The class action is indispensable to private enforcement of SEC Rule 10b-5, which prohibits fraudulent practices in the secondary securities market. Though Rule 10b-5 is a criminal provision, courts have long inferred a private civil right of action, allowing defrauded buyers or sellers of securities to sue for damages. Many Rule 10b-5 plaintiffs, however, have “negative-value” claims: Their financial loss is not large enough to justify individual litigation. Without class litigation under Federal Rule 23, these claims would not be pursued and, to that extent, the anti-fraud policy of Section 10(b) would not be vindicated.
The U.S. Supreme Court under … Read more