Securities fraud; Section 10(b); 15 USC § 78j(b); Rule 10b-5; 17 CFR § 240.10b-5; Control-person liability; § 78t(a); Class certification; Fed R Civ P 23(b)(3); Fraud-on-the-market presumption; Basic Inc v Levinson; Market efficiency; Halliburton Co v Erica P John Fund, Inc; Price-maintenance theory; Classwide damages; Expert testimony; FRE 702; Daubert v Merrell Dow Pharms, Inc; Material misrepresentation or omission; Subprime & Alt-A exposure; Scienter; Loss causation; Summary judgment; Fed R Civ P 56(a)

The court held that plaintiff-OPERS could pursue its federal securities-fraud claims based on alleged misrepresentations about defendant-Freddie Mac’s subprime and Alt-A exposure, and that the district court erred in rejecting OPERS’s price-maintenance theory. OPERS sued Freddie Mac and three senior officers under § 10(b), Rule 10b-5, and § 20(a), alleging Freddie Mac understated its risky mortgage exposure before its stock price fell. The district court denied class certification, excluded OPERS’s expert, and granted defendants summary judgment. On appeal, the court first held that the district court wrongly rejected price maintenance, explaining that misrepresentations may affect price by “preventing preexisting inflation from dissipating” rather than by causing the stock price to rise. It further held that OPERS established market efficiency through structural evidence, and it vacated the denial of class certification, the exclusion of OPERS’s expert, and the reliance and damages analyses tied to the rejected theory. As to summary judgment, the court held that a reasonable juror could find material misstatements or omissions as to subprime exposure because Freddie Mac publicly said it had “basically no subprime exposure” while internal evidence showed significant exposure to loans employees described as “subprime” or “subprime-like.” It also held that a jury could find Alt-A misstatements because Freddie Mac disclosed 8% Alt-A exposure while internal measures showed materially higher exposure. But the court held that the credit-risk and underwriting-statements theories failed because the challenged language included “rosy affirmations” and general statements adequately qualified by Freddie Mac’s disclosures. It next held that OPERS produced sufficient scienter evidence through “multiple, obvious red flags,” including divergence between internal reports and external statements. It also held that OPERS could establish reliance through a fraud-on-the-market theory and remanded for loss-causation, damages, class-certification, expert, and control-person-liability issues consistent with the price-maintenance analysis. Reversed in part, vacated in part, and remanded.