirement must do more than plausibly plead that Amgen’s alleged misrepresentations and misleading omissions materially affected Amgen’s stock price. According to Amgen, certification must be denied unless Connecticut Retirement proves materiality, for immaterial misrepresentations or omissions, by definition, would have no impact on Amgen’s stock price in an efficient market.
While Connecticut Retirement certainly must prove materiality to prevail on the merits, we hold that such proof is not a prerequisite to class certification. Rule 23(b)(3) requires a showing that questions common to the class predominate, not that those questions will be answered, on the merits, in favor of the class. Because materiality is judged according to an objective standard, the materiality of Amgen’s alleged misrepresentations and omissions is a question common to all members of the class Connecticut Retirement would represent. The alleged misrepresentations and omissions, whether material or immaterial, would be so equally for all investors composing the class. As vital, the plaintiff class’s inability to prove materiality would not result in individual *460questions predominating. Instead, a failure of proof on the issue of materiality would end the case, given that materiality is an essential element of the class members’ securities-fraud claims. As to materiality, therefore, the class is entirely cohesive: It will prevail or fail in unison. In no- event will the individual circumstances of particular class members bear on the inquiry.
Essentially, Amgen, also the dissenters from today’s decision, would have us put the cart before the horse. To gain certification under Rule 23(b)(3), Amgen and the dissenters urge, Connecticut Retirement must first establish that it will win the fray. But the office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the “metho[d]” best suited to adjudication of the controversy “fairly and efficiently.”
I
A
This case involves the interaction between federal securities-fraud laws and Rule 23’s requirements for class certification. To obtain certification of a class action for money damages under Rule 23(b)(3), a plaintiff must satisfy Rule 23(a)’s above-mentioned prerequisites of numerosity, commonality, typicality, and adequacy of representation, see swpra, at 459, and must also establish that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” To recover damages in a private securities-fraud action under § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, as amended, 15 U. S. C. § 78j(b) (2006 ed., Supp. V), and Securities and Exchange Commission Rule 10b-5, 17 CFR §240.10b-5 (2011), a plaintiff must prove “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the *461purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 37-38 (2011) (internal quotation marks omitted).
“Reliance,” we have explained, “is an essential element of the § 10(b) private cause of action” because “proof of reliance ensures that there is a proper connection between a defendant’s misrepresentation and a plaintiff’s injury.” Halliburton, 563 U. S., at 810 (internal quotation marks omitted). “The traditional (and most direct) way” for a plaintiff to demonstrate reliance “is by showing that he was aware of a company’s statement and engaged in a relevant transaction . . . based on that specific misrepresentation.” Ibid. We have recognized, however, that requiring proof of direct reliance “would place an unnecessarily unrealistic evidentiary burden on [a] plaintiff who has traded on an impersonal market.” Basic, 485 U. S., at 245. Accordingly, in Basic the Court endorsed the “fraud-on-the-market” theory, which permits certain Rule 10b-5 plaintiffs to invoke a rebuttable presumption of reliance on material misrepresentations aired to the general public. Id., at 241-249.1
The fraud-on-the-market theory rests on the premise that certain well developed markets are efficient processors of public information. In such markets, the “market price of shares” will “reflec[t] all publicly available information.” Id., at 246. Few investors in such markets, if any, can consistently achieve above-market returns by trading based on publicly available information alone, for if such above-market returns were readily attainable, it would mean that market *462prices were not efficiently incorporating the full supply of public information. See R. Brealey, S. Myers, & F. Allen, Principles of Corporate Finance 330 (10th ed. 2011) (“[I]n an efficient market, there is no way for most investors to achieve consistently superior rates of return.”).
In Basic, we held that if a market is shown to be efficient, courts may presume that investors who traded securities in that market relied on public, material misrepresentations regarding those securities. See 485 U. S., at 245-247. This presumption springs from the very concept of market efficiency. If a market is generally efficient in incorporating publicly available information into a security’s market price, it is reasonable to presume that a particular public, material misrepresentation will be reflected in the security’s price. Furthermore, it is reasonable to presume that most investors—knowing that they have little hope of outperforming the market in the long run based solely on their analysis of publicly available information—will rely on the security’s market price as an unbiased assessment of the security’s value in light of all public information. Thus, courts may presume that investors trading in efficient markets indirectly rely on public, material misrepresentations through their “reliance on the integrity of the price set by the market.” Id., at 245. “[T]he presumption,” however, is “just that, and [can] be rebutted by appropriate evidence.” Halliburton, 563 U. S., at 811. See also Basic, 485 U. S., at 248-249 (providing examples of showings that would rebut the fraud-on-the-market presumption).
Although fraud on the market is a substantive doctrine of federal securities-fraud law that can be invoked by any Rule 10b-5 plaintiff, see, e. g., Black v. Finantra Capital, Inc., 418 F. 3d 203, 209 (CA2 2005); Blackie v. Barrack, 524 F. 2d 891, 908 (CA9 1975), the doctrine has particular significance in securities-fraud class actions. Absent the fraud-on-the-market theory, the requirement that Rule 10b-5 plaintiffs establish reliance would ordinarily preclude certification of a *463class action seeking money damages because individual reliance issues would overwhelm questions common to the class. See Basic, 485 U. S., at 242. The fraud-on-the-market theory, however, facilitates class certification by recognizing a rebuttable presumption of classwide reliance on public, material misrepresentations when shares are traded in an efficient market. Ibid. 2
B
In its complaint, Connecticut Retirement alleges that Amgen violated § 10(b) and Rule 10b-5 through certain misrepresentations and misleading omissions regarding the safety, efficacy, and marketing of two of its flagship drugs.3 According to Connecticut Retirement, these misrepresentations and omissions artificially inflated the price of Amgen’s stock at the time Connecticut Retirement and numerous other securities buyers purchased- the stock. When the truth came to light, Connecticut Retirement asserts, Am-gen’s stock price declined, resulting in financial losses to those who purchased the stock at the inflated price. In its answer to Connecticut Retirement’s complaint, Amgen conceded that “[a]t all relevant times, the market for [its] securities,” which are traded on the NASDAQ stock exchange, “was an efficient market”; thus, “the market for Amgen’s securities promptly digested current information regarding Amgen from all publicly available sources and reflected such information in Amgen’s stock price.” Consolidated Amended Class Action Complaint ¶¶ 199-200 in No. CV-07-2536 (CD Cal.); Answer ¶¶199-200.
*464The District Court granted Connecticut Retirement’s motion to certify a class action under Rule 23(b)(3) on behalf of all investors who purchased Amgen stock between the date of the first alleged misrepresentation and the date of the last alleged corrective disclosure. After granting Amgen’s request to take an interlocutory appeal from the District Court’s class-certification order, see Fed. Rule Civ. Proc. 23(f), the Court of Appeals affirmed. 660 F. 3d 1170 (CA9 2011).
Amgen raised two arguments on appeal. First, Amgen contended that the District Court erred by certifying the proposed class without first requiring Connecticut Retirement to prove that Amgen’s alleged misrepresentations and omissions were material. Second, Amgen argued that the District Court erred by refusing to consider certain rebuttal evidence that Amgen had proffered in opposition to Connecticut Retirement’s class-certification motion. This evidence, in Amgen’s view, demonstrated that the market was well aware of the truth regarding its alleged misrepresentations and omissions at the time the class members purchased their shares.
The Court of Appeals rejected both contentions. Am-gen’s first argument, the Court of Appeals noted, made the uncontroversial point that immaterial misrepresentations and omissions “by definition [do] not affect. . . stock price[s] in an efficient market.” Id., at 1175. Thus, where misrepresentations and omissions are not material, there is no basis for presuming classwide reliance on those misrepresentations and omissions through the information-processing mechanism of the market price. “The problem with that argument,” the Court of Appeals observed, is evident: “[Because materiality is an element of the merits of their securities fraud claim, the plaintiffs cannot both fail to prove materiality yet still have a viable claim for which they would need to prove reliance individually.” Ibid. The Court of Appeals thus concluded that “proof of materiality is not nec*465essary” to ensure compliance with Rule 23(b)(3)’s requirement that common questions predominate. Id., at 1177.
With respect to Amgen’s second argument, the Court of Appeals determined that Amgen’s ■ proffered rebuttal evidence was merely “a method of refuting [the] materiality” of the misrepresentations and omissions alleged in Connecticut Retirement’s complaint. Ibid. Having already concluded that a securities-fraud plaintiff does not need to prove materiality before class certification, the court similarly held that “the district court correctly refused to consider” Amgen’s rebuttal evidence “at the class certification stage.” Ibid.
We granted Amgen’s petition for certiorari, 567 U. S. 905 (2012), to resolve a conflict among the Courts of Appeals over whether district courts must require plaintiffs to prove, and must allow defendants to present evidence rebutting, the element of materiality before certifying a class action under § 10(b) and Rule 10b-5. Compare 660 F. 3d 1170 (case below) and Schleicher v. Wendt, 618 F. 3d 679, 687 (CA7 2010) (materiality need not be proved at the class-certification stage), with In re Salomon Analyst Metromedia Litigation, 544 F. 3d 474, 484-485, 486, n. 9 (CA2 2008) (plaintiff must prove, and defendant may present evidence rebutting, materiality before class certification). See also In re DVI, Inc. Securities Litigation, 639 F. 3d 623, 631-632, 637-638 (CA3 2011) (plaintiff need not prove materiality before class certification, but defendant may present rebuttal evidence on the issue).
II
A
The only issue before us in this case is whether Connecticut Retirement has satisfied Rule 23(b)(3)’s requirement that “questions of law or fact common to class mémbers predominate over any questions affecting only individual members.” Although we have cautioned that a court’s class-certification analysis must be “rigorous” and may “entail some overlap *466with the merits of the plaintiff’s underlying claim,” Wal-Mart Stores, Inc. v. Dukes, 564 U. S. 338, 351 (2011) (internal quotation marks omitted), Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent— but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied. See id., at 351, n. 6 (a district court has no “ ‘authority to conduct a preliminary inquiry into the merits of a suit’ ” at class certification unless it is necessary “to determine the propriety of certification” (quoting Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974))); Advisory Committee’s 2003 Note on subd. (c)(1) of Fed. Rule Civ. Proc. 23, 28 U. S. C. App., p. 144 (“[A]n evaluation of the probable outcome on the merits is not properly part of the certification decision.”).
Bearing firmly in mind that the focus of Rule 23(b)(3) is on the predominance of common questions, we turn to Amgen’s contention that the courts below erred by failing to require Connecticut Retirement to prove the materiality of Amgen’s alleged misrepresentations and omissions before certifying Connecticut Retirement’s proposed class. As Amgen notes, materiality is not only an element of the Rule 10b-5 cause of action; it is also an essential predicate of the fraud-on-the-market theory. See Basic, 485 U. S., at 247 (“[W]here materially misleading statements have been disseminated into an impersonal, well-developed market for securities, the reliance of individual plaintiffs on the integrity of the market price may be presumed.” (emphasis added)). That theory, Amgen correctly observes, is premised on the understanding that in an efficient market, all publicly available information is rapidly incorporated into, and thus transmitted to investors through, the market price. See id., at 246-247. Because immaterial information, by definition, does not affect market price, it cannot be relied upon indirectly by investors who, as the fraud-on-the-market theory presumes, rely on *467the market price’s integrity. Therefore, the fraud-on-the-market theory cannot apply absent a material misrepresentation or omission. And without the fraud-on-the-market theory, the element of reliance cannot be proved on a class-wide basis through evidence common to the class. See id., at 242. It thus follows, Amgen contends, that materiality must be proved before a securities-fraud class action can be certified.
Contrary to Amgen’s argument, the key question in this case is not whether materiality is an essential predicate of the fraud-on-the-market theory; indisputably it is.4 Instead, the pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will “predominate over any questions affecting only individual members” as the litigation progresses. Fed. Rule Civ. Proc. 23(b)(3). For two reasons, the answer to this question is clearly “no.”
First, because “[t]he question of materiality ... is an objective one, involving the significance of an omitted or misrepresented fact to a reasonable investor,” materiality can be proved through evidence common to the class. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 445 (1976). Consequently, materiality is a “common questio[n]” for purposes of Rule 23(b)(3). Basic, 485 U. S., at 242 (listing “materiality” as one of the questions common to the Basic class members).
Second, there is no risk whatever that a failure of proof on the common question of materiality will result in individual *468questions predominating. Because materiality is an essential element of a Rule 10b-5 claim, see Matrixx Initiatives, 563 U. S., at 37, Connecticut Retirement’s failure to present sufficient evidence of materiality to defeat a summary-judgment motion or to prevail at trial would not cause individual reliance questions to overwhelm the questions common to the class. Instead, the failure of proof on the element of materiality would end the case for one and for all; no claim would remain in which individual reliance issues could potentially predominate.
Totally misapprehending our essential point, Justice Thomas’ dissent asserts that our “entire argument is based on the assumption that the fraud-on-the-market presumption need not be shown at certification because it will be proved later on the merits.” Post, at 495, n. 9. Our position is not so based. We rest, instead, entirely on the text of Rule 23(b)(3), which provides for class certification if “the questions of law or fact common to class members predominate over any questions affecting only individual members.” A failure of proof on the common question of materiality ends the litigation and thus will never cause individual questions of reliance or anything else to overwhelm questions common to the class. Therefore, under the plain language of Rule 23(b)(3), plaintiffs are not required to prove materiality at the class-certification stage. In other words, they need not, at that threshold, prove that the predominating question will be answered in their favor.
Justice Thomas urges that a plaintiff seeking class certification “must show that the elements of [her] claim are susceptible to elasswide proof.” Post, at 491. See also post, at 496 (criticizing the Court for failing to focus its analysis on “whether the element of reliance is susceptible to classwide proof”). From this premise, Justice Thomas concludes that Rule 10b-5 plaintiffs must prove materiality before class certification because (1) “materiality is a necessary component of fraud on the market,” and (2) without fraud on *469the market, the Rule 10b-5 element of reliance is not “susceptible of a classwide answer.” Post, at 491, 495. See also post, at 496 (“[I]f a plaintiff wishes to use Basic’s presumption to prove that reliance is a common question, he must establish the entire presumption, including materiality, at the class certification stage.”).
Rule 23(b)(3), however, does not require a plaintiff seeking class certification to prove that each “elemen[t] of [her] claim [is] susceptible to classwide proof.” Post, at 491. What the Rule does require is that common questions “predominate over any questions affecting only individual [class] members.” Fed. Rule Civ. Proc. 23(b)(3) (emphasis added). Nowhere does Justice Thomas explain how, in an action invoking the Basic presumption, a plaintiff class’s failure to prove an essential element of its claim for relief will result in individual questions predominating over common ones. Absent proof of materiality, the claim of the Rule 10b-5 class will fail in its entirety; there will be no remaining individual questions to adjudicate.
Consequently, proof of materiality is not required to establish that a proposed class is “sufficiently cohesive to warrant adjudication by representation”—the focus of the predominance inquiry under Rule 23(b)(3). Amchem Products, Inc. v. Windsor, 521 U. S. 591, 623 (1997). No doubt a clever mind could conjure up fantastic scenarios in which an individual investor might rely on immaterial information (think of the superstitious investor who sells her securities based on a CEO’s statement that a black cat crossed the CEO’s path that morning). But such objectively unreasonable reliance does not give rise to a Rule 10b-5 claim. See TSC Industries, 426 U. S., at 445 (materiality is judged by an objective standard). Thus, “the individualized questions of reliance,” post, at 494, n. 8, that hypothetically might arise when a failure of proof on the issue of materiality dooms the .fraud-on-the-market class are far more imaginative than real. Such “individualized questions” do not undermine class cohe*470sion and thus cannot be said to “predominate” for purposes of Rule 23(b)(3).5
Because the question of materiality is common to the class, and because a failure of proof on that issue would not result in questions “affecting only individual members” predominating, Rule 23(b)(3), Connecticut Retirement was not required to prove the materiality of Amgen’s alleged misrepresentations and omissions at the class-certification stage. This is not a case in which the asserted problem—i. e., that the plaintiff class cannot prove materiality—“exhibits some fatal dissimilarity” among class members that would make use of the class-action device inefficient or unfair. Nagar-eda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97,107 (2009). Instead, what Amgen alleges is “a fatal similarity—[an alleged] failure of proof as to an element of the plaintiffs’ cause of action.” Ibid. Such a contention is properly addressed at trial or in a ruling on a summary-judgment motion. The allegation should not be resolved in deciding whether to certify a proposed class. Ibid. See also Schleicher, 618 F. 3d, at 687 (“[WJhether a statement is materially false is a question common to all class members and therefore may be resolved on a class-wide basis after certification.”).
B
Insisting that materiality must be proved at the class-certification stage, Amgen relies chiefly on two arguments, neither of which we find persuasive.6
*4711
Amgen points first to our statement in Halliburton that “securities fraud plaintiffs must prove certain things in order to invoke Basic’s rebuttable presumption of reliance,” including “that the alleged misrepresentations were publicly known ..., that the stock traded in an efficient market, and that the relevant transaction took place ‘between the time *472the misrepresentations were made and the time the truth was revealed.’ ” 563 U. S., at 811 (quoting Basic, 485 U. S., at 248, n. 27). See also Dukes, 564 U. S., at 351, n. 6 (“[P]laintiffs seeking 23(b)(3) certification [of a securities-fraud class action] must prove that their shares were traded on an efficient market.”). If these fraud-on-the-market predicates must be proved before class certification, Amgen contends, materiality—another fraud-on-the-market predicate—should be treated no differently.
We disagree. As an initial matter, the requirement that a putative class representative establish that it executed trades “between the time the misrepresentations were made and the time the truth was revealed” relates primarily to the Rule 23(a)(3) and (a)(4) inquiries into typicality and adequacy of representation, not to the Rule 23(b)(3) predominance inquiry. Basic, 485 U. S., at 248, n. 27.7 A security’s market price cannot be affected by a misrepresentation not yet made, and in an efficient market, a misrepresentation’s impact on market price is quickly nullified once the truth comes to light. Thus, a plaintiff whose relevant transactions were not executed between the time the misrepresentation was made and the time the truth was revealed cannot be said to have indirectly relied on the misrepresentation through its reliance on the integrity of the market price.8 Such a plaintiff’s claims, therefore, would not be “typical” of the claims *473of investors who did trade during the window between misrepresentation and truth revelation. Fed. Rule Civ. Proc. 23(a)(3). Nor could a court confidently conclude that such a plaintiff would “fairly and adequately protect the interests” of investors who traded during the relevant window. Rule 23(a)(4). The requirement that the fraud-on-the-market theory’s trade-timing predicate be established before class certification thus sheds little light on the question whether materiality must also be proved at the class-certification stage.
Amgen is not aided by Halliburton’s statement that market efficiency and the public nature of the alleged misrepresentations must be proved before a securities-fraud class action can be certified. As Amgen notes, market efficiency, publicity, and materiality can all be proved on a classwide basis. Furthermore, they are all essential predicates of the fraud-on-the-market theory. Unless those predicates are established, there is no basis for presuming that the defendant’s alleged misrepresentations were reflected in the security’s market price, and hence no grounding for any contention that investors indirectly relied on those misrepresentations through their reliance on the integrity of the market price. But unlike materiality, market efficiency and publicity are not indispensable elements of a Rule 10b-5 claim. See Matrixx Initiatives, 563 U. S., at 37-38 (listing elements of a Rule 10b-5 claim). Thus, where the market for a security is inefficient or the defendant’s alleged misrepresentations were not aired publicly, a plaintiff cannot invoke the fraud-on-the-market presumption. She can, however, attempt to establish reliance through the “traditional” mode of demonstrating that she was personally “aware of [the defendant’s] statement and engaged in a relevant transaction . . . based on that specific misrepresentation.” Halliburton, 563 U. S., at 810. Individualized reliance issues would predominate in such a lawsuit. See Basic, 485 U. S., at 242. The litigation, *474therefore, could not be certified under Rule 23(b)(3) as a class action, but the initiating plaintiff’s claim would remain live; it would not be “dead on arrival.” 660 F. 3d, at 1175.
A failure of proof on the issue of materiality, in contrast, not only precludes a plaintiff from invoking the fraud-on-the-market presumption of classwide reliance; it also establishes as a matter of law that the plaintiff cannot prevail on the merits of her Rule 10b-5 claim. Materiality thus differs from the market-efficiency and publicity predicates in this critical respect: While the failure of common, classwide proof on the issues of market efficiency and publicity leaves open the prospect of individualized proof of reliance, the failure of common proof on the issue of materiality ends the case for the class and for all individuals alleged to compose the class. See Brief for United States as Amicus Curiae 20 (“Unless the failure of common proof gives rise to a need for individualized proof, it does not cast doubt on the propriety of class certification.”). In short, there can be no actionable reliance, individually or collectively, on immaterial information. Because a failure of proof on the issue of materiality, unlike the issues of market efficiency and publicity, does not give rise to any prospect of individual questions overwhelming common ones, materiality need not be proved prior to Rule 23(b)(3) class certification.
2
Amgen also contends that certain “policy considerations” militate in favor of requiring precertification proof of materiality. Brief for Petitioners 28. An order granting class certification, Amgen observes, can exert substantial pressure on a defendant “to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability.” Advisory Committee’s 1998 Note on subd. (f) of Fed. Rule Civ. Proc. 23, 28 U. S. C. App., p. 143. See also AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 350 (2011) (class actions can entail a “risk of ‘in terrorem’ settlements”). Absent a requirement to evaluate materiality at the class-*475certification stage, Amgen contends, the issue may never be addressed by a court, for the defendant will surrender and settle soon after a class is certified. Insistence on proof of materiality before certifying a securities-fraud class action, Amgen thus urges, ensures that the issue will be adjudicated and not forgone. See also post, at 485-486 (Scalia, J., dissenting) (expressing the same concerns).
In this regard, however, materiality does not differ from other essential elements of a Rule 10b-5 claim, notably, the requirements that the statements or omissions on which the plaintiff’s claims are based were false or misleading and that the alleged statements or omissions caused the plaintiff to suffer economic loss. See Matrixx Initiatives, 563 U. S., at 37-38. Settlement pressure exerted by class certification may prevent judicial resolution of these issues. Yet this Court has held that loss causation and the falsity or misleading nature of the defendant’s alleged statements or omissions are common questions that need not be adjudicated before a class is certified. See Halliburton, 563 U. S., at 809 (loss causation need not be proved at the class-certification stage); Basic, 485 U. S., at 242 (“the falsity or misleading nature of the . . . public statements” allegedly made by the defendant is a “common questio[n]”). See also Schleicher, 618 F. 3d, at 685 (falsity of alleged misstatements need not be proved before certification of a securities-fraud class action).
Congress, we count it significant, has addressed the settlement pressures associated with securities-fraud class actions through means other than requiring proof of materiality at the class-certification stage. In enacting the Private Securities Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737, Congress recognized that although private securities-fraud litigation furthers important public-policy interests, prime among them, deterring wrongdoing and providing restitution to defrauded investors, such lawsuits have also been subject to abuse, including the “extraction]” of “extortionate ‘settlements’ ” of frivolous claims. H. R. Conf. Rep. No. 104-369, *476pp. 31-32 (1995). The PSLRA’s response to the perceived abuses was, inter alia, to “impos[e] heightened pleading requirements” for seeurities-fraud actions, “limit recoverable damages and attorney’s fees, provide a 'safe harbor’ for forward-looking statements, impose new restrictions on the selection of (and compensation awarded to) lead plaintiffs, mandate imposition of sanctions for frivolous litigation, and authorize a stay of discovery pending resolution of any motion to dismiss.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 81-82 (2006). See also 15 U. S. C. § 78u-4 (2006 ed. and Supp. V). Congress later fortified the PSLRA by enacting the Securities Litigation Uniform Standards Act of 1998, 112 Stat. 3227, which curtailed plaintiffs’ ability to evade the PSLRA’s limitations on federal seeurities-fraud litigation by bringing class-action suits under state rather than federal law. See 15 U. S. C. §78bb(f)(1) (2006 ed.).
While taking these steps to curb abusive seeurities-fraud lawsuits, Congress rejected calls to undo the fraud-on-the-market presumption of classwide reliance endorsed in Basic. See Langevoort, Basic at Twenty: Rethinking Fraud on the Market, 2009 Wis. L. Rev. 151, 153, and n. 8 (noting that the initial version of H. R. 10, 104th Cong., 1st Sess. (1995), an unenacted bill that, like the PSLRA, was designed to curtail abuses in private securities litigation, “would have undone Basic”). See also Common Sense Legal Reform Act: Hearings before the Subcommittee on Telecommunications and Finance of the House Committee on Commerce, 104th Cong., 1st Sess., 92, 236-237, 251-252, 272 (1995) (witnesses criticized the fraud-on-the-market presumption and expressed support for H. R. 10’s requirement that seeurities-fraud plaintiffs prove direct reliance). Nor did Congress decree that seeurities-fraud plaintiffs prove each element of their claim before obtaining class certification. Because Congress has homed in on the precise policy concerns raised in Am-gen’s brief, “[w]e do not think it appropriate for the judiciary *477to make its own further adjustments by reinterpreting Rule 23 to make likely success on the merits essential to class certification in seeurities-fraud suits.” Schleicher, 618 F. 3d, at 686; cf. Smith v. Bayer Corp., 564 U. S. 299, 317-318 (2011) (“Congress’s decision to address the relitigation concerns associated with class actions through the mechanism of removal provides yet another reason for federal courts to adhere in this context to longstanding principles of preclusion.”).
In addition to seeking our aid in warding off “in terrorem” settlements, Amgen also argues that requiring proof of materiality before class certification would conserve judicial resources by sparing judges the task of overseeing large class proceedings in which the essential element of reliance cannot be proved on a classwide basis. In reality, however, it is Amgen’s position, not the judgments of the lower courts in this case, that would waste judicial resources. Amgen’s argument, if embraced, would necessitate a minitrial on the issue of materiality at the class-certification stage. Such preliminary adjudications would entail considerable expenditures of judicial time and resources, costs scarcely anticipated by Federal Rule of Civil Procedure 23(c)(1)(A), which instructs that the decision whether to certify a class action be made “[a]t an early practicable time.” If the class is certified, materiality might have to be shown all over again at trial. And if certification is denied for failure to prove materiality, nonnamed class members would not be bound by that determination. See Smith, 564 U. S., at 312-318. They would be free to renew the fray, perhaps in another forum, perhaps with a stronger showing of materiality.
Given the tenuousness of Amgen’s judicial-economy argument, Amgen’s policy arguments ultimately return to the contention that private seeurities-fraud actions should be hemmed in to mitigate their potentially “vexatiou[s]” character. Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 739 (1975). We have already noted what Congress has done *478to control exorbitant securities-fraud actions. See supra, at 476-477. Congress, the Executive Branch, and this Court, moreover, have “recognized that meritorious private actions to enforce federal antifraud securities laws are an essential supplement to criminal prosecutions and civil enforcement actions brought, respectively, by the Department of Justice and the Securities and Exchange Commission.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308, 313 (2007); see H. R. Conf. Rep. No. 104-369, at 31; Brief for United States as Amicus Curiae 1. See also Amchem, 521 U. S., at 617 (“ ‘The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.’” (quoting Mace v. Van Ru Credit Corp., 109 F. 3d 338, 344 (CA7 1997))). We have no warrant to encumber securities-fraud litigation by adopting an atextual requirement of precertification proof of materiality that Congress, despite its extensive involvement in the securities field, has not sanctioned.
C
Justice Sc alia acknowledges that proof of materiality is not required to satisfy Rule 23(b)(3)’s predominance requirement. See post, at 483. Nevertheless, he maintains that full satisfaction of Rule 23’s requirements is insufficient to obtain class certification under Basic. In Justice Scalia’s view, the Court’s decision in Basic established a special rule: A securities-fraud class action cannot be certified unless all of the prerequisites of the fraud-on-the-market presumption of reliance, including materiality, have first been established. Post, at 484.
The purported rule is Justice Scalia’s invention. It cannot be attributed to anything the Court said in Basic. That decision is best known for its endorsement of the fraud-on-the-market theory. But the opinion also established something more. It stated the proper standard for judging *479the materiality of misleading statements regarding the existence and status of preliminary merger discussions. See 485 U. S., at 230-241, 250 (“Materiality in the merger context depends on the probability that the transaction will be consummated, and its significance to the issuer of the securities.”). The District Court in Basic certified a class of investors whose share prices were allegedly depressed by misleading statements that disguised ongoing merger negotiations. Id., at 228. Postcertification, the court granted summary judgment to the defendants on the ground that the alleged misstatements were immaterial as a matter of law. Id., at 228-229. The Court of Appeals affirmed the class certification but reversed the grant of summary judgment. Id., at 229. This Court, in turn, vacated the Court of Appeals’ judgment and remanded for further proceedings on the defendants’ summary-judgment motion in light of the materiality standard set forth in the Court’s opinion. Id., at 240-241, 250. Notably, however, we did not disturb the District Court’s class-certification order, which we stated “was appropriate when made.” Id., at 250.9
If Justice Scalia were correct that our decision in Basic demands proof of materiality before class certification, the Court in Basic should have ordered the lower courts to reconsider on remand both the defendants’ entitlement to summary judgment and the propriety of class certification. Instead, the Court expressly endorsed the District Court’s class-certification order while at the same time recognizing *480that further proceedings were necessary to determine whether the plaintiffs had mustered sufficient evidence to satisfy the relatively lenient standard for avoiding summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 248 (1986) (“[Sjummary judgment will not lie if . . . the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”). Unlike Justice Sc alia, we are unwilling to presume that Basic announced a rule requiring precertification proof of materiality when Basic failed to apply any such rule to the very case before it.10
Ill
Amgen also argues that the District Court erred by refusing to consider the rebuttal evidence Amgen proffered in opposing Connecticut Retirement’s class-certification motion. This evidence, Amgen contends, showed that “in light of all the information available to the market,” its alleged misrepresentations and misleading omissions “could not be presumed to have altered the market price because they would not have ‘significantly altered the total mix of information made available.’” Brief for Petitioners 40-41 (quoting Basic, 485 U. S., at 282). For example, Connecticut Retirement’s complaint alleges that an Amgen executive misleadingly downplayed the significance of an upcoming Food and Drug Administration advisory committee meeting by incorrectly stating that the meeting would not focus on one of Amgen’s leading drugs. See App. to Pet. for Cert. 17a. Amgen responded to this allegation by presenting public *481documents—including the committee’s meeting agenda, which was published in the Federal Register more than a month before the meeting—stating that safety concerns associated with Amgen’s drug would be discussed at the meeting. See id., at 41a-42a. See also 69 Fed. Reg. 16582 (2004).
The District Court did not err, we agree with the Court of Appeals, by disregarding Amgen’s rebuttal evidence in deciding whether Connecticut Retirement’s proposed class satisfied Rule 23(b)(3)’s predominance requirement. The Court of Appeals concluded, and Amgen does not contest, that Am-gen’s rebuttal evidence aimed to prove that the misrepresentations and omissions alleged in Connecticut Retirement’s complaint were immaterial. 660 F. 3d, at 1177 (characterizing Amgen’s rebuttal evidence as an attempt to present a “ ‘truth-on-the-market’ defense,” which the Court of Appeals explained “is a method of refuting an alleged misrepresentation’s materiality”). See also Reply Brief 17 (Amgen’s evidence was offered to rebut the “materiality predicate” of the fraud-on-the-market theory). As explained above, however, the potential immateriality of Amgen’s alleged misrepresentations and omissions is no barrier to finding that common questions predominate. See Part II, supra. If the alleged misrepresentations and omissions are ultimately found immaterial, the fraud-on-the-market presumption of classwide reliance will collapse. But again, as earlier explained, see supra, at 467-470, individual reliance questions will not overwhelm questions common to the class, for the class members’ claims will have failed on their merits, thus bringing the litigation to a close. Therefore, just as a plaintiff class’s inability to prove materiality creates no risk that individual questions will predominate, so even a definitive rebuttal on the issue of materiality would not undermine the predominance of questions common to the class.
We recognized as much in Basic itself. A defendant could “rebut the [fraud-on-the-market] presumption of reliance,” *482we observed in Basic, by demonstrating that “news of the [truth] credibly entered the market and dissipated the effects of [prior] misstatements.” 485 U. S., at 248-249. We emphasized, however, that “[p]roof of that sort is a matter for trial” (and presumably also for a summary-judgment motion under Federal Rule of Civil Procedure 56). 485 U. S., at 249, n. 29.11 The District Court thus correctly reserved consideration of Amgen’s rebuttal evidence for summary judgment or trial. It was not required to consider the evidence in determining whether common questions predominated under Rule 23(b)(3).
⅜ ⅜ ⅜
For the reasons stated, the judgment of the Court of Appeals for the Ninth Circuit is affirmed.
It is so ordered.
concurring.
I join the opinion of the Court with the understanding that the petitioners did not ask us to revisit Basic’s fraud-on-the-market presumption. See Basic Inc. v. Levinson, 485 U. S. 224 (1988). As the dissent observes, more recent evidence suggests that the presumption may rest on a faulty economic premise. Post, at 489, n. 4 (opinion of Thomas, J.); see Langevoort, Basic at Twenty: Rethinking Fraud on the *483Market, 2009 Wis. L. Rev. 151, 175-176. In light of this development, reconsideration of the Basic presumption may be appropriate.
dissenting.
I join the principal dissent, that of Justice Thomas, except for Part I-B.
The fraud-on-the-market rule says that purchase or sale of a security in a well functioning market establishes reliance on a material misrepresentation known to the market. This rule is to be found nowhere in the United States Code or in the common law of fraud or deception; it was invented by the Court in Basic Inc. v. Levinson, 485 U. S. 224 (1988). Today’s Court applies to that rule the principles of Federal Rule of Civil Procedure 23(b)(3), and thereby concludes (logically enough) that commonality is established at the certification stage even when materiality has not been shown. That would be a correct procedure if Basic meant the rule it announced to govern only the question of substantive liability—what must be shown in order to prevail. If that were so, the new substantive rule, like the more general substantive rule that reliance must be proved, would be subject, at the certification stage, to the commonality analysis of Rule 23(b)(3). In my view, however, the Basic rule of fraud on the market—a well functioning market plus purchase or sale in the market plus material misrepresentation known to the market establishes a necessary showing of reliance—governs not only the question of substantive liability, but also the question whether certification is proper. All of the elements of that rule, including materiality, must be established if and when it is relied upon to justify certification. The answer to the question before us today is to be found not in Rule 23(b)(3), but in the opinion of Basic.
Basic established a presumption that the misrepresentation was relied upon, not a mere presumption that the plaintiffs relied on the market price. And it established that pre*484sumption not just for the question of substantive liability but also for the question of certification. “We granted certiorari ... to determine whether the courts below properly applied a presumption of reliance in certifying the class, rather than requiring each class member to show direct reliance on Basic’s statements.” 485 U. S., at 230 (emphasis added). Of course it makes no sense to “presume reliance” on the misrepresentation merely because the plaintiff relied on the market price, unless the alleged misrepresentation would likely have affected the market price—that is, unless it was material. Thus, as Justice Thomas’ dissent shows, the Basic opinion is shot through with references to the necessary materiality. The presumption of reliance does not apply, and hence neither substantive liability will attach nor will certification be proper, unless materiality is shown. The necessity of materiality for certification is demonstrated by the last sentence of the Basic opinion, which comes after the Court has decided to remand the case for reconsideration of materiality under the appropriate legal standard: “The District Court’s certification of the class here was appropriate when made but is subject on remand to such adjustment, if any, as developing circumstances demand.” Id., at 250. Those circumstances are the establishment of facts that rebut the presumption, including of facts that show the misrepresentation was not material, or was not known to the market.
The Court argues that if materiality were a predicate to certification on a fraud-on-the-market theory, the Basic Court would not have approved the class certification order while remanding for reconsideration of “whether the plaintiffs had mustered sufficient evidence to satisfy the relatively lenient standard for avoiding summary judgment.” Ante, at 480. The Court manufactures an inconsistency on the basis of doctrine that did not govern class certification at the time of Basic. We recently clarified that “Rule 23 does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. *485v. Dukes, 564 U. S. 338, 350 (2011). But review of the Basic certification order shows that the District Court’s fraud-on-the-market analysis was based exclusively on the pleadings: “[T]he allegations of plaintiff s’ complaint are sufficient to bring this section 10(b) and Rule 10(b)(5) claim within the so-called ‘fraud on the market’ theory.” App. to Pet. for Cert, in Basic Inc. v. Levinson, O. T. 1987, No. 86-279, p. 115a (emphasis added); see also ibid, (citing complaint paragraphs as establishing fraud on the market). Under a pleadings standard, the District Court found that the plaintiffs had satisfied Rule 23(b)(3) with regard to fraud on the market, including its materiality predicate. See id., at 133a (denial of reconsideration) (“This court ruled on December 10 that transaction causation [i. e., reliance] could be established by the following: proof of a material misrepresentation which affected the market price of the stocks with a resulting injury to the plaintiffs” (emphasis added)). Thus, even if the plaintiffs sufficiently pleaded materiality that the certification order “was appropriate when made,” Basic, supra, at 250, the defendants retained an opportunity on remand to rebut the pleading in order to defeat certification.*
Certification of the class is often, if not usually, the prelude to a substantial settlement by the defendant because the costs and risks of litigating further are so high. It does an injustice to the Basic Court to presume without clear evidence—and indeed in the face of language to the contrary— that it was establishing a regime in which not only those market class-action suits that have earned the presumption of reliance pass beyond the crucial certification stage, but all market-purchase and market-sale class-action suits do so, no *486matter what the alleged misrepresentation. The opinion need not be read this way, and it should not.
The fraud-on-the-market theory approved by Basic envisions a demonstration of materiality not just for substantive recovery but for certification. Today’s holding does not merely accept what some consider the regrettable consequences of the four-justice opinion in Basic; it expands those consequences from the arguably regrettable to the unquestionably disastrous.
with whom Justice Kennedy joins, and with whom Justice Scalia joins except for Part I-B, dissenting.
I
The Court today allows plaintiffs to obtain certification of securities-fraud class actions without proof that common questions predominate over individualized questions of reliance, in contravention of Federal Rule of Civil Procedure 23(b)(3). The Court does so by all but eliminating materiality as one of the predicates of the fraud-on-the-market theory, which serves as an alternative mode of establishing reliance. See Basic Inc. v. Levinson, 485 U. S. 224, 241-250 (1988). Without demonstrating materiality at certification, plaintiffs cannot establish Basic’s fraud-on-the-market presumption. Without proof of fraud on the market, plaintiffs cannot show that otherwise individualized questions of reliance will predominate, as required by Rule 23(b)(3). And without satisfying Rule 23(b)(3), class certification is improper. Fraud on the market is thus a condition precedent to class certification, without which individualized questions of reliance will defeat certification.
The Court’s opinion depends on the following assumption: Plaintiffs will either (1) establish materiality at the merits stage, in which case class certification was proper because reliance turned out to be a common question, or (2) fail to *487establish materiality, in which case the claim would fail on the merits, notwithstanding the fact that the class should not have been certified in the first place, because reliance was never a common question. The failure to establish materiality retrospectively confirms that fraud on the market was never established, that questions regarding the element of reliance were not common under Rule 23(b)(3), and, by extension, that certification was never proper. Plaintiffs cannot be excused of their Rule 23 burden to show at certification that questions of reliance are common merely because they might lose later on the merits element of materiality. Because a securities-fraud plaintiff invoking Basic’s fraud-on-the-market presumption to satisfy Rule 23(b)(3) should be required to prove each of the predicates of that theory at certification in order to demonstrate that questions of reliance are common to the class, I respectfully dissent.
A
We begin with § 10 of the Securities Exchange Act of 1934, 15 U. S. C. § 78j (2006 ed. and Supp. V).1 We “have implied a private cause of action from the text and purposes of § 10(b)” and Securities and Exchange Commission Rule lob-5, 17 CFR § 240.10b-5 (2011).2 Matrixx Initiatives, Inc. v. *488 Siracusano, 563 U. S. 27, 37 (2011). See also Superintendent of Ins. of N Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9 (1971) (“It is now established that a private right of action is implied under § 10(b)”). The elements of an implied § 10(b) cause of action for securities fraud are “ ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.’” Matrixx, swpra, at 37-38 (quoting Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008)). This case concerns the reliance element of the § 10(b) claim and its interaction with Rule 23(b)(3).
To prove reliance, a plaintiff, whether proceeding individually or as a class member, must show that his stock transaction was caused by the specific alleged misstatement. “[P]roof of reliance ensures that there is a proper ‘connection between a defendant’s misrepresentation and a plaintiff’s injury.’” Erica P. John Fund, Inc. v. Halliburton Co., 563 U. S. 804, 810 (2011) (quoting Basic, supra, at 243).3 To satisfy this element, a plaintiff traditionally was required to “sho[w] that he was aware of a company’s statement and engaged in a relevant transaction . . . based on that specific misrepresentation.” Erica P. John Fund, supra, at *489810 (emphasis added). In the face-to-face fraud cases from which securities claims historically arose, see, e. g., Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 343-344 (2005) (discussing common-law roots of securities-fraud actions), this requirement was easily met by showing that the seller made statements directly to the purchaser and that the purchaser bought stock in reliance on those statements. However, in a modern securities market many, if not most, individuals who purchase stock from third parties on an impersonal exchange will be unaware of statements made by the issuer of those securities. As a result, such purchaser-plaintiffs are unable to meet the traditional reliance requirement because they cannot establish that they “engaged in a relevant transaction . . . based on [a] specific misrepresentation.” Erica P. John Fund, supra, at 810.
This concern was the driving force behind the development of the fraud-on-the-market theory adopted in Basic. Because individuals trading stock on an impersonal market often cannot show reliance even for purposes of an individual securities-fraud action, Basic permitted “plaintiffs to invoke a rebuttable presumption of reliance.”. Erica P. John Fund, supra, at 811.4 Basic presumes that “ fin an open and devel*490oped securities market, the price of a company’s stock is determined by the available material information regarding the company and its business.’” 485 U. S., at 241 (quoting Peil v. Speiser, 806 F. 2d 1154, 1160-1161 (CA3 1986); emphasis added).5 " 'Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements.’” 485 U. S., at 241-242. As a result, “[a]n investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price,” and “an investor’s reliance on any public material misrepresentations” may therefore “be presumed for purposes of a Rule 10b-5 action.” Id., at 247 (emphasis added).
If a plaintiff opts to show reliance through fraud on the market, Basic is clear that the plaintiff must show the following predicates in order to prevail: (1) an efficient market, (2) a public statement, (8) that the stock was traded after the statement was made but before the truth was revealed, and (4) the materiality of the statement. Id., at 248, n. 27.6 *491Both the Court and respondent agree that materiality is a necessary component of fraud on the market. See, e. g., ante, at 467 (materiality is “indisputably” “an essential predicate of the fraud-on-the-market theory”); Brief for Respondent 29 (“If the statement is not materially false, then no one in the class can establish reliance via the integrity of the market”). The materiality of a specific statement' is, therefore, essential to the fraud-on-the-market presumption, which in turn enables a plaintiff to prove reliance.
B
Basic’s fraud-on-the-market presumption is highly significant because it makes securities-fraud class actions possible by converting the inherently individual reliance inquiry into a question common to the class, which is necessary to satisfy the dictates of Rule 23(b)(3).7 Rule 23(b)(3) requires the party seeking certification to prove that “questions of law or fact common to class members predominate over any questions affecting only individual members.” A plaintiff seeking class certification is not required to prove the elements of his claim at the certification stage, but he must show that the elements of the claim are susceptible to class-wide proof. See, e. g., Wal-Mart Stores, Inc. v. Dukes, 564 *492U. S. 338, 351, n. 6 (2011) (“[Plaintiffs seeking 23(b)(3) certification must prove that their shares were traded on an efficient market,” an element of the fraud-on-the-market theory (emphasis added)). Without that proof, there is no justification for certifying a class because there is no “ 'capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.’ ” Id., at 350 (quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 132 (2009)).
If plaintiffs fail to show that reliance is a common question at the time of certification, certification is improper. For if reliance is not a common question, each plaintiff would be required to prove that he in fact relied on a misstatement, a showing which is simply not susceptible to classwide proof. Individuals make stock transactions for divergent, even idiosyncratic, reasons. As the leading pre-Basic fraud-on-the-market case recognized, “[a] purchaser on the stock exchanges may be either unaware of a specific false representation, or may not directly rely on it; he may purchase because of a favorable price trend, price earnings ratio, or some other factor.” Blackie v. Barrack, 524 F. 2d 891, 907 (CA9 1975). The inquiry’s inherently individualized nature renders it impossible to generate the common answers necessary for certification under Rule 23(b)(3). See Basic, 485 U. S., at 242 (“Requiring proof of individualized reliance from each member of the proposed plaintiff class effectively would have prevented respondents from proceeding with a class action, since individual issues then would have overwhelmed the common ones”).
The Court’s solution in Basic was to allow putative class members to prove reliance through the fraud-on-the-market presumption. Id., at 241-250. As the Court today recognizes, failure to establish fraud on the market “leaves open the prospect of individualized proof of reliance.” Ante, at 474. Notably, the Court and the Ninth Circuit both acknowledge that in order to obtain the benefit of the presumption, *493plaintiffs must establish two of the fraud-on-the-market predicates at class certification: (1) that the market was generally efficient, and (2) that the alleged misstatement was public. See ante, at 473 (acknowledging “that market efficiency and the public nature of the alleged misrepresentations must be proved before a securities-fraud class action can be certified”); 660 F. 3d 1170, 1175 (CA9 2011) (same). See also Erica P. John Fund, 563 U. S., at 811 (“It is undisputed that securities fraud plaintiffs must prove,” at certification, inter alia, “that the alleged misrepresentations were publicly known ... [and] that the stock traded in an efficient market”). The Court is correct insofar as its statements recognize that fraud on the market is a condition precedent to showing that there are common questions of reliance at the time of class certification.
Nevertheless, the Court asserts that materiality—by its own admission an essential predicate to invoking fraud on the market—need not be established at certification because it will ultimately be proved at the merits stage. Ante, at 473-474. This assertion is an express admission that parties will not know at certification whether reliance is an individual or common question.
To support its position, the Court transforms the predicate certification inquiry into a novel either-or inquiry occurring much later on the merits. According to the Court, either (1) plaintiffs will prove materiality on the merits, thus demonstrating ex post that common questions predominated at certification, or (2) they will fail to prove materiality, at which point we learn ex post that certification was inappropriate because reliance was not, in fact, a common question. In the Court’s second scenario, fraud on the market was never established, reliance for each class member was inherently individualized, and Rule 23(b)(3) in fact should have barred certification long ago.8 The Court suggests that the prob*494lem created by the second scenario is excusable because the plaintiffs will lose anyway on alternative merits grounds, and the case will be over. See ante, at 474 (“[F]ailure of proof on the issue of materiality [at the merits stage] not only precludes a plaintiff from invoking the fraud-on-the-market presumption of classwide reliance; it also establishes as a matter of law that the plaintiff cannot prevail on the merits of her Rule 10b-5 claim”). But nothing in logic or precedent justifies ignoring at certification whether reliance is susceptible to Rule 23(b)(3) classwide proof simply because one predicate of reliance—materiality—will be resolved, if at all, much later in the litigation on an independent merits element.
It is the Court, not Amgen, that “would have us put the cart before the horse,” ante, at 460, by jumping chronologically to the § 10(b) merits element of materiality. But Rule 23, as well as common sense, requires class certification issues to be addressed first. See Rule 23(c)(1)(A) (“At an early practicable time after a person sues or is sued . . . the court must determine by order whether to certify the action as a class *495action”)- A plaintiff who cannot prove materiality does not simply have a claim that is “ ‘dead on arrival’ ” at the merits, ante, at 474 (quoting 660 F. 3d, at 1175); he has a class that should never have arrived at the merits at all because it failed Rule 23(b)(3) certification from the outset. Without materiality, there is no fraud-on-the-market presumption, questions of reliance remain individualized, and Rule 23(b)(3) certification is impossible. And the fact that evidence of materiality goes to both fraud on the market at certification and an independent merits element is no issue; Wal-Mart expressly held that a court at certification may inquire into questions that also have later relevance on the merits. See 564 U. S., at 350-352. The Court reverses that inquiry, effectively saying that certification may be put off until later because an adverse merits determination will retroactively wipe out the entire class. However, a plaintiff who cannot prove materiality cannot prove fraud on the market and, thus, cannot demonstrate that the question of reliance is susceptible of a classwide answer.
The fact that a statement may prove to be material at the merits stage does not justify conflating the doctrinally independent (and distinct) elements of materiality and reliance.9 The Court’s error occurs when, instead of asking *496whether the element of reliance is susceptible to classwide proof, the Court focuses on whether materiality is susceptible to classwide proof. Ante, at 467 (“[T]he pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will ‘predominate’ ”). The result is that the Court effectively equates § 10(b) materiality with fraud-on-the-market materiality and elides reliance as a § 10(b) element. But a plaintiff seeking certification under Rule 28 bears the burden of proof with regard to all the elements of a § 10(b) claim, which includes materiality and reliance. As Wal-Mart explained, “[a] party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.” 564 U. S., at 350. If the elements of fraud on the market are not proved at certification, a plaintiff has failed to carry his burden of establishing that questions of individualized reliance will not predominate, without which the plaintiff class cannot obtain certification. Cf. id., at 352 (holding in Rule 23(a)(2) context that “[wjithout some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer”). It is only by establishing all of the elements of the fraud-on-the-market presumption that reliance can be proved on a classwide basis. Therefore, if a plaintiff wishes to use Basic’s presumption to prove that reliance is a common question, he must establish the entire presumption, including materiality, at the class certification stage.
Nor is it relevant, as respondent argues, that requiring plaintiffs to establish all predicates of fraud on the market at certification will make it more difficult to obtain certification. See Brief for Respondent 35-38. In Basic, four Justices of *497a six-Justice Court created the fraud-on-the-market presumption from a combination of newly minted economic theories, 485 U. S., at 250-251, n. 1 (White, J., concurring in part and dissenting in part), and “considerations of fairness, public policy, and probability,” id., at 245 (majority opinion), to allow claims that otherwise would have been barred due to the plaintiffs’ inability to show reliance, id., at 242. Basic is a judicially invented doctrine based on an economic theory adopted to ease the burden on plaintiffs bringing claims under an implied cause of action. There is nothing untoward about requiring plaintiffs to take the steps that the Basic Court created in an effort to save otherwise inadequate claims.
II
The majority’s approach is, thus, doctrinally incorrect under Basic. Its shortcomings are further highlighted by the role that materiality played in the pre-Basic development of the fraud-on-the-market theory as a condition precedent to showing that there are common questions of reliance in the class-action context. Materiality, at the time of certification, has been a driving force behind the theory from the outset. This fact further supports the need to prove materiality at the time the fraud-on-the-market theory is invoked to show that questions of reliance can be answered on a class-wide basis.
A
Before Basic, two signposts marked the way for courts applying the fraud-on-the-market theory. Both demonstrate that the materiality of an alleged falsehood was not a mere afterthought but rather one of the primary reasons for allowing traditional proof of reliance to be brushed aside at certification. This fact weighs strongly in favor of the conclusion that materiality must be resolved at certification when the fraud-on-the-market presumption is invoked to show that reliance can be proved on a classwide basis.
*498The first signpost was the Ninth Circuit’s 1975 opinion in Blackie, termed by one pre-Basic court the “seminal fraud on the market case.” Peil, 806 F. 2d, at 1163, n. 16. See also Basic, supra, at 251, n. 1 (opinion of White, J.) (“The earliest Court of Appeals case adopting this theory cited by the Court is Blackie v. Barrack, 524 F. 2d 891 (CA9 1975), cert. denied, 429 U. S. 816 (1976)”).
Blackie arose from a $90 million loss reported by audio equipment manufacturer Ampex Corp. in its 1972 annual report. 524 F. 2d, at 894.10 Ampex’s independent auditors not only refused to certify the 1972 annual report but also withdrew certification of all 1971 financial statements “because of doubts that the loss reported for 1972 was in fact suffered in that year.” Ibid. In resultant class actions, the defendants argued that reliance stood in the way of class certification under Rule 23(b)(3) because it was not a common question.
The Ninth Circuit disagreed. Instead, it relieved plaintiffs from providing traditional proof of reliance, explaining that “causation is adequately established in the impersonal stock exchange context by proof of purchase and of the materiality of misrepresentations, without direct proof of reliance.” Id., at 906 (emphasis added). The court left no doubt that the materiality of the $90 million shortfall in Am-pex’s financial statements was central to its determination that reliance could be presumed. It asserted that “[m]a-teriality circumstantially establishes the reliance of some market traders and hence the inflation in the stock price— when the purchase is made[,] the causational chain between defendant’s conduct and plaintiff’s loss is sufficiently established to make out a prima facie case.” Ibid. Materiality was not merely an important factor that allowed reliance to *499be presumed at certification; materiality was the factor. It demonstrated that the defendants had committed a fraud on the market, that all putative class plaintiffs had relied on it in purchasing stock, and, therefore, that questions of reliance would be susceptible to common answers.11
The second fraud-on-the-market signpost prior to Basic was a note in the Harvard Law Review, which described the nascent theory. See Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982) (hereinafter Harv. L. Rev. Note). The Sixth Circuit opinion reviewed in Basic termed the Note “[t]he clearest statement of the theory of presumption of reliance.” Levinson v. Basic Inc., 786 F. 2d 741, 750 (1986). Indeed, in the briefing for Basic itself, the plaintiffs, the United States, and plaintiffs’ amici cited the article repeatedly as an authoritative statement on the subject. See Brief for Respondents 43, n. 18,46, n. 20 (cited in Peil, supra, at 1160), Brief for Securities and Exchange Commission as Amicus Curiae 22, n. 25, 24, n. 30, 26, n. 32, and Brief for Joseph Harris et al. as Amici Curiae 4-5, n. 2, in Basic Inc. v. Levinson, O. T. 1987, No. 86-279.
Like Blackie, the Note also hinged the fraud-on-the-market presumption of reliance on proof of materiality. Harv. L. Rev. Note 1161 (“In developed markets, which are apparently efficient, reliance should be presumed from the materiality of the deception” (emphasis added)). Ultimately, in language that will be familiar to anyone who has *500read Basic, the Note formulated a “pivotal assumption” underlying the fraud-on-the-market theory as the belief that
“market prices respond to information disseminated (or not disseminated) concerning the companies whose securities are traded. In such a setting—often described as an ‘efficient market’—the reliance of some traders upon a material deception influences market prices and thereby affects even traders who never read or hear of the deception.” Harv. L. Rev. Note 1154 (footnote omitted).
Again, the materiality of the alleged misstatement was a key component, without which the market could not be presumed to move. As a result, without materiality it is impossible to say that there has been a fraud on the market at all, and if that is not the case there is no reason to believe that the market price at which stock transactions occurred was affected by an alleged misstatement or, by extension, that any market participants relied on it. Materiality should thus be proved when the fraud-on-the-market presumption is invoked, or there is no commonality with respect to questions of reliance.
B
Nor did the importance of materiality diminish in the Sixth Circuit opinion reviewed in Basic... Rather, the court followed the path marked by the signposts -discussed above. It excused plaintiffs from offering traditional evidence of reliance, so long as “a defendant is shown to have made a material public misrepresentation that, if relied on directly, would fraudulently induce an individual to misjudge the value of the stock.” Levinson, 786 F. 2d, at 750 (emphasis added). The court’s analysis made clear that materiality should be demonstrated at the time the presumption was invoked: “In order to invoke the presumption of reliance based upon the fraud on the market, theory, a plaintiff must allege and prove .. . that the misrepresentations were material . . . .” Ibid, (citing Blackie, supra, at 906).
*501c
Finally, the briefing before this Court in Basic itself built upon this framework and the foundational principle that materiality is an integral part of the theory. Critically, the Basic defendants argued that the plaintiffs could not establish fraud on the market at certification even if the theory were valid because the alleged misstatement was immaterial. They “contrasted] the likely market impact of disclosure of the [$90 million Blackie loss] . .. with the disclosure of the information which respondents contended] rendered Basic’s statements materially misleading.” See Brief for Petitioners in O. T. 1987, No. 86-279, p. 42. The Basic defendants concluded that “the differences between a company’s $90 million loss and a company’s sporadic contacts with a friendly suitor are substantial. . .. [T]he fraud on the market theory, if it has vitality, should not be applied in a case such as this.” Id., at 43.
In response, the plaintiffs in Basic did not argue that the defendants misunderstood the role of materiality in the fraud-on-the-market theory. They instead advanced a now-foreclosed interpretation of dicta from Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974):
“Petitioners’ final argument—that respondents will be unable to establish that Basic’s repeated false and misleading statements impacted the price of Basic stock over a fourteen month period—represents an effort to litigate the merits of this case on the motion for class certification. ... As this Court held in Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 177 (1974): ‘We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action.’ ” Brief for Respondents in O. T. 1987, No. 86-279, at 54.
The Court rejected this reading of Eisen two Terms ago, explaining that the very language the Basic plaintiffs quoted *502was “sometimes mistakenly cited” as prohibiting inquiry into “the propriety of certification under Rules 23(a) and (b).” Wal-Mart Stores, Inc., 564 U. S., at 351, n. 6. That reading, the Court explained, “is the purest dictum and is contradicted by our other cases.” Ibid. The Basic defendants’ reply is consistent with Wal-Mart
“Putative class representatives, such as respondents, should not be permitted to invoke the fraud on the market theory while, at the same time, arguing that courts may not make any preliminary inquiry into the claimed impact on the market. See, e. g., Resp. Br., p. 54. By seeking the benefit of the presumption, respondents necessarily invite judicial scrutiny of the circumstances in which it is invoked.” Reply Brief for Petitioners in O. T. 1987, No. 86-279, p. 18.
Well said. The history of Basic is worth the volume of argument offered by the majority. Cf. New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921) (majority opinion of Holmes, J.). Materiality was central to the development, analysis, and adoption of the fraud-on-the-market theory both before Basic and in Basic itself. Materiality, therefore, must be demonstrated to prove fraud on the market, and until materiality of an alleged misstatement is shown there is no reason to believe that all market participants have relied equally on it. Otherwise individualized questions of reliance remain. This history confirms that materiality must be proved at the time that the theory is invoked—i. e., at certification.
Ill
I, thus, would reverse the judgment of the Ninth Circuit and hold that a plaintiff invoking the fraud-on-the-market presumption bears the burden to establish all the elements of fraud on the market at certification, including the materiality of the alleged misstatement.
7.5 Binder v. Gillespie 7.5 Binder v. Gillespie
Albert BINDER; Estelle Binder, in their individual capacities and on behalf of one or more classes of persons similarly situated, Plaintiffs-Appellants, v. Thomas GILLESPIE; Marie Mullen Gillespie; T. Gordon Sim; Diane L. Karban; John A. Good, Defendants, *1060Ian R. Wilson; Cary S. Fitchey; Mark L. Stevens; Deloitte & Touche; Mark Stevenson, Defendants-Appellees.
No. 97-35943.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Oct. 6, 1998.
Decided March 30, 1999.
Opinion Withdrawn July 26, 1999.
Decided July 26, 1999.
*1061Robert H. Bretz, Marina del Ray, California, for the plaintiffs-appellants.
Jeffery J. Ventrella, Elam & Burke, Boise, Idaho, for defendants-appellees Wilson, Fitchey, and Stevens.
Lois D. Thompson and Erik M. Silber, Proskauer Rose, Los Angeles, California, for defendant-appellee Deloitte & Touche.
Before: SKOPIL, FARRIS, and REINHARDT, Circuit Judges.
ORDER
The majority opinion and dissent, reported at 172 F.3d 649 (9th Cir.1999),- is hereby withdrawn and superseded by the attached majority opinion and dissent. *1062With the filing of these opinions, Judges Skopil and Farris vote to deny the petition for rehearing; Judge Reinhardt votes to grant rehearing. Accordingly, the petition for rehearing is DENIED.
The new majority opinion and dissent have been circulated to all active judges of the court, along with appellants’ petition for rehearing en banc, amicus curiae brief in support of rehearing en banc, and appel-lees’ briefs in opposition to rehearing en banc. No active judge has called for a vote en banc. Accordingly, the petition for rehearing en banc is DENIED.
OPINION
Albert Binder brought this action against Aqua Vie Beverage Corporation (AVBC), various AVBC officers and directors, and the accounting firm of De-loitte & Touche (Deloitte), asserting, on his own behalf and as a representative for a class of investors, that defendants violated federal and state securities laws. The district court decertified the class and declined to exercise supplemental jurisdiction over the related state law class claims. The court also granted summary judgment in favor of three AVBC officers and directors and for Deloitte on all of Binder’s individual claims. Final judgments were entered pursuant to Federal Rule of Civil Procedure 54(b). We affirm.
I.
Tom Gillespie and Marie Mullen Gillespie formed AVBC in 1991 by purchasing a publicly owned shell corporation and merging it with their Hawaii-based beverage company, KWC, Inc. They moved their operations to Sun Valley, Idaho. Shortly thereafter, Diane Karban joined the company as Chief Financial Officer and De- . loitte was hired as the company’s accounting firm. AVBC stock soon began trading publicly on the over-the-counter (OTC) market.
In the summer of 1991, Cottell Bottling agreed to manufacture, and Golden Brands agreed to distribute, AVBC’s product— “lightly flavored,” noncarbonated spring water. Industry publications touted AVBC as a promising, if speculative, investment, and AVBC stock sold for $2.75 per share by August. On September 24, 1991, Binder purchased 3000 shares at $4.00 per share. A month later, AVBC’s bid price reached its peak at $4.50 per share.
AVBC began production in 1992. Chief of quality control John Good, however, warned CEO Tom Gillespie and consultant Gordon Sim that there was instability in the product formula. Sixty days after it was bottled, the water turned brown. AVBC adjusted the formula but continued to experience problems with the product’s shelf life. By the end of the year, AVBC was forced to repurchase the defective water from Golden Brands, which eventually resigned as AVBC’s distributor and sued for past-due debts.
In 1993, AVBC struggled to raise funds and to establish a distribution network for its product. On December 29, 1993, Binder sold his 3000 shares at less than one dollar per share. In 1994, AVBC suspended operations, and Binder filed this action. Default was entered against the Gillespies and, later, a default judgment for $5736.00. All remaining parties, except for defendants AVBC and the Gillespies, consented to proceedings before a magistrate judge. In February 1995, the action against AVBC was stayed pending Chapter 11 bankruptcy proceedings.
Chief Magistrate Judge Mikel H. Williams decertified the class of AVBC investors and dismissed all federal and state class claims. He also granted summary judgment on all of Binder’s individual federal and state claims against Deloitte and AVBC officers and directors Ian Wilson, Mark Stevens, and Cary Fitchey. The court entered final judgments pursuant to Rule 54(b). Meanwhile, Binder’s individual actions against the remaining defendants are pending in district court.
*1063ii.
We begin our inquiry by examining whether we have jurisdiction to consider Binder’s appeal. A magistrate judge may conduct civil proceedings and order the entry of judgment if the parties consent. 28 U.S.C. § 636(c); FED. R. CIV. P. 73(b). If the parties fail to consent in writing, the magistrate judge does not have jurisdiction and any judgment entered is a nullity. See Aldrich v. Bowen, 130 F.3d 1364, 1365 (9th Cir.1997). A notice of appeal from such a judgment does not transfer jurisdiction to the court of appeals. See Estate of Conners v. O’Connor, 6 F.3d 656, 658 (9th Cir.1993). Here, however, all parties to this appeal signed a stipulation consenting to proceedings before a magistrate judge. Accordingly, we conclude that Chief Magistrate Judge Williams had jurisdiction over this action and entered valid judgments. The notice of appeal properly conferred jurisdiction to this court.
III.
Judge Williams ruled that claims by the class—AVBC investors who purchased stock between August 1, 1991 and February 28, 1994—must be dismissed because the class could not, as a matter of law, satisfy all elements of a claim under section 10(b) of the Securities Exchange Act of 1934,15 U.S.C. § 78j(b), and Securities and Exchange Commission (SEC) Rule 10b-5(b), 17 C.F.R. § 240.10b-5. A successful securities fraud action requires proof of (1) a misrepresentation or omission (2) of material fact (3) made with scienter (4) on which the plaintiff justifiably relied (5) that proximately causes the alleged loss. See Gray v. First Winthrop Corp., 82 F.3d 877, 884 (9th Cir.1996).
The district court reasoned that the class would have to satisfy the reliance element through a presumption; otherwise individual questions of reliance would predominate over questions common to the class. See FED. R. CIV. P. 23(b)(3); Basic Inc. v. Levinson, 485 U.S. 224, 242, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (noting that individualized proof of reliance by each class member, would preclude a class action). The court concluded that no presumption was available under the facts of the case, and, accordingly, decertified the class for the period until December 1993.
After that date, when AVBC stock began trading on the Boston Stock Exchange, Judge Williams acknowledged that the class might qualify for a presumption of reliance; however, he elected to decertify the class for the remaining period between December 1993 and February 28, 1994 on the ground that the class could not prove causation. That decision resulted in the dismissal of all class claims based on federal law and, because the court declined to exercise supplemental jurisdiction, it ended the state law class claims as well.
A.
Binder argues that the class is eligible for a presumption of reliance pursuant to Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Such a presumption is generally available to plaintiffs alleging violations of section 10(b) based on omissions of material fact. See Kramas v. Security Gas & Oil, Inc., 672 F.2d 766, 769 (9th Cir.1982) (recognizing Affiliated Ute rule). The district court, however, characterized Binder’s action as “not primarily an omissions cáse” and held that the Affiliated Ute presumption was unavailable. We agree with the district court’s characterization of Binder’s action. ' Binder’s complaint contains both allegations of omissions and misrepresentations, and at the very least, must be characterized, as the district court noted, as “a mixed case of misstatements and omissions.”
We have applied the Affiliated Ute presumption to cases that “are, or can be, cast in omission or non-disclosure terms.” Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir.1975); see also Arthur Young & Co. v. United States Dist. Court, 549 F.2d 686, 694 (9th Cir.1977). We have not squarely decided, however, whether the presumption may be invoked in a case involving *1064misrepresentations or both omissions and misrepresentations. See Little v. First Cal Co., 532 F.2d 1302, 1305 n. 4 (9th Cir.1976) (noting that “[t]he categories of ‘omission’ and ‘misrepresentation’ are not mutually exclusive” and that a case involving a “representation from which material facts are omitted” presents “a true dilemma” because the plaintiff must show reliance, whereas the plaintiff in a pure omissions case may rely on the presumption); Kramas, 672 F.2d at 769 n. 2 (noting that whether the presumption applies to misrepresentations had already been “twice reserved”). Nevertheless, in Blackie, we embraced the presumption because of the difficulty of proving “a speculative negative”—that the plaintiff relied on what was not said. Blackie, 524 F.2d at 908. This suggests to us that Affiliated Ute should be confined to cases that primarily allege omissions.
Most circuits have limited the presumption accordingly. See generally Tim A. Thomas, Annotation, When is it unnecessary to show direct reliance on misrepresentation or omission in civil securities fraud action under § 10(b) of Security Exchange Act of 1934. (15 U.S.C.A. § 78j(b)) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), 93 A.L.R. Fed. 444 (1989). A handful of circuits have addressed mixed cases, concluding that the preferred approach is to do as the magistrate judge did here and “analytically characterize [the] action as either primarily a nondisclosure case (which would make the presumption applicable), or a positive misrepresentation case.” Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 (5th Cir.1987); see also Austin v. Loftsgaarden, 675 F.2d 168, 178 n. 21 (8th Cir.1982) (agreeing with the Third Circuit that an analysis of plaintiffs allegations and an initial determination of burden of proof is more appropriate than a dual jury instruction in a mixed case).
We agree with these circuits that the Affiliated Ute presumption should not be applied to cases that allege both misstatements and omissions unless the case can be characterized as one that primarily alleges omissions. Thus, Judge Williams’ decision not to apply the presumption was sound and supported by the weight of authority. Accordingly, we agree with the district court that Binder’s plaintiff class is not entitled to the Affiliated Ute presumption of reliance.
B.
Binder also contends that the court erred by rejecting his contention that the class was entitled to a “fraud-on-the-market” presumption of reliance. The fraud-on-the-market presumption is “based on the hypothesis that, in an open and developed securities market, the price of a company’s stock is determined by the available material information regarding the company and its business.... Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements.... ” Basic Inc., 485 U.S. at 241-42, 108 S.Ct. 978 (quoting Beil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir.1986)); see also In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113-1114 (9th Cir.1989). Thus, the presumption of reliance is available only when a plaintiff alleges that a defendant made material representations or omissions concerning a security that is actively traded in an “efficient market,” thereby establishing a “fraud on the market.” See Basic Inc., 485 U.S. at 247, 108 S.Ct. 978; Freeman v. Laventhol & Horwath, 915 F.2d 193, 197 (6th Cir.1990).
Judge Williams ruled that the class was ineligible for this presumption because the market for AVBC stock—which traded exclusively on the OTC market until December 1993—was not efficient. Acknowledging “an absence of Ninth Circuit case law defining an efficient market,” Judge Williams employed the five factors from Cammer v. Bloom, 711 F.Supp. 1264, 1286-87 (D.N.J.1989), noting that the District Court for the Southern District of California had found the factors “helpful in determining whether the market is efficient,” See In re MDC Holdings Sec. Litig., 754 F.Supp. 785, 804 (S.D.Cal.1990); *1065 see also Hayes v. Gross, 982 F.2d 104, 107 n. 1 (3d Cir.1992) (noting Cammeds “thorough analysis”); Freeman, 915 F.2d at 199 (applying Cammer factors); Hoexter v. Simmons, 140 F.R.D. 416, 419 (D.Ariz. 1991) (same); Harman v. LyphoMed, Inc., 122 F.R.D. 522, 525 (N.D.Ill.1988) (applying factors identical to Cammer).
During the relevant time period, AVBC’s stock traded exclusively in the OTC market. Stocks in that market are listed on “pink sheets” that circulate daily and contain “bid” and “ask” prices, but do not include trading information, such as the volume of sales or the prices investors are actually paying. The question is whether such a market is efficient — meaning simply whether the stock prices reflect public information. See Cammer, 711 F.Supp. at 1281, 1282; see also Hoexter, 140 F.R.D. at 419 (concluding that the Cammer factors, rather than “the mere fact that the ... shares were traded on the OTC market,” supported preliminary finding of efficiency); Hurley v. FDIC, 719 F.Supp. 27, 33 (D.Mass.1989) (“Where the stock is traded is not the crucial issue. The important question is whether the stock is traded in a market that is efficient — one that obtains material information about a company and accurately reflects that information in the price of the stock.”); Harman, 122 F.R.D. at 525 (noting that “the inquiry in an individual case remains the development of the market for that stock, and not the location where the stock trades”); but see Epstein v. American Reserve Corp., No. 79 C 4767, 1988 WL 40500, at *5 (N.D.Ill. Apr.21, 1988) (“[W]e believe that the over-the-counter market is incapable of meeting the Supreme Court test [in Basic Inc. v. Levinson ].”).
The Cammer factors are designed to help make the central determination of efficiency in a particular market. They address five characteristics of the company and its stock: first, whether the stock trades at a high weekly volume; second, whether securities analysts follow and report on the stock; third, whether the stock has market makers and arbitrageurs; fourth, whether the company is eligible to file SEC registration form S-3, as opposed to form S-l or S — 2; and fifth, whether there are “empirical facts showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price.” Cammer, 711 F.Supp. at 1286-87. The district court determined that Binder offered evidence only as to the presence of market makers and arbitrageurs. We agree with the district court that this factor alone is insufficient as a matter of law to deem the market for AVBC stock efficient. Accordingly, we affirm the court’s decision to decertify the class through December 1993.
C.
After December 1993, AVBC stock began trading on the Boston Stock Exchange (BSE). The district court concluded that there was no showing that BSE was an inefficient market. The court nonetheless decertified the class for the remaining period from December 1993 to February 28, 1994 on the ground that Binder could not prove causation. The court concluded that during this time no false statements or omissions were made that could have caused Binder’s loss. Rather, the court reasoned that “some other factor or factors other than corporate information and disclosures” caused the value of AVBC stock to decline.
The causation requirement in Rule 10b-5 securities fraud cases includes “both transaction causation, that the violations in question caused the plaintiff to engage in the transaction, and loss causation, that the misrepresentations or omissions caused the harm.” McGonigle v. Combs, 968 F.2d 810, 820 (9th Cir.1992) (quoting Hatrock, v. Edward D. Jones & Co., 750 F.2d 767, 773 (9th Cir.1984)). The requirement of transaction causation is equivalent to the element of reliance, or, in tort liability terms, but-for causation. See id. at 821; Michael J. Kaufman, Loss Cau *1066 sation: Exposing a Fraud on Securities Law Jurisprudence, 24 IND. L. REV. 357, 359-61 (1991) (tracing the history of the causation requirement). The loss causation requirement, equivalent to proximate causation in tort, is satisfied if the plaintiff shows that “the misrepresentation touches upon the reasons for the investment’s decline in value.” McGonigle, 968 F.2d at 821 (quoting Huddleston v. Herman & MacLean, 640 F.2d 534, 549 (5th Cir. Unit A Mar.1981), rev’d in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983)). That is, the plaintiff must show' that the fraud caused, or at least had something to do with, the decline in the value of the investment after the securities transaction took place. See Kaufman, supra at 365 (criticizing the requirement as a potentially “insuperable barrier to recovery”).
Treatment of the loss causation requirement in this circuit and others has been less than clear. This results in part from the amorphous “touches upon” requirement. See id. at 359-65. It also results from confusion between loss causation as a sub-element of the causation requirement, and loss causation as a calculation of damages. See Robbins v. Roger Properties, Inc., 116 F.3d 1441, 1447 n. 5 (11th Cir.1997) (noting the important distinction between loss causation and the proof of damages); .Movitz v. First Nat’l Bank of Chicago, 148 F.3d 760, 765 (7th Cir.1998) (apparently combining questions of loss causation and damages). Confusion aside, we conclude that Judge Williams was clearly correct in decertifying the class from December 1993 until February 1994. We agree that there was no showing of any material misrepresentations or omissions made during that period that can be said to have caused any investor loss.
IV.
After decertifying the class, Judge Williams declined to exercise supplemental jurisdiction and, accordingly, dismissed the state class claims. Under 28 U.S.C. § 1367(c)(3), a district court may elect, in its discretion, not to exercise supplemental jurisdiction over state claims if it has dismissed the original jurisdiction federal claims. See Fang v. United States, 140 F.3d 1238, 1241 (9th Cir.1998); Voigt v. Saveli, 70 F.3d 1552, 1565 (9th Cir.1995). We conclude that dismissal of the state law class claims was not an abuse of discretion.
V. ’
After dismissing the federal and state class claims against all defendants, only Binder’s individual federal and state claims remained. The magistrate judge granted summary judgment in favor of Wilson, Stevens, and Fitchey, as well as Deloitte on the federal causes of action. The court again declined to exercise jurisdiction over the pendent state law claims.
We agree with the district court that summary judgment was. appropriate for Wilson, Stevens, and Fitchey. None of these defendants had any role in. AVBC prior to Binder’s purchase of stock on September 24, 1991. Specifically, Wilson joined the board of directors in September or October 1992; Fitchey served as a consultant beginning in June 1992; and Stevens joined the board in July 1993. A cause of action under section 10(b) applies only to misrepresentations or omissions made “in connection with the purchase or sale of any security.” 15 U.S.C. § 78j(b). Only a purchaser or seller of securities has standing to bring an action under section 10(b) and Rule 10b-5. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 749, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). Thus, Binder’s statements that he would have sold his stock earlier but for AVBC’s misrepresentations are irrelevant. See Williams v. Sinclair, 529 F.2d 1383, 1389 (9th Cir.1975) (Shareholders “who did no more than retain their shares[ ] are ... barred by the purchaser-seller rule from maintaining an action under Rule 10b-5.”). As a matter of law, “conduct actionable under Rule 10b-5 must occur before investors purchase the securities.” Levine v. Diamanthuset, Inc., *1067950 F.2d 1478, 1487 (9th Cir.1991); see also Roberts v. Peat, Marwick, Mitchell & Co., 857 F.2d 646, 651 (9th Cir.1988). Accordingly, only statements or omissions disseminated before September 24, 1991 can form the basis for Binder’s individuals claims.
Binder contends that summary judgment was inappropriate for Deloitte because Deloitte prepared financial statements filed with the SEC before he purchased his stock. The complaint alleges misrepresentations made prior to Binder’s purchase, but only two implicate Deloitte. Those involve quarterly financial reports issued by AVBC, marked “unaudited,” which Binder nevertheless maintains were prepared with Deloitte’s assistance.
Binder offers, as evidence of Deloitte’s participation, a reference in the first quarter statement to AVBC’s “certified public accountants, Deloitte & Touche.” He also relies upon deposition testimony by a De-loitte employee who stated, “We did comment on their 10-Q’s.” He neglects to include, however, the rest of the employee’s testimony: “I would like to make one point clear, ... that we never reviewed or had a business relationship with Aqua Vie that we were engaged to review their 10-Q’s.” In addition, the top of each section of the 10-Q forms was clearly marked “(unaudited),” and the completed forms were signed by Thomas Gillespie, with no mention (except the one reference) of Deloitte.
We conclude that Binder’s meager evidence of Deloitte’s participation in the reports is insufficient to preclude summary judgment. A party opposing summary judgment must offer more than a mere scintilla of evidence; indeed, “[s]ummary judgment may be granted if the evidence is merely colorable ... or is not significantly probative.” Summers v. A Teichert & Son, Inc., 127 F.3d 1150, 1152 (9th Cir.1997) (internal quotation omitted). Based on the record before us, we agree with the district court that there are no factual issues that could “reasonably be resolved in favor of either party.” Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). We affirm the grant of summary judgment in favor of Deloitte.
VI.
Finally, Binder takes issue with various evidentiary rulings during the course of the proceedings in district court. Specifically, he contends that the court erred by denying his request to depose one of Deloitte’s experts; by considering Deloitte’s experts’ reports over Binder’s objections; and by refusing to consider portions of Binder’s “Tollefson Declarations.” We reject Binder’s contentions. He has not demonstrated how additional discovery would have precluded summary judgment. See Natural Resources Defense Council v. Houston, 146 F.3d 1118, 1132-33 (9th Cir.1998). Similarly, the judge stated that, in deciding to grant summary judgment, he “primarily relied on existing case law” rather than the expert reports. Therefore, even if some reports had been erroneously considered, the error was harmless. See id. at 1133. Finally, the “Tollefson declarations” were properly struck because the court correctly concluded that Binder’s expert lacked personal knowledge and was not shown to be competent to offer expert testimony.
AFFIRMED.
dissenting in part:
Because the plaintiffs are entitled to a presumption of reliance under the doctrine of Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972), I would reverse the district court’s decision to decertify the class of investors represented by Binder. I therefore respectfully dissent.1
*1068In today’s decision, the,majority decides that the Affiliated Ute presumption does, not apply .to cases involving both material misrepresentations and material omissions, “unless the case can be characterized as one. that primarily alleges omissions.” (Opinion at 1064) In so holding, the majority resolves a question, that we have previously, and explicitly, reserved: “whether Affiliated Ute Citizens applies equally to misrepresentations.” Kramas v. Security Gas & Off Inc., 672 F.2d 766, 769 n. 2 (9th Cir.1982). To reach this conclusion, the majority simply adopts the procedure followed by two other circuits. See Finkel v. Docutel/Olivetti Corp., 817 F.2d 356, 359 (5th Cir.1987); Cavalier Carpets, Inc. v. Caylor, 746 F.2d 749, 756 (11th Cir.1984). Those circuits have determined that, in mixed cases, it is necessary to “analytically characterize [the] action as either primarily a nondisclosure case ... or a positive misrepresentation case.” Finkel, 817 F.2d at 359. I believe, however, that the logic behind the Affiliated Ute decision and the reasoning contained in our decisions implementing Affiliated Ute make it clear that the presumption applies equally to misrepresentations, and that it is irrelevant whether the case is primarily a misrepresentations case or primarily an omissions case. In either event, the plaintiff is entitled to a presumption of reliance.2
In Blackie v. Barrack, 524 F.2d 891, 908 (9th Cir.1975), on which the majority relies, we examined a material omissions case in which the plaintiff bought stock based in part on material omissions made by the defendant. We examined the Affiliated Ute rule and concluded that the Blackie plaintiffs did not need to prove reliance. We explained that such proof would require “proof of a speculative negative.” Id. In other words, to establish reliance, the plaintiff would have to prove the following proposition: “I would not have bought had I known.” Id. We rejected such a requirement because:
Direct proof would inevitably be somewhat pro-forma, and impose a difficult evidentiary burden, because addressed to a speculative possibility in an area where motivations are complex and difficult to determine.... Here, the requirement [of proving reliance] is redundant — the same causal nexus can be adequately established indirectly, by proof of materiality coupled with the common sense that a stock purchaser does not ordinarily seek to purchase a loss in the form of artificially inflated stock.
Id. Because Blackie was a pure omissions case, we did not have occasion to determine whether the same reasoning would apply to material misrepresentations.
One year later, however, in Little v. First California Co., 532 F.2d 1302, 1305 n. 4 (9th Cir.1976), we stated the rather obvious proposition that “[t]he categories of ‘omission’ and ‘misrepresentation’ are not mutually exclusive.” As we wrote:
All misrepresentations are also nondis-closures, at least to the extent that there is a failure to disclose which facts in the representation are not true. .Thus, the failure to report an expense item on an income statement, when such a failure is material in the Affiliated Ute sense, can be characterized as (a) an omission of a material expense item, (b) a misrepresentation of. income, or (c) both.
*1069 Id. This observation, besides being binding upon us as a matter of law, is clearly correct as a matter of logic. Omissions and misrepresentations both deprive the investor of truthful information relevant to the investment decision, and both result in the artificial pricing of a stock.
Most important for our purposes here, it is equally difficult to establish reliance on a misrepresentation and on an omission. While a plaintiff in an omissions case— absent the Affiliated Ute presumption— would bear the daunting task of proving T would not have bought/sold had I known what you failed to tell me’ see Blackie, 524 F.2d at 908, the plaintiff in a misrepresentation case bears the equally daunting burden of proving T would not have bought/ sold had I known what you failed to tell me; namely, the truth.’ In either case, the plaintiff must prove that he would have acted differently if he had known something that he did not actually know, i.e., the full truth.
In an omissions ease, the plaintiff does not know the truth because the defendant said nothing; in a misrepresentations case the plaintiff does not know the truth because the defendant lied. But, as far as the plaintiffs ability to demonstrate reliance, this is a distinction without a difference. In either case, the plaintiff must attempt to prove that he would have acted differently had he known the truth. The evidentiary burden is therefore equally difficult in either case, and there is no logical reason to afford the presumption of reliance to plaintiffs in omissions cases but not in misrepresentations cases. The rule we announced in Blackie, that the “causal nexus can be adequately established indirectly, by proof of materiality coupled with the common sense that a stock purchaser does not ordinarily seek to purchase a loss in the form of artificially inflated stock,” id., applies with equal force of logic to misrepresentations.
The Third Circuit made a similar observation in Sharp v. Coopers & Lybrand, 649 F.2d 175, 188 (3d Cir.1981). Sharp involved both material omissions and misrepresentations. The Sharp court noted that the reason for “shifting the burden on the reliance issue has been an assumption that the plaintiff is generally incapable of proving that he relied on a material omission.” Id. The court concluded, however, that “this observation does not justify a clear distinction between the treatment of misrepresentations and omissions.” Id. As the Third Circuit put it:
[T]he problem of speculation is not unique to situations in which omissions have occurred. In misrepresentation actions as well, proof of reliance requires a degree of speculation on the action that the plaintiff would have taken had no misrepresentation occurred.
Affiliated Ute recognized the inherent difficulty of proving reliance in securities fraud cases, and accordingly announced a rule of presumed reliance in a mixed omissions and misrepresentations case. As suggested by our opinion in Little and by the Third Circuit in Sharp, plaintiffs face the same difficulty in proving reliance on misrepresentations. I would therefore hold that plaintiffs in mixed cases are entitled to the Affiliated Ute presumption of reliance whether the case is primarily an omissions case or primarily a misrepresentations case. Accordingly, whether this case is properly classified simply as a mixed omissions and misrepresentations case, or as “primarily” a misrepresentations case, I would hold that the Binder class was entitled to a presumption of reliance, and would therefore reverse the de-certification of the class.3
7.6 Waggoner v. Barclays PLC 7.6 Waggoner v. Barclays PLC
Joseph WAGGONER, Mohit Sahni, Barbara Strougo, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. BARCLAYS PLC, Robert Diamond, Antony Jenkins, Barclays Capital Inc., William White, Defendants-Appellants, Chris Lucas, Tushar Morzaria, Defendants.*
No. 16-1912-cv
United States Court of Appeals, Second Circuit.
Argued: November 15, 2016
Decided: November 6, 2017
*83Jere;my Alan Liebebman, Pomerantz LLP, New York, NY (Tamar Weinrib, Pomerantz LLP, New York, NY; Patrick Y. Dahlstrom, Pomerantz LLP,. Chicago, IL, on the brief), for Plaintiffs-Appellees.
Jeffrey T., Scott, Sullivan & Cromwell LLP, New York, ' NY (Matthew A. Schwartz and Andrew H. Reynard, Sullivan & Cromwell LLP, New York, NY; Brent J. McIntosh, Sullivan & Croniwell LLP, Washington, DC, on the brief), for Defendants-Appellants.
Max W. Berger, Bernstein Litowitz Berger & Grossmann LLP, New York, NY (Salvatore J. Graziano, Bernstein Litowitz Berger & Grossmann LLP, New York, NY;' Blair Nicholas, Bernstein Litowitz Berger & Grossmann LLP, San Diego, CA; Robert D. Klausner, Klausner, Kaufman, Jensen & Levinson, Plantation, FL, on the brief), for the National Conference on Public' Employee Retirement Systems as amicus curiae in support of Plaintiffs-Appellees.
Daniel P. Chipldck, Lieff Cabraser Heimann & Bernstein, LLP, New York, NY, for the National Association of Shareholder and Consumer Attorneys as amicus curiae in support of Plaintiffs-Appellees.
*84Jeffrey W. Golan, Barrack, Rodos & Ba-cine, Philadelphia, PA (James J. Sabella, Grant & Eisenhofer P.A., New York, NY, of counsel; Daniel S. Sommers, Cohen Mil-stein Sellers & Toll PLLC, Washington, DC, of counsel; James A. Feldman, Washington, DC, on the brief), for Evidence Scholars as amicus curiae in support of Plaintiffs-Appellees.
Robert V. Prongay, Glancy Prongay & Murray LLP, Los Angeles, CA, for Securities Law Professors as amicus curiae in support of Plaintiffs-Appellees.
Charles E. Davidow, Paul, Weiss Rif-kind, Wharton & Garrison LLP, Washington, DC (Marc Falcone & Robyn Tarnof-sky, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY; Ira D. Hammerman and Kevin M. Carroll, Securities Industry and Financial Markets Association, Washington, DC, on the brief), for the Securities Industry and Financial Markets Association as amicus curiae in support of Defendants-Appellants.
David S. Lesser (Fraser L. Hunter, Jr., Colin T. Reardon, John Paredes, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Paul S. Atkins, Elizabeth Cosenza, Daniel M. Gallagher, Joseph A. Grundfest, Paul G. Mahoney, Richard W. Painter, and Andrew N. Vollmer as amicus curiae in support of Defendants-Appellants.
Michael H. Park, Consovoy McCarthy Park PLLC, New York, NY (J. Michael Connolly, Consovoy McCarthy Park PLLC, Arlington, VA; Kate Comerford Todd and Warren Postman, U.S. Chamber Litigation Center, Washington, DC, on the brief), for the Chamber of Commerce of the United States of America as amicus curiae in support of Defendants-Appellants.
Before: KEARSE, LOHIER, and DRONEY, Circuit Judges.
Barclays PLC, its American subsidiary Barclays Capital Inc. (collectively, “Bar-clays”), and three senior officers of those companies1 appeal from an order of the United States District Court for the Southern District of New York (Scheindlin, J.) granting a motion for class certification filed by the Plaintiffs-Appellees (“Plaintiffs”), three individuals2 who purchased Barclays’ American Depository Shares (“Barclays’ ADS”)3 during the'class period. The Plaintiffs brought this suit alleging violations of § 10(b) of the Securities Exchange Act of 1934,15 U.S.C. § 78j(b), and *85the Securities and Exchange Commission’s Rule 10b-5.4
The Defendants-Appellants (“Defen- ■ dants”) contend that the district court erred in granting class certification by: (1) concluding that the Affiliated Ute presumption of reliance applied, see Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972); (2) determining, alternatively, that the Basic presumption, see Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), applied without considering direct evidence of price impact when it found that Barclays’ ADS traded in an efficient market; (3) requiring the Defendants to rebut the Basic presumption by a preponderance of the evidence (and concluding that the Defendants had failed to satisfy that standard); and (4) concluding that the Plaintiffs’ proposed method for calculating classwide damages was appropriate.
We agree with the Defendants that the district court erred in applying the Affiliated Ute presumption, but reject the remainder of their arguments and conclude that the district court did not err in granting the Plaintiffs’ motion for class certification. Specifically, we hold that: (1) the Affiliated Ute presumption does not apply because the Plaintiffs’ claims are primarily based on misstatements, not omissions; (2) direct evidence of price impact is not always necessary to demonstrate market efficiency, as required to invoke the Basic presumption of reliance, and was not required here; (3) defendants seeking to rebut the Basic presumption must do so by a preponderance of the evidence, which the Defendants in this case failed to do; and (4) the district court’s conclusion regarding the Plaintiffs’ classwide damages methodology was not erroneous. We therefore AFFIRM the order of the district court.
BACKGROUND
I. Barclays’ Recent Involvement in the LIBOR Scandal and Its Investigations
Barclays is a London-based international financial services provider involved in banking, credit cards, wealth management, and investment management services in more than fifty countries.5 Barclays was the subject of a number of investigations and suits involving the misrepresentation of its borrowing data submitted for the calculation of the London Interbank Offered Rate (“LIBOR”).6 Barclays and other financial institutions manipulated LI-BOR, an important set of benchmarks for international interest rates. In June 2012, Barclays was fined more than $450,000,000 as a result of its involvement. As a result of the LIBOR investigation, Barclays’ corporate leadership undertook significant measures to change the company’s culture *86and develop more integrity in its operations.7
II. LX, Dark Pools, and High-Frequency Traders
From the time it was involved in the' LIBOR investigations to the present, Bar-clays, through its American subsidiary Barclays Capital Inc., has operated an alternate trading system—essentially a private venue for trading securities8—known as Barclays’ Liquidity Cross, or, more simply, as Barclays’ LX (“LX”). LX belongs to a particular subset of alternate trading systems known as “dark pools.” Dark pools permit investors to trade securities in a largely anonymous manner. Neither “information regarding the orders placed into the pool for execution [n]or the identities of subscribers that are trading in the pool” are displayed at the time of the trade.9
The anonymous nature of dark pools makes them popular with institutional investors, who seek to avoid victimization at the hands of high-frequency traders.10,11 High-frequency traders often engage in “front running” or “trading ahead” of the market, meaning that they detect patterns involving large incoming trades, and then execute their own trades before those incoming trades are completed.12 Front running results in the incoming trades being more costly or less lucrative for the indi*87viduals or institutions making them.13 Thus, many investors prefer to avoid high-frequency traders, and utilize dark pools to do so. Some literature nevertheless suggests that dark pools are also popular with high-frequency traders, who similarly prefer them because they are anonymous.14
III. Barclays’ Statements Regarding LX and Liquidity Profiling
To address concerns that high-frequency traders may have been front running in LX, Barclays’ officers made numerous statements asserting that LX was safe from such practices, and that Barclays was taking steps to protect traders in LX,
For example, Barclays’ Head of Equities Electronic Trading (and a Defendant in this action) William ■ White told Traders Magazine that Barclays monitored activity in LX and would remove traders who engaged in conduct that disadvantaged LX clients. On a different occasion, White publicly stated that LX was “built on transparency” and had “safeguards to manage toxicity, and to help [its] institutional clients understand how to manage their interactions with high-frequency traders.” J.A. 237. Other examples of purported misstatements made by Barclays include the following allegations:
• Touting LX as encompassing a “sophisticated surveillance framework that protects clients, from predatory trading activity.” J.A. 240.
• Representing that “LX underscores Barclays’ belief that transparency is not only important, but that it benefits both our clients and the market overall.” J.A. 246.
• Stating that Barclays’ algorithm and scoring methodology enabled it “to restrict [high-frequency traders] interacting with our clients.” J.A. 247.
Barclays also created a service for its LX customers entitled “Liquidity Profil'ing.” First marketed in 2011, Liquidity Profiling purportedly allowed Barclays’ personnel to monitor high-frequency trading in LX more closely and permitted traders to avoid entities that engaged in such trading. For example, Barclays issued a press release stating that Liquidity Profiling enabled “Barclays to evaluate each client’s trading in LX based on quantitative factors, thereby providing more accurate assessments of aggressive, neutral and passive trading strategies.” J.A. 246. Based on a numerical ranking system that categorized traders, LX users could, according to Barclays, avoid trading with high-frequency traders. Barclays made numerous other alleged misstatements regarding Liquidity Profiling, such as:
• Claiming in a press release that by , using . Liquidity Profiling,' clients could “choose which trading styles they interact with, instead of choosing by the more arbitrary designa- - tion of client type.” J.A. 246.
• Explaining that “transparency” was the biggest theme of the year 2013, and that “Liquidity Profiling ana- • lyzes each interaction in the. dark pool, allowing us to monitor the behavior of individual participants. This was a very significant step because it ’ was important to provide ... clients • with transparency about the nature of counterparties in the dark pool *88and how the control framework works.” J.A. 252.
IV. The New York Attorney General’s Lawsuit
On June 25, 2014, the New York Attorney General commenced an action alleging that Barclays was violating provisions of the New York Martin Act15 in operating its dark pool. The complaint alleged that many of Barclays’ representations about protections LX afforded its customers from high-frequency traders were false and misleading. See People ex rel. Schneiderman v. Barclays Capital Inc., 1 N.Y.S.3d 910, 911, 47 Misc.3d 862 (N.Y. Sup. Ct. 2015).
The next day, the price of Barclays’ ADS fell 7.38%. On the following day, news reports estimated that Barclays could face a fine of more than £300,000,000 as a result of the Attorney General’s action, and on June 30th its stock price dropped an additional 1.5%.
V. The Plaintiffs’ Action
The Plaintiffs filed the instant putative class action shortly thereafter. They alleged in a subsequent second amended complaint that Barclays had violated § 10(b) and Rule 10b-5 by making false statements and omissions about LX and Liquidity Profiling.
The Plaintiffs alleged that Barclays’ statements about LX and Liquidity Profiling “were materially false and misleading by omission or otherwise because,” J.A. 227, contrary to its assertions, “Barclays did not in fact protect clients from aggressive high frequency trading activity, did not restrict predatory traders’ access to other clients,” and did not “eliminate traders who continued to behave in a predatory manner,” J.A. 228.
According to the complaint, Barclays “did not monitor client orders continuously,” or even apply Liquidity Profiling “to a significant portion of the trading” conducted in LX. J.A. 228. Instead, the Plaintiffs alleged that Barclays “favored high frequency traders” by giving them information about LX that was not available to other investors and applying “overrides” that allowed such traders to be given a Liquidity Profiling rating more favorable than the one they should have received. J.A. 228.
The result of these fraudulent statements, the Plaintiffs asserted, was that the price of Barclays’ ADS had been “maintained” at an inflated level that “reflected investor confidence in the integrity of the company” until the New York Attorney General’s lawsuit. J.A. 224.
VI.Procedural History
The Defendants moved to dismiss the Plaintiffs’ claims. They contended, among other arguments, that the alleged misstatements recited by the Plaintiffs were not material and therefore could not form the basis for a § 10(b) action. In particular, the Defendants pointed out that the revenue generated by LX was only 0.1% of Barclays’ total revenue, which was, according to the Defendants, significantly below what would ordinarily be considered quantitatively material to investors. The Defendants also contended that the Plaintiffs had not adequately pleaded that the alleged misstatements were qualitatively *89material because they had not alleged that any Barclays investor had considered them in making investment decisions; the statements were directed only to LX clients, not investors.
The district court denied the Defendants’ motion to dismiss, in part. Strougo v. Barclays PLC, 105 F.Supp.3d 330, 353 (S.D.N.Y. 2015). The court explained that it was obligated to consider whether the purported misstatements were quantitatively or qualitatively material. Id. at 349-50. In its quantitative analysis, the court agreed with the Defendants that LX was a small part of Barclays’ business operation and accounted for a small fraction of the company’s revenue. Id. at 349. It nevertheless concluded that the misstatements could be qualitatively material. Id. After the LIBOR scandal, the court explained, “Barclays had staked its long-term performance on restoring its integrity.” Id. (internal quotation marks omitted). Bar-clays’ statements regarding LX and Liquidity Profiling could therefore “call into question the integrity of the company as a whole.”16 Id.
a. The Plaintiffs’ Motion for Class Certification
The Plaintiffs then sought class certification for investors who purchased Barclays’ ADS between August 2, 2011, and June 25, 2014.17
In order to satisfy Federal Rule of Civil Procedure 23(b)(3)’s predominance requirement, the Plaintiffs argued that § 10(b)’s reliance element was satisfied by the members of the proposed class under the presumption of reliance recognized by the Supreme Court in Basic, 485 U.S. at 224,108 S.Ct. 978.
In support of their motion, the Plaintiffs submitted an expert report from Dr. Zachary Nye18 that considered whether the market for Barclays’ ADS was efficient, a necessary prerequisite for the Basic presumption to apply. Dr. Nye’s report applied the five factors identified in Cammer v. Bloom, 711 F.Supp. 1264 (D.N.J. 1989), and the three factors identified in Krogman v. Sterritt, 202 F.R.D. 467 (N.D. Tex. 2001). See In re Petrobras Sec., 862 F.3d 250, 276 (2d Cir. 2017). Dr. Nye explained that all eight factors supported the conclusion that the market for Barclays’ ADS was efficient. Dr. Nye first concluded that the seven factors that rely on “indirect” indicia of an efficient market—the first four Cammer factors and all three Krog-man factors—supported his conclusion.
With respect to the final factor—the fifth Cammer factor, or “Cammer 5,” which is considered the only “direct” measure of efficiency—Dr. Nye conducted an *90“event study” to determine whether the price of Barclays’ ADS changed when new material information about the company was released. Based on the results of that event study, Dr. Nye concluded that the final factor also weighed in favor of .concluding that the market for Barclays’ ADS was efficient. Thus, relying on Dr. Nye’s report, the Plaintiffs asserted that they were entitled to the Basic presumption.
In the alternative, the Plaintiffs argued that reliance could be established under the presumption of reliance for omissions .of material information, as recognized by the Supreme Court in Affiliated Ute, 406 U.S. at 128, 92 S.Ct. 1456. That presumption, the Plaintiffs asserted, applied because Barclays had failed to disclose material information regarding LX, such as the fact that Liquidity Profiling did not apply to a significant portion of the trades conducted in LX and that Barclays provided advantages such as “overrides” to high-frequency traders.
Dr, Nye also addressed the calculation of class damages. He opined that the damages class members had suffered as a result of Barclays’ fraudulent conduct could be calculated on a classwide basis. According to Dr. Nye, the amount by which á stock’s price was ■ inflated by fraudulent statements or omissions could be calculated by measuring'how much the price of the stock declined when those statements were revealed to be false or when previously undisclosed information was revealed. An event study could then isolate company-specific changes in stock. price from changes resulting from outside fác-tors such as fluctuations in the stock market generally or the particular industry. Once the decline caused by the corrective disclosure was isolated, the- “daily level of price inflation” could be readily calculated for Barclays’ ADS for the class period. J.Á. 348. Then, each class member’s actual trading in the security could be used to determine .individual damages.19
b. The Defendants’ Opposition to Class Certification
In response, the Defendants argued that the Plaintiffs had not made the requisite showing to invoke the Basic presumption because they had. failed to show that the market for Barclays’ ADS was efficient.20 The Defendants pointed to the report of then* expert, Dr, Christopher M. James,21 which claimed that the Plaintiffs had not shown direct evidence of efficiency under Cammer 5 because the event study conducted by Dr. Nye was flawed. The Defendants did not, however, challenge Dr. Nye’s conclusion. that the seven indirect factors demonstrated that the market for Barclays’ ADS was efficient, nor did Dr. James conduct his own event study to demonstrate the inefficiency of the market for Barclays’ ADS. ’
The Defendants also argued that even if the district court were to conclude that the Plaintiffs were entitled to the Basic presumption of reliance, class certification should be denied because the Defendants rebutted that presumption. They asserted that the event study conducted by Dr. Nye indicated that the price of Barclays’ ADS *91did not increase by a statistically significant amount on any of the days on which the purportedly fraudulent statements had been made. Thus, according to the Defendants, there was no connection between the misstatements and the price of Bar-clays’ ADS.
The Defendants further contended that the Affiliated Ute presumption was inapplicable to the complaint’s allegations. That presumption, they argued, applied only to situations primarily involving omissions, and the complaint alleged affirmative misstatements, not omissions.
Finally, the Defendants contended that the damages model proposed by Dr. Nye failed to satisfy Comcast Corp. v. Behrend, 569 U.S. 27, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). Dr. Nye’s model, the Defendants argued, did not disaggregate confounding factors that could have caused the price drop in Barclays’ ADS that occurred when the New York Attorney General announced his action, such as the likelihood of regulatory fines. Nor had the model sufficiently accounted for variations in the time each alleged misstatement became public. According to the Defendants, these deficiencies precluded class certification.
c. The District Court’s Class Certification Decision
The district court granted the Plaintiffs’ motion for class certification. Strougo v. Barclays PLC, 312 F.R.D. 307, 311 (S.D.N.Y. 2016). It concluded that the Affiliated Ute presumption applied. Id. at 319. The court explained that “a case could be made that it is the material omissions, not the affirmative statements, that are the heart of this case.” Id. According to the court, it was “far more likely that investors would have found the omitted conduct,” as opposed to the misstatements, material. Id.
In the alternative, the district court concluded that the Basic presumption of reliance for misrepresentations applied. Id. at 323. The Defendants, the court noted, had conceded that the Plaintiffs had “established four of the five Cammer factors and all three Krogman factors.” Id. at 319-20. They disputed only the sufficiency of Dr. Nye’s event study under Cammer 5. M at 320. Although Dr. Nye’s event study had been presented to the district court (and was the subject of extensive court proceedings), the district court concluded that direct evidence of price impact under Cammer 5 was not necessary to its determination that the markét for Barclays’ ADS was efficient during the class period.22 Id. The district court noted that although an event study may be particularly important where the indirect factors do not weigh heavily in favor of market efficiency, it was not necessary here where the application of the indirect factors, including that the “stock trades in high volumes on a large national market and is followed by a large number of analysts,” weighed so strongly in favor of a finding of market efficiency. Id. at 322-23. Therefore, the court declined to determine whether Cammer 5 was satisfied, but concluded' based on the showing made by the Plaintiffs on all the indirect factors that Barclays’ ADS traded in an efficient market during the class period. Id. at 323.
The district court noted that, based on ■Dr. Nye’s report, Barclays’ ADS had an average weekly trading volume of 17.7% during the .class period. Id. at 323 n.103. That volume far exceeded the 2% thresh*92old for a “strong presumption” of efficiency based on the average weekly trading volume described in Cammer. Id. Additionally, the district court noted that analysts had published more than 700 reports regarding Barclays’ ADS during the class period, and it explained that “the amount of reporting on Barclays[’] [ADS] by security analysts during the Class Period indicates that' company-specific news was widely disseminated to investors.” Id. at 323 n.104. That consideration was directly relevant to a different “indirect” Cammer factor and, like the average weekly trading volume, supported the conclusion that the market for Barclays’ ADS was efficient. Id. at 316.
The court further determined that the Defendants had not rebutted the Basic presumption. Id. at 327. They had failed to demonstrate that the allegedly fraudulent statements did not impact the price of Barclays’ ADS. Id. The “fact that other factors contributed to the price decline does not establish by a preponderance of the evidence that the drop in the price of Barclays!!’] ADS was not caused at least in part by the disclosure of the fraud at LX,” the district court reasoned. Id. (first emphasis added).
Finally, the district court concluded that Dr. Nye’s damages model complied with Comcast Corp. v. Behrend. Id. The methodology proposed by the Plaintiffs fit their legal theory of the .case because they had proposed using an event study and a- constant dollar method that was based on the decline in stock price following the disclosure of the Attorney General’s lawsuit. Id. The court also concluded that individual damages issues would not predominate and could be readily calculated. Id; It therefore granted the Plaintiffs’ motion for class certification. Id. at 328-29.
This Court granted Barclays’ petition for leave to appeal the district court’s class certification order. See Fed. R. Civ. P. 23(f); Fed. R. App. P. 5(a).
DISCUSSION
The Defendants: argue that the district court erred in four respects by granting the Plaintiffs’ motion for class certification. First, they assert that the district court incorrectly concluded that the Plaintiffs properly invoked the Affiliated Ute presumption. Second, the Defendants contend that the court improperly concluded that the Basic presumption applied without considering direct evidence of market efficiency under Cammer 5. Third, they argue that the district court erroneously required them to rebut the Basic presumption by a preponderance of the evidence (and wrongly concluded that they failed to satisfy that standard). Finally, the Defendants assert that the Plaintiffs’ damages model violates Comcast Corp. v. Behrend.
We agree with the Defendants’ contention that the Affiliated Ute presumption is inapplicable. We reject their other arguments. We affirm the district court’s class certification order because the Basic presumption ■ of reliance for misrepresentations applies, was not rebutted by the Defendants, and renders the district court’s erroneous decision regarding the Affiliated Ute presumption for omissions harmless. Further, we conclude that the damages aspect of the district court’s certification decision was within its discretion.
I. Standard of Review
“We review a district court’s class certification determination for abuse of discretion.... While we review the district court’s construction of legal standards de novo, we review the district court’s application of those standards for whether the district court’s decision falls within the range of permissible decisions.” Roach v. *93 T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015).
II. Class Certification Requirements
In addition to satisfying the requirements set forth in Federal Rule of Civil Procedure 23(a), a plaintiff seeking class certification must establish one of the bases for certification identified in Federal Rule of Civil Procedure 23(b). See Fed. R. Civ. P. 23(b). One such basis, at issue here, permits certification if “questions of law or fact common to class members predominate over any questions affecting only individual members,” and “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). “Predominance is satisfied if resolution of some of the legal or factual questions that qualify each class member’s case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof.” Roach, 778 F.3d at 405 (internal quotation marks omitted).
III. The Presumptions of Reliance
In a securities fraud action under § 10(b), one of the elements that a plaintiff must prove is that he relied on a misrepresentation or omission made by the defendant.23 In re Am. Int’l Grp., Inc. Sec. Litig., 689 F.3d 229, 234 n.3 (2d Cir. 2012).
“The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing that he was aware of a company’s statement and engaged in a relevant transaction—e.g., purchasing common stock—based on that specific misrepresentation.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 810, 131 S.Ct. 2179, 180 L.Ed.2d 24 (2011) (“Halliburton I”).
Alternatively, a plaintiff may also seek to take advantage of two presumptions of reliance established by the Supreme Court.
The first—the Affiliated Ute presumption—allows the element of reliance to be presumed in cases involving primarily omissions, rather than affirmative misstatements, because proving reliance in such cases is, in many situations, virtually impossible.24 Wilson v. Comtech Telecomms. Corp., 648 F.2d 88, 93 (2d Cir. 1981); see also Affiliated Ute, 406 U.S. at 153-54, 92 S.Ct. 1456.
The second—the Basic presumption—permits reliance to be presumed in cases based on misrepresentations if the plaintiff satisfies certain requirements.25 ,26 *94 See Halliburton Co. v. Erica P. John Fund, Inc., — U.S. -, 134 S.Ct. 2398, 2413, 189 L.Ed.2d 339 (2014) (“Halliburton' IF’). .One of them, and the only one at issue in this appeal, is that “the stock [at issue] traded in an efficient market.” Id. An efficient market is “one in which the prices of the [stock] incorporate most public information rapidly.”27 Teamsters Local 445 Freight Div. Pension, Fund v. Bombardier Inc., 546 F.3d 196, 204 (2d Cir. 2008). In other words, an efficient market is one in which “market professionals generally consider most publicly announced material statements about companies, thereby affecting stock prices.” Id. at 199 n.4 (internal quotation marks omitted).
We have, repeatedly—and recently-declined to adopt a particular test for market efficiency. Petrobras, 862 F.3d at 276. However, district courts in this and other Circuits regularly consider five factors first set forth in Cammer v. Bloom, 711 F.Supp. at 1286-87. See Petrobras, 862 F.3d at 276. Those factors are:
(1) the average weekly trading volume of the [stock], (2) the number of securities analysts following and reporting on [it], (3) the extent to which market makers traded in the [stock], (4) the issuer’s eligibility to file an SEC registration Form S-3, and (5) the demonstration of a cause and effect relationship between unexpected, material disclosures and changes in the [stock’s] price[ ].
Bombardier, 546 F.3d at 200.
The first four “Cammer factors examine indirect indicia of market efficiency for a particular security.” Petrobras, 862 F.3d at 276. However, the fifth factor—“Cammer 5”—permits plaintiffs to submit direct evidence consisting of “empirical facts showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response' in the stock price.” Id. (internal quotation marks omitted). Plaintiffs generally attempt to satisfy Cammer 5 by submitting an event study. Such studies are “regression analyses that seek to show that the market price of the defendant’s stock tends to respond to pertinent publicly reported events.” Halliburton II, 134 S.Ct. at 2415.
In addition to the Cammer factors, courts often consider what are known *95as the three Krogman factors when analyzing whether the market for a stock is efficient. Petrobras, 862 F.3d at 276. Those factors are ■ “(1) the capitalization of the company; (2) the bid-ask spread of the stock; and (3) the percentage of stock not held by insiders (‘the float’).” Krogman, 202 F.R.D. at 474.
If a plaintiff demonstrates to the district court that the market for the stock is efficient and that the other requirements for the Basic presumption are met, the presumption applies and § 10(b)’s reliance requirement is satisfied at the class certification stage. Hevesi v. Citigroup Inc., 366 F.3d 70, 77 (2d Cir. 2004). If, however, a plaintiff fails to qualify for the Basic presumption, and the Affiliated Ute presumption for omissions does not apply, then class certification under Rule 23(b)(3) is usually impossible because reliance would have to be proven on a plaintiff-by-plaintiff basis. Halliburton II, 134 S.Ct. at 2416.
Even if a plaintiff successfully invokes the Basic presumption, however, defendants may rebut the presumption through “any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price.” Id. at 2408 (alteration and internal quotation marks omitted).' '
IV. The Defendants’ Arguments
With that background in mind, we now address the Defendants’ specific arguments.
a. The Applicability of the Affiliated Ute Presumption
The Defendants first argue that the district court erred by concluding that the Affiliated Ute presumption applies béeause the Plaintiffs’ complaint is based primarily on allegations of affirmative misrepresentations, not omissions. We agree.
When the Supreme Court first recognized the Affiliated Ute presumption, it explained that under the circumstances of that case, a case “involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery.” Affiliated Ute, 406 U.S. at 153, 92 S.Ct. 1456 (emphasis added). We later determined that the presumption was inapplicable in two cases because the claims of fraud at issue were not based primarily on omissions. Those decisions are particularly helpful in discerning whether the allegations here principally concern misrepresentations or omissions.
In the first, Wilson v. Comtech Telecommunications Corp., 648 F.2d 88 (2d Cir. 1981), we cautioned that the labels “misrepresentation” and “omission” “are of little hélp” because in “many instances, an omission to state a material fact relates back to an earlier’ statement, and if it is reasonable to think that that prior statement still stands, then the omission may also be termed a misrepresentation.” Id. at 93. We explained that what “is important is to understand the rationale for á presumption of causation in fact in cases like Affiliated Ute, in which no positive statements exist: reliance as a practical matter is impossible to prove.” Id. (italics added). In Wilson,’ the president of the defendant corporation made sales and earnings projections at a conference of investors and securities analysts. Id. at 89. Several months later, those projections were shown to be materially inaccurate. Id. The earlier projections became misleading when subsequent corrective information was not timely disclosed.- In other words, as we explain in somewhat more detail, the projections eventually became “half-truths.” Unlike in Affiliated Ute, however, in Wilson the omissions alone were not the actionable events and proving reliance on them was therefore not “impossible”; ac*96cordingly, we concluded that the plaintiff was required to demonstrate that he relied on the earlier misrepresentations in executing his stock purchases. Id. at 94.
Similarly, in Starr ex rel. Estate of Sampson v. Georgeson Shareholder, Inc., 412 F.3d 103 (2d Cir. 2005), we concluded that the Affiliated Ute presumption did not apply because the plaintiffs’ claims in that case were “not ‘primarily’ omission claims.” Id. at 109 n.5. We explained that the plaintiffs’ claims there, as in Wilson, focused on “misleading statements” that were not corrected. Id. The plaintiffs asserted that the omissions only “exacerbated the misleading nature of the affirmative statements.” Id.
In this case, the Affiliated Ute presumption does not apply for the same reasons that it was inapplicable in Wilson and Starr. First, the Plaintiffs’ complaint alleges numerous affirmative misstatements by the Defendants. The Plaintiffs are therefore not in a situation in which it is impossible for them to point to affirmative misstatements. Second, the Plaintiffs focus their claims on those .affirmative misstatements. In arguing that class certification was proper, for example, the Plaintiffs stated that Barclays had “touted LX as a safe trading venue” and “consistently assured the public that its dark pool was a model of transparency and integrity.” J.A. 280-81.
Indeed, the omissions the Plaintiffs list in their complaint are directly related to the earlier statements Plaintiffs also claim are false. For example, the Plaintiffs argue that Barclays failed to disclose that Liquidity Profiling did not apply to a significant portion of the trades conducted in LX. That “omission” is simply the inverse of the Plaintiffs’ misrepresentation allegation: Barclays’ statement that Liquidity Profiling protected LX traders was false. Thus, as alleged in Stair, the omissions here “exacerbated the misleading nature of the affirmative statements.” Starr, 412 F.3d at 109 n.5. The Affiliated Ute presumption does not apply to earlier misrepresentations made more misleading by subsequent omissions, or to what has been described as “half-truths,” nor does it apply to misstatements whose only omission is the truth that the statement misrepresents. See Joseph v. Wiles, 223 F.3d 1155, 1162 (10th Cir. 2000), abrogated on other grounds by Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc., — U.S. —, 137 S. Ct. 2042, 198 L.Ed.2d 584 (2017).
For these reasons, the Affiliated Ute presumption does not apply.
b. The Applicability of the Basic Presumption
We next turn to the Defendants’ challenge to the district court’s conclusion that the Basic presumption applied.
The Defendants assert three reasons why the district court incorrectly found that the Basic presumption applied and was not rebutted. First, the Defendants contend that the court erred by failing to consider whether direct evidence of price impact under Cammer 5 showed that Bar-clays’ ADS traded in an efficient market. Second, the Defendants argue that even if the failure to make that finding was not erroneous, the court erred by shifting the burden of persuasion, rather than imposing only the burden of production, on the Defendants to rebut the Basic presumption. Third, the Defendants assert that even if they, bore the burden of rebutting the Basic presumption by a preponderance of the evidence, the district court incorrectly concluded that they had failed to satisfy that standard.
We are not persuaded by the Defendants’ arguments. We conclude that direct evidence of price impact under Cammer 5 *97is not always necessary to establish market efficiency and invoke the Basic presumption, and that such evidence was not required in this case at the class certification stage. Also, the Defendants were required to rebut the Basic presumption by a preponderance of the evidence, and they failed to do so.
1. Whether “Cammer 5” Must Be Satisfied
Whether direct evidence of price impact under Cammer 5 is required to demonstrate market efficiency is a question of law over which we exercise de novo review. See Roach, 778 F.3d at 405.
As previously discussed, we recently once again declined to adopt a particular test for market efficiency in Petrobras. See 862 F.3d at 276. Although we also declined in Petrobras to decide “whether plaintiffs may satisfy the Basic presumption without any direct evidence of price impact,” id. at 276-77, i.e., without producing evidence under Cammer 5, we nevertheless explained that the “district court properly declined to view direct and indirect evidence as distinct requirements, opting instead for a holistic analysis based on the totality of the evidence presented,” id. at 277.
We then also rejected the argument that “directional” direct evidence of price impact28 was required by Cammer 5. Id. at 277-78. In so doing, we explained that we have “never suggested” that an event study “was the only way to prove market efficiency.” Id. at 278. We then noted that the Supreme Court has suggested that the burden required to establish market efficiency “is not an onerous one.” Id. Lastly, we explained that “indirect evidence of market efficiency” under the other four Cammer factors would “add little to the Basic analysis if courts only ever considered them after finding a strong showing based on direct evidence alone.” Id. Indeed, we noted that indirect evidence regarding the efficiency of a market for a company’s stock under the first four Cam-mer factors “is particularly valuable in situations where direct evidence does not entirely resolve the question” of market efficiency. Id.
Here, building on Petrobras, we conclude that a plaintiff seeking to demonstrate market efficiency need not always present direct evidence of price impact through event studies.
In so concluding, we do not imply that direct evidence of price impact under Cammer 5 is never important. Indeed, as the Defendants point out, we have recognized that Cammer 5 has been considered the most important Cammer factor in certain cases because it assesses “ ‘the essence of an efficient market and the foundation for the fraud on the market theory.’” Bombardier, 546 F.3d at 207 (quoting Cammer, 711 F.Supp. at 1287). In Bombardier, we concluded that the district court did not err in rejecting the plaintiffs’ particular event study, but also emphasized that Cammer 5’s importance was greater because a number of the indirect Cammer factors suggested the inefficiency of the market. Id. at 210. Those factors were “the absence of market makers for the Certificates [at issue in that case], the lack of analysts follow*98ing the Certificates, and the absence of proof that unanticipated, material information caused changes in- the Certificates’ prices—as well as the infrequency of trades- in the Certificates.” Id. ■
Direct evidence of an efficient market may be more' critical, for example, in a situation in which the other four Cammer factors (and/or the Krogman factors) are less compelling in showing an efficient market'. In Bombardier, the district court concluded that the Cammer factors were split: two supported the conclusion that the market for the certificates issued by -Bombardier was efficient while the three other factors—including Cammer 5—weighed against finding an efficient market. Id. at 200. The certificates in Bombardier were relatively few in number and of high dollar denominations, and they traded infrequently—primarily “in large amounts by sophisticated institutional investors.” Id. at 198. Hence, establishing market efficiency was undoubtedly more difficult there "than it is in cases involving the common stock of large financial institutions, traded frequently on a national exchange. -
The Cammer and Krogman factors are simply tools to help district courts analyze market efficiency in determining whether the Basic presumption of reliance applies in class certification decision-making. But they are no more than tools in arriving at that conclusion, and certain factors will be more helpful than others in assessing particular securities and particular markets for efficiency.
2. Whether “Cammer 5” Was Required Here
We now consider whether evidence of price impact under Cammer 5 was required here in determining whether the market-for Barclays? ADS was efficient during the class period.
Because the resolution of this issue required the district court to apply the applicable law to the facts before it, we ask only “whether the district court’s decision falls within the range of permissible decisions.” Roach, 778 F.3d at 405.
Applying that deferential standard of review, we conclude that the district court’s decision not to rely on direct evidence o'f price impact under Cammer 5 in this case fell comfortably .within the range of permissible decisions. All seven.of the indirect factors considered by the district court (the'first four Cammer factors and the three Krogman factors) weighed so clearly in favor of concluding that the market for Barclays’ ADS was efficient that the Defendants did not even challenge them. The district court explained that Barclays’ ADS had an average weekly trading volume many times higher than the volume found to create a “strong presumption” of market efficiency in Cammer, and it further noted that Barclays is closely followed by many analysts. Strougo, 312 F.R.D. at 323 nn.103-04. In'its analysis, the court cited Dr. Nye’s report favorably, which had addressed all of the Cammer factors and concluded that they supported a finding that the market for Barclays’ ADS was efficiént. Id.
This case is different from the situation in Bombardier, where we concluded that certain of the indirect factors did not demonstrate market efficiency, and that the plaintiffs’ event study was flawed. Bombardier, 546 F.3d at 210. Barclays’ ADS is effectively Barclays’ common stock on the New York Stock Exchange. Because Bar-clays is one of the largest financial institutions in the world, it is unsurprising that the market for Barclays’ ADS is efficient. Indeed, this conclusion is so clear that the Defendants failed to challenge such efficiency—based on seven other factors— apart from their attack on Dr. Nye’s Cam-mer 5 event study. This case is more similar to the situation in Petrobras, where *99holders of ADS of Petrobras, a multinational oil and gas company headquartered in Brazil that was “once among the largest companies in the world,” whose shares traded on the New York Stock Exchange, brought suit. Petrobras, 862 F.3d at 256. In particular, the strong indirect evidence of an efficient market, which' showed that Barclays’ ADS was actively traded “in high volumes,” Strougo, 312 F.R.D. at 322, on the New York Stock Exchange, on over-the-counter markets, and in the secondary market, and had “heavy analyst coverage,” id. at 323, as well as the evidence related to the other indirect factors, tipped the balance in favor of the Plaintiffs on their burden to demonstrate market efficiency. Under the circumstances here, the district court was not required to reach a conclusion concerning direct evidence of market efficiency.29 It therefore acted within its discretion in finding an efficient market based on the remaining seven factors.30
c. Rebutting the Basic Presumption
We now turn to the Defendants’ argument that the district court erred by shifting the burden of persuasion, rather than the burden of production, to rebut the Basic presumption.
The burden defendants face to rebut the Basic presumption is a question of law that we review de novo. Roach, 778 F.3d at 405. Applying that standard, we conclude that defendants must rebut the Basic presumption by disproving reliance by a preponderance of the evidence at the class certification stage.
The Basic presumption is rebuttable. Halliburton II, 134 S.Ct. at 2405. The Supreme Court held so when it first articulated the presumption in Basic, 485 U.S. at 224, 108 S.Ct. 978, and when it reaffirmed the presumption of reliance in Halliburton II, stating that “any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.” Halliburton II, 134 S.Ct. at 2408 (alteration omitted) (quoting Basic, 485 U.S. at 248,108 S.Ct. 978).
*100In assessing whether the Supreme Court has indicated that the burden on defendants to rebut the Basic presumption of reliance is one of merely production or one of persuasion, it is first important to consider the development of the presumption and the burden the Court imposed on plaintiffs to invoke it at the class certification stage, as well as the specific language of Basic and Halliburton II concerning the showing defendants must make to rebut the presumption.
In Basic, Basic Incorporated, a chemical manufacturing firm, repeatedly denied in public statements that it was involved in merger discussions with Combustion Engineering, another chemical firm, shortly before it announced a merger of the two firms. See Basic, 485 U.S. at 226-28, 108 S.Ct. 978. Former Basic shareholders who had sold their stock before the merger was announced sued under § 10(b), claiming that the company’s prior statements constituted misrepresentations. Id. at 227-28, 108 S.Ct. 978. The district court applied a presumption of reliance and certified the plaintiffs’ class. Id. at 228, 108 S.Ct. 978. The Supreme Court agreed that reliance on the statements that no merger would occur would be presumed because of the “well-developed market” for the securities, and the fact that the Basic stock was sold in an “efficient market.” Id. at 247-48, 250, 108 S.Ct. 978. The Court explained, however, that the presumption of reliance could be rebutted if the defendants “could show that the ‘market makers’ were privy to the truth about the merger discussions” in that case “and thus that the market price would not have been affected by” the defendants’ misrepresentations. Id. at 248, 108 S.Ct. 978. Such a showing would break the causal connection for the inference that the fraud had been incorporated into the market price. Id. The Court further stated that the defendants would have successfully rebutted the Basic presumption if they established that “news of the merger discussions credibly entered the market and dissipated the effects of the misstatements.” Id. at 249, 108 S.Ct. 978. Finally, the Court acknowledged that the defendants “could rebut the presumption of reliance as to plaintiffs who would have divested themselves of their Basic shares without relying on the integrity of the market.” Id. at 249,108 S.Ct. 978.
In Halliburton II, the Supreme Court pointed to Basic as establishing that “if a defendant could show that the alleged misrepresentation did not, for whatever reason, actually affect the market price, or that a plaintiff would have bought or sold the stock even had he been aware that the stock’s price was tainted by fraud, then the presumption of reliance would not apply.” Halliburton II, 134 S.Ct. at 2408.
The Court also restated the burden plaintiffs must meet at the class certification stage to satisfy the predominance requirement:
The Basic presumption does not relieve plaintiffs of the burden of proving—before class certification—that this requirement is met. Basic instead establishes that a plaintiff satisfies that burden by proving the prerequisites for invoking the presumption—namely, publicity, materiality, market efficiency, and market timing.
Id. at 2412. It would be inconsistent with Halliburton II to require that plaintiffs meet this evidentiary burden while allowing defendants to rebut the Basic presumption by simply producing some evidence of market inefficiency, but not demonstrating its inefficiency to the district court.31 The presumption of reliance *101would also be of little value if it were so easily overcome. Both in Basic and again in Halliburton II, the Supreme Court recognized the importance of the presumption of reliance in putative class actions where, without such a presumption, there would be “ ‘an unnecessarily unrealistic evidentiary burden on the Rule 10b-5 plaintiff who has traded on an impersonal market.’ ” Halliburton II, 134 S.Ct. at 2407 (quoting Basic, 485 U.S. at 245, 108 S.Ct. 978).
Quoting Basic, the Halliburton II Court also explained that the showing to sever the link between the misrepresentation and the price received or paid would rebut the Basic presumption “because ‘the basis for finding that the fraud had been transmitted through market price would be gone.’ ” Halliburton II, 134 S.Ct. at 2415-16 (quoting Basic, 485 U.S. at 248, 108 S.Ct. 978). The Court then stated that although “Basic allows plaintiffs to establish [price impact] indirectly, it does not require courts to ignore a defendant’s direct, more salient evidence showing that the alleged misrepresentation did not actually affect the stock’s market price.” Id. at 2416 (emphasis added).
A concurring opinion in Halliburton II by Justice Ginsburg and joined by Justices Breyer and Sotomayor stated that the majority recognized “that it is incumbent upon the defendant to show the absence of price impact.”32 Id. at 2417 (Ginsburg, J., concurring) (emphasis added).
This Supreme Court guidance indicates that defendants seeking to rebut the Basic presumption must demonstrate a lack of price impact by a preponderance of the evidence at the class certification stage rather than merely meet a burden of production.
First, the phrase “[a]ny showing that severs the link” aligns more logically with imposing a burden of persuasion rather than a burden of production. See Halliburton II, 134 S.Ct. at 2408 (alteration in original). The Supreme Court has described the burden of production as being satisfied when a litigant has “come forward with evidence to support its claim,” Dir., Office of Workers’ Comp. Programs, Dep’t of Labor v. Greenwich Collieries, 512 U.S. 267, 272, 114 S.Ct. 2251, 129 L.Ed.2d 221 (1994), or, alternatively (in the Title VII context), when a defendant has “articulate[d]” a “legitimate, nondiscriminatory reason for the employee’s rejection,” O’Connor v. Consol. Coin Caterers Corp., 517 U.S. 308, 311, 116 S.Ct. 1307, 134 L.Ed.2d 433 (1996). Thus, the Court has defined the burden of production as one that could permit a trier of fact to rule in favor of the party in question. By requiring that the “showing” defendants must make to rebut the Basic presumption actually “sever[ ] the link” between the misrepresentation and the price a plaintiff paid or received for a stock, the Court requires defendants to do more than merely produce evidence that might result in a favorable outcome; they must demonstrate that the misrepresentations did not affect the stock’s price by a preponderance of the evidence.
Second, the language chosen by the Court in Halliburton II demonstrates that the Court understood the burden that shifts to defendants as one of persuasion rather than production. As mentioned above, the majority in Halliburton II ex*102plained that evidence that satisfied the “severing the link” standard would rebut the Basie presumption because “ ‘the basis for finding that the fraud had been transmitted through market price would be gone,’ ” and the defendants’ “direct, more salient evidence” that the misrepresentations did not affect the stock, price would rebut the Basic presumption, Halliburton II, 134 S.Ct. at 2415-16 (quoting Basic, 485 U.S. at 248, 108 S.Ct, 978),
In addition to this Supreme Court guidance, our own Court’s prior decisions ap-. plying, the presumptions of reliance support our conclusion that defendants bear the burden of persuasion to rebut the Basie presumption. of reliance at the class certification stage. ■
First, we held that the Affiliated Ute presumption is rebutted if a defendant proves “by a preponderance of the evidence that the plaintiff did not rely on the omission [at issue] in making” his investment decision. duPont v. Brady, 828 F.2d 75, 76 (2d Cir. 1987). Although our decision in duPont predated Basic and the Affiliated Ute presumption differs from the Basic presumption in several respects, both allow reliance to be presumed.
Second, we held in Black v. Finantra Capital, Inc., 418 F.3d 203 (2d Cir. 2005), that a district court correctly instructed the jury when it charged that the defen- -' dants in a securities fraud case could overcome the presumption that the “plaintiff relied on the market price to his detriment” if the defendants proved “by a -preponderance of the evidence that [the] plaintiff did not in fact rely on the‘market price.”33 Id. at 209. Although the claims of fraud in that case focused largely on omissions, and the jury instruction stage follows class' certification, it is nevertheless helpful guidance.
Third, we have explained that when the plaintiffs have demonstrated, that they are entitled to the Basic presumption by showing “that the alleged, misrepresentation was material and publicly transmitted into a well-developed market,” plaintiffs “do hot bear the burden of showing an impact on price.” In re Salomon Analyst Metromedia Litig., 544 F.3d 474, 483 (2d Cir. 2008), abrogated in part on other grounds by Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013).34 But the “burden of showing that there was no price impact is properly placed on defendants' at the rebuttal stage.” Id. at 483 (emphasis added).
-Apart from their arguments that Basic and Halliburton II. do not support the conclusion that it is a burden of persuasion that applies to defendants attempting to rebut the Basic presumption at the class certification stage, the Defendants have relied on Federal Rule of Evidence 301 in arguing that it is merely a burden of production that is placed upon defendants. Rule 301 provides:
In a civil case, unless a federal statute or these rules' provide otherwise, the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But *103this rule does not shift the burden of persuasion, which remains on the party who had it originally.
Fed. R. Evid. 301.
The Defendants assert that because no federal statute or other rule of evidence “provide[s] otherwise,” we are required to conclude that defendants bear only the burden of producing evidence when they seek to rebut the Basic presumption. We disagree.
The Basic presumption was adopted by the Supreme Court pursuant to federal securities laws. Thus, there'is a sufficient link to those statutes to meet Rule 301⅛ statutory element requirement. In United States Department of Justice v. Landano, 508 U.S. 165, 113 S.Ct. 2014, 124 L.Ed.2d 84 (1993), the Court referred to the Basic presumption as one of several “judicially created presumptions under federal statutes that make no express provision for their use,” id. at 174-75, 113 S.Ct. 2014; see also Amgen, 568 U.S. at 462, 133 S.Ct. 1184 (referring to the Basic presumption as “a substantive doctrine of federal securities-fraud law”); Basic, 485 U.S. at 245, 108 S.Ct. 978 (“The presumption of reliance ... supports[ ] the congressional policy embodied in the 1934; Act.”).
While in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008), the Supreme Court stated that “narrow dimensions” must be given to a plaintiffs cause of action not specifically set forth in a statute, that was in the context of determining that Rule 10b-5 liability did not extend to suppliers and customers of stock issuers, id. at 167, 128 S.Ct. 761, that had not issued public statements themselves, see Salomon, 544 F.3d at 481. That holding does not undermine the language of Basic and Halliburton II that indicates defendants have the obligation to rebut the Basic presumption of reliance by a preponderance of evidence. Even in Stoneridge the Court stated that “there is an implied cause of action only if the underlying statute can be interpreted to disclose the intent to create one.” , 552 U.S. at 164,128 S.Ct. 761. Thus, the Court again acknowledged the statutory source for the 10b-5 implied cause of action.
In Halliburton II the Supreme .Court stated that “[although the [Basic] presumption is a judicially created doctrine designed to implement a judicially created cause of action, we have described the presumption as a substantive doctrine of federal securities-fraud law.” 134 S.Ct. at 2411 (internal quotation marks omitted). Rule 301 therefore imposes nó impédiment to our conclusion that the burden of persuasion, not production, to rebut the Basic presumption shifts to defendants.35 36
*104d. Whether the Basic Presumption Was Rebutted Here
That leaves the question of whether the Defendants met their burden of persuasion and rebutted the Basic presumption by a preponderance of the evidence.
The Defendants contend that they rebutted the presumption because (1) the Plaintiffs’ event study showed that the alleged misstatements did not affect the price of Barclays’ ADS, and (2) Dr. James, the Defendants’ expert, concluded that the decline in the price of the stock following the disclosure of the New York Attorney General’s action was due “to potential regulatory action and fines, not the revelation of any allegedly concealed truth.” Appellants’ Br. 40. We find these arguments unpersuasive and conclude that the district court did not err in concluding that the Defendants failed to rebut the Basic presumption.
This issue once again required the district court to apply the relevant law to the facts before it. As we see no error of law or clear error in any findings of fact, our review is therefore limited to determining whether the court abused its discretion when it concluded that class certification was proper. Roach, 778 F.3d at 405.
As the district court concluded, it is unsurprising that the price of Barclays’ ADS did not move in a statistically significant manner on the dates that the purported misstatements regarding LX and Liquidity Profiling were made; the Plaintiffs proceeded on a price maintenance theory. That theory, which we have previously accepted, recognizes “that statements that merely maintain inflation already extant in a company’s stock price, but do not add to that inflation, nonetheless affect a company’s stock price.” In re Vivendi, 838 F.3d 223, 256 (2nd Cir.2016). Thus, the district court was well within its discretion in con-, eluding that the lack of price movement on the dates of the alleged misrepresentations does not rebut the Basic presumption.37 38
As to the Defendants’ assertion that Dr. James concluded that the post-disclosure drop in stock price was the result of investor concern regarding regulatory action and potential fines, the record supports the district court’s conclusion that such a concern was merely a contributing factor to the decline. For example, Dr. James opined that “the alleged corrective disclosure regarding LX may have had a bigger impact on Barclays’ ADS price due to the announcement of the [New York Attorney General’s] lawsuit” and that “some of the price reaction was independent of the specific allegations relating to LX,” and was instead “a response to the regulatory action itself.” J.A. 613 (emphases added). Dr. *105James also noted that all of the analyst reports that Dr. Nye had reviewed in conducting his event study had discussed “potential regulatory action and fines.” Id.
Dr. James concluded that a portion of the 7.38% decrease in the price of Bar-clays’ ADS following the announcement of the New York Attorney General’s action resulted from concerns about that action itself and the potential fines that might accompany it. But merely suggesting that another factor also contributed to an impact on a security’s price does not establish that the fraudulent conduct complained of did not also impact the price of the security.
Thus, the district court did not abuse its discretion when it concluded that the Defendants had failed to rebut the Basic presumption.
e. The Classwide Damages Issue
Finally, the Defendants argue that the Plaintiffs’ classwide damages model fails to comply with Comcast Corp. v. Behrend, 569 U.S. 27, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). They contend that the Plaintiffs’ model fails to (1) disaggregate damages that resulted from factors other than investor concern about Barclays’ integrity (namely, the New York Attorney General’s regulatory action and the potential fines associated with it), and (2) account for variations in inflation in stock price over time. We review the district court’s decision to certify the Plaintiffs’ class in light of this challenge to their classwide damages model for abuse of discretion. Roach, 778 F.3d at 405; see also In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 123 n.8 (2d Cir. 2013). We find no abuse of discretion here.
In Comcast, the plaintiffs alleged that Comcast had violated antitrust law in its telecommunications business under four distinct legal theories. 569 U.S. at 30-31, 133 S.Ct. 1426. The district court concluded that only one of those theories—the “overbuilder theory”—was amenable to classwide proof. Id. at 31, 133 S.Ct. 1426. The district court further concluded that the damages that resulted from that theory of liability “could be calculated on a classwide basis.” Id. In so concluding, the district court relied on a damages model that “did not isolate damages resulting from any one theory, of antitrust impact,” but instead calculated the damages that occurred due to the antitrust violations collectively. Id. at 32,133 S.Ct. 1426.
The Supreme Court reversed the district court’s grant of class certification. Id. at 38,133 S.Ct. 1426.- It concluded that the plaintiffs’ damages “model failed to measure damages resulting from the particular antitrust injury on which [the defendants’] liability” was premised. Id. at 36,133 S.Ct. 1426. In light of that deficiency, the damages model could not support class certification by satisfying Federal Rule of Civil Procedure 23(b)(3)’s predominance requirement. Id. at 38, 133 S.Ct. 1426. The Court explained:
[A] model purporting to serve as evidence of damages in this class action must measure only those damages attributable to [the overbuilder theory]. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).
We have since interpreted Comcast as precluding class certification “only ... because the sole theory of liability that the district court determined was common in that antitrust action, overbuilder competition, was a theory of liability that the plaintiffs’ model indisputably failed to measure when determining the damages *106for that injury.” Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 88 (2d Cir. 2015) (internal quotation marks omitted). In other words, we have stated that Comcast “held that a model for determining class-wide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury.” Roach, 778 F.3d at 407.
The Plaintiffs’ damages model in .this case complies with Comcast. The .Plaintiffs’ allegations are that shareholders of Barclays’ ADS were harmed when statements that maintained the impression that Barclays was protecting its LX investors were shown to be false, thereby exposing Barclays’. business practices and culture, and causing a substantial drop.in share price. Their damages model directly measured that harm by examining the drop in price that occurred when the New York Attorney General’s action revealed ongoing problems related to Barclays’ management. This is not a case where a plaintiff's damages model does not track his theory of liability. Instead, this is a case in which the Plaintiffs’ “proposed measure for damages is ;.. directly linked with their underlying theory of classwide liability .!. arid is therefore in accord with the Supreme Court’s ... decision in Comcast.” U.S. Foodservice, 729 F.3d at 123 n.8.
The Comcast standard is, met notwithstanding that some of the decline in the price of Barclays’ ADS may have been the result of the New York Attorney General’s action and potential fines. Investors were concerned with lack of management honesty and control because, as had happened in the past following the LIBOR scandal, such problems could result in considerable costs related ■ to defending a regulatory action and, ultimately, in the imposition of substantial fines. Thus, the regulatory action and any ensuing fines were a part of the alleged harm the Plaintiffs suffered, and the failure to disaggregate the action and fines did not preclude class certification.
Finally, we are not persuaded by the Defendants’ argument that class certification was improper under Comcast because the Plaintiffs’ damages model failed to account for variations in inflation over time. Comcast does not suggest that damage calculations must be so precise at' this juncture. To the contrary, Comcast explicitly states’that “[calculations need not be exact.” 569 U.S. at 35, 133 S.Ct. 1426. Thus, even accepting the Defendants’ premises that inflation would have varied during the class period in this case and that such variation could not be accounted for, the Defendants’ argument fails.
Dr. Nye explained that damages for individual class members could be calculated by applying a method across the entire class that focused on the decline in stock price following the disclosure of the New York Attorney General’s lawsuit and then isolating company-specific' event's from market arid industry events. His model also accounted for calculating the damages for individual class members based on their'investment history.
Therefore, we conclude that the district court did not abuse its discretion when it certified the Plaintiffs’ class over the Defendants’ damages-related objections.
CONCLUSION
To summarize, we hold that: (1) the Affiliated Ute presumption does' not apply in this case; (2)'direct evidence of price impact under Gammer 5 is not always necessary to demonstrate market efficiency, and was not required in .this case; (3) defendants seeking to rebut the Basic presumption must do so by a preponderance *107of the evidence, which the Defendants in this case failed to do; and (4) the Plaintiffs’ damages methodology posed no obstacle to certification. We therefore AFFIRM the district court’s order granting the Plaintiffs’ motion for class certification,
7.7 Goldman Sachs Co. v. Arkansas Teachers Retirement System, 141 S.Ct. 1951 (2021) 7.7 Goldman Sachs Co. v. Arkansas Teachers Retirement System, 141 S.Ct. 1951 (2021)
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