Key Points

  • The Fifth Circuit vacated the certification of a Rule 10b-5 investor class against Cassava Sciences and three individual defendants and remanded the case to the Western District of Texas.
  • The panel held that the district court abused its discretion by applying the Cammer/Krogman factors without weighing defense evidence of market inefficiency, including price volatility without news, short-selling constraints and meme-stock dynamics.
  • Courts applying the Basic presumption must assess evidence both for and against market efficiency, and the Cammer/Krogman factors are a tool for that inquiry, not a complete test.
  • A binding class settlement that has not received court approval under Rule 23(e) did not moot the Rule 23(f) appeal, particularly because the settlement stipulation carved out the appeal.
  • The panel expressly made no judgment on whether Cassava's stock traded in an efficient market and left the defendants' other challenges for the district court on remand.

A federal appeals court on Oct. 16 threw out the certification of an investor class suing Cassava Sciences Inc. over its experimental Alzheimer's drug, holding that the trial court rejected without analysis the company's evidence that "meme-stock" trading may have kept Cassava's share price from absorbing public information.

Judge Kurt D. Engelhardt wrote for a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit that the district court "misapplied legal standards while assessing Rule 23(b)(3)'s predominance requirement." The panel also included Circuit Judges Willett and Douglas. The ruling sends the securities-fraud case back to the U.S. District Court for the Western District of Texas, and the panel also rejected the investors' argument that a pending settlement had made the appeal moot.

The decision turns on how courts decide whether a stock traded in an efficient market, one whose price quickly reflects public information. Judges in the circuit have often worked through a list of eight indicators, known as the Cammer/Krogman factors, to decide that question. Engelhardt wrote that courts "must assess evidence of both market efficiency and market inefficiency," and that "the Cammer/Krogman factors are merely a tool to that end, not the whole project."

The investors allege that Cassava and individual defendants Remi Barbier, Eric J. Schoen and Lindsay Burns promoted the drug, simufilam, while concealing data manipulation, research anomalies and conflicts of interest, according to the opinion. They allege that the company's statements in press releases, SEC filings and scientific journals sent the stock soaring and that later disclosures sent it down. The certified class covered everyone who bought or acquired Cassava securities between Sept. 14, 2020, and Oct. 12, 2023. The opinion notes that the SEC separately charged Cassava, Barbier and Burns, who settled and must pay civil penalties.

Class certification in such cases often depends on the Basic presumption, a rule drawn from the Supreme Court's 1988 decision in Basic Inc. v. Levinson. The presumption lets courts assume "an investor's reliance on any public material misrepresentations" if the stock traded in an efficient market, among other requirements. Without it, each investor must prove reliance individually. Quoting a 2005 circuit precedent, Unger v. Amedisys Inc., the panel wrote that in that event "the proposed class will fail the predominance requirement," the rule that questions common to the class must outweigh individual ones.

Cassava argued that the class period covered the rise of the "meme-stock phenomenon," in which retail traders coordinate on social media and drive prices in ways "untethered from company fundamentals or broader market trends," the opinion said. The district court called that argument "legally and factually inaccurate." It found "no Fifth Circuit case law" directing courts to set aside the Cammer/Krogman factors for a meme stock. It also faulted the defendants' expert, Dr. Rene M. Stulz, for never expressly opining that Cassava was a meme stock or traded inefficiently.

Relying on the investors' expert, Dr. Steven P. Feinstein, the district court found the meme-stock argument "is unsupported and moot." Engelhardt wrote that the court then "ticked through each Cammer/Krogman factor and concluded Cassava traded in an efficient market."

The panel held that this approach "misapplied the legal standard by failing to evaluate evidence of market inefficiency and rejecting defendants' meme-stock-dynamics argument out of hand." It pointed to Stulz's opinion on price swings in the absence of news, in which he compared Cassava to "well-recognized meme stocks like AMC and GameStop." Engelhardt wrote that "such evidence undermines Basic's key premise that the stock was incorporating information efficiently."

The panel also cited Stulz's evidence of limits on short selling. Stulz reported a utilization rate that peaked above 93 percent during the class period and borrowing costs that peaked at 67 percent. In his view, such constraints "impede market efficiency by . . . hindering the process by which information is incorporated into prices." The panel added that Stulz had testified at his deposition that Cassava "may have been influenced by the meme phenomenon," based on a "number of indicia."

"By declining to evaluate defendants' evidence of market inefficiency in favor of a default application of the Cammer/Krogman factors, the district court abused its discretion," Engelhardt wrote. The panel stopped short of deciding the underlying question. "We make no judgment about whether Cassava, based on that evidence, traded in an efficient or inefficient market," the opinion said.

Before reaching the merits, the panel addressed the settlement. After the defendants filed their appeal under Rule 23(f), which permits a petition for interlocutory appeal of a class certification ruling, the parties mediated a binding settlement agreement. The investors argued that the deal mooted the appeal and said the defendants "will be given permanent peace after the Settlement's final approval in the district court."

"Plaintiffs' use of the future tense reveals the flaw in their mootness argument," Engelhardt wrote. Federal rules require a court to approve a class settlement, and the panel wrote that "settlement approval requires a certified class—whether previously certified or certified for settlement purposes." It added that the settlement stipulation, filed in the district court on June 18, 2026, "itself carves out this appeal." The panel refused to dismiss the appeal or hold it in abeyance pending a ruling on the deal, and said it "will not opine on the settlement's effect on the remaining district court proceedings."

The panel partly granted the investors' request that it take judicial notice of settlement documents. It accepted a mediation notice filed in the district court and a Cassava Form 8-K filed with the SEC, and it found no need to decide whether a December 2025 company press release qualified.

The parties raised other questions that the panel declined to decide. "The skids are greased for the district court to address those issues on remand," Engelhardt wrote. The panel remanded the case to the Western District of Texas "for proceedings consistent with this opinion."