The U.S. Supreme Court will decide whether investors must prove that misinformation from Amgen (AMGN:US) Inc. propped up its stock price before they can pursue a class-action stock-fraud suit against the world’s largest biotechnology company.
The justices today agreed to review an appeal by Amgen in a case alleging the company and its executives misled investors for more than three years about safety questions involving its Aranesp and Epogen anemia drugs.
Amgen says a federal appeals court ruling makes it too easy to mount class-action lawsuits representing thousands of people, pressuring companies to pay settlements for even frivolous allegations rather than risk huge damages in a trial. Amgen’s appeal is backed by the U.S. Chamber of Commerce and the pharmaceutical industry’s trade group.
“Securities class actions are almost always settled once a class is certified, because the risks to a defendant of going to trial are so substantial,” a group of law professors and former Securities and Exchange Commission members said in a brief supporting Amgen’s bid for a Supreme Court hearing.
All sides agree that the investors alleging securities fraud must, at some point, show that misrepresentations by Amgen had an effect on its share price.
The company says judges should resolve disputes about the relevance of misleading information before letting multiple investors band together in a class-action suit. The San Francisco-based 9th U.S. Circuit Court of Appeals disagreed, saying that, if a case meets other requirements for class-action status, evidence about the effect on share price must wait for the trial itself.
Because the potential cost of class-action lawsuits is so large, Amgen said companies will “frequently be forced, by practical realities, to settle cases for enormous sums” before trial. They may never get a chance to prove that allegedly misleading statements were irrelevant, the Thousand Oaks, California-based company said.
The 9th Circuit’s ruling acknowledged that other federal appeals courts have conflicting views.
A New York-based federal court has said investors must show that misleading information affected stock prices before a judge can allow a class-action suit. An appeals court in Philadelphia doesn’t require investors to show the effect on share price at that point, although it has said a company can defeat a request for class-action status by proving that alleged wrongdoing had no impact on trading.
In a case last year about the standards for granting class- action status, the Supreme Court sided with investors, ruling unanimously that they could sue Halliburton Co. (HAL:US) as a group without first showing that they lost money because of alleged fraud.
Investors, led by Connecticut’s public employee pension plans, allege that Amgen executives withheld or played down safety concerns, including questions about whether its anemia drugs contributed to growth of cancerous tumors. Amgen says it didn’t mislead investors, and that information about drug-safety questions was widely known and was reflected in Amgen’s share price.
The justices will hear arguments in the case during the term that begins in October.
The case is Amgen v. Connecticut Retirement Plans and Trust Funds, 11-1085.
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