Do Courts Count Cammer Factors?

Tue Aug 07 16:24:38 EDT 2012
By Dr. David Tabak

One of the key stages in many securities class actions is class certification. The most common path for plaintiffs to obtain certification includes showing that the market in which the securities at issue traded was efficient, leading to what, in 1988, the Supreme Court in Basic v. Levinson termed a "rebuttable presumption" of reliance common to all class members.

The following year, the court in Cammer v. Bloom listed five factors that would help establish that a security traded in an efficient market. Since then, dozens of courts have relied on the five "Cammer factors" in evaluating market efficiency. The rulings do not state, however, how the court reached an overall opinion on market efficiency when different factors point in different directions.

In this NERA paper, Senior Vice President Dr. David Tabak reviews class certification decisions from 2002 through 2011 and concludes that, in over 98 percent of the cases, the ultimate ruling on efficiency can be predicted by the number of factors that the court found favored efficiency less the number of factors that the court said argued against efficiency. When this figure was positive, the court found the security at issue to have traded in an efficient market in all but one instance, while when the figure was zero, the court always found the security to have traded in an inefficient market.