6th Cir. Revives 2008 Freddie Mac Securities Class Action
Reviving a long-running suit over subprime mortgage disclosures, the court endorsed a 'price-maintenance' theory and clarified how plaintiffs can show market efficiency.
The U.S. Court of Appeals for the Sixth Circuit revived a securities fraud class action against Freddie Mac and its former officers stemming from the 2008 financial crisis. The panel reversed a district court's summary judgment ruling and denial of class certification, finding genuine disputes of material fact as to whether the defendants made false statements about their subprime mortgage exposure.
Sophisticated counsel should note the court's endorsement of the 'price-maintenance' theory, which allows claims based on misrepresentations that artificially maintain a stock price, even without causing an increase. Critically, the court held that structural evidence of an efficient market—such as high trading volume, extensive analyst coverage, and numerous market makers—was sufficient to establish a presumption of reliance. The lower court erred by giving dispositive weight to a lack of immediate stock price movement after news. This guidance lowers a key hurdle for plaintiffs at class certification.
The case is now remanded for reconsideration of the plaintiffs' class certification motion under this framework. While the court affirmed the dismissal of certain claims as 'non-actionable puffery,' the core holding on market efficiency merits close attention from public companies.