In Re Cassava Sciences, Inc. Securities Litigation — Entry #404: USCA, Fifth Circuit Reissued Opinion as Published

Case: 25-50855
Case                Document:
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         United States Court of Appeals
              for the Fifth Circuit
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit


                             ____________
                                                                                FILED
                                                                         October 16, 2026

                               No. 25-50855                            Thomas B. Plunkett, III
                             ____________                                     Clerk

 Mohammad Bozorgi; Ken Calderone; Manohar K. Rao,
 Individually and on Behalf of All Others Similarly Situated; All persons
 or entities who, between September 14, 2020 and October
 12, 2023, purchased or otherwise acquired Cassava
 Sciences, Inc. securities,

                                                        Plaintiffs—Appellees,

                                    versus

 Cassava Sciences, Incorporated; Remi Barbier; Eric J.
 Schoen; Lindsay Burns,

                                        Defendants—Appellants.
                ______________________________

                Appeal from the United States District Court
                     for the Western District of Texas
                          USDC No. 1:21-CV-751
                ______________________________

 Before Willett, Engelhardt, and Douglas, Circuit Judges.
 Kurt D. Engelhardt, Circuit Judge:
       A group of investors allege Cassava Sciences and its executives
 misrepresented the success of Cassava’s experimental Alzheimer’s drug
 “simufilam,” defrauding investors under sections 10(b) and 20(a) of the
 Securities Exchange Act and Rule 10b-5. The district court certified a class
 of “[a]ll purchasers or acquirers” of Cassava securities between September


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 14, 2020, and October 12, 2023. According to defendants, the class period
 covers the rise of the “meme-stock phenomenon”—where retail traders use
 social media platforms to fuel collective trading behavior, driving stock prices
 up or down in ways “untethered from company fundamentals or broader
 market trends.” Defendants appealed the class certification order, arguing
 Cassava faced “meme-stock dynamics” that should have defeated class
 certification. Because the district court misapplied legal standards while
 assessing Rule 23(b)(3)’s predominance requirement, we VACATE the
 class certification order and REMAND.
                                         I.
        Cassava Sciences is a biopharmaceutical company developing drugs to
 treat neurodegenerative diseases like Alzheimer’s. The company developed
 its experimental Alzheimer’s product, simufilam, in 2011. Following an
 efficacy study yielding unsuccessful simufilam results in May 2020,
 Cassava’s stock price dropped.
        From there, plaintiffs allege defendants defrauded investors in
 promoting simufilam “by concealing facts that undermined the integrity of
 Cassava’s research.” Defendants allegedly “amplified simufilam’s
 ostensibly promising results,” while failing to acknowledge data
 manipulation, research anomalies, and conflicts of interest. Plaintiffs allege
 that defendants touted the effectiveness of simufilam in press releases, SEC
 filings, and scientific journals. As alleged, each public statement caused
 Cassava’s stock price to skyrocket. But after various disclosures negating
 simufilam’s success, Cassava’s stock price plummeted. Plaintiffs filed
 securities fraud claims against the company and several executives. 1

        _____________________
        1
           The SEC also brought securities fraud charges against defendants Cassava,
 Barbier, and Burns. The defendants settled and must pay civil penalties.


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         Plaintiffs first moved to certify an investor class in March 2024, and
 the magistrate judge recommended the district court grant the motion. After
 the magistrate judge’s Report and Recommendation, defendants filed a
 Daubert motion to exclude one of plaintiffs’ experts, and plaintiffs moved to
 strike that motion as untimely. The district court denied the original class
 certification motion without prejudice due to changed circumstances, struck
 defendants’ Daubert motion as untimely, and granted plaintiffs leave to file
 an amended complaint. The court ordered that plaintiffs should refile their
 motion for class certification but directed the parties to present “[n]o new
 arguments, evidence, or non-existing briefing.” Most relevant to this appeal,
 the existing evidence included economic expert reports from Dr. Steven P.
 Feinstein (for plaintiffs) and Dr. Rene M. Stulz (for defendants). The district
 court certified the class, appointed plaintiffs as class representatives, and
 appointed class counsel.
         Defendants petitioned to appeal the class certification order under
 Rule 23(f), which our court granted. Fed. R. Civ. P. 23(f) (permitting
 petition for interlocutory appeal from order granting or denying class
 certification). On appeal, defendants assert numerous challenges to the
 district court’s analysis of Rule 23’s certification prerequisites, along with
 other procedural errors.
                                             II.
         One jurisdictional matter comes first. After defendants filed this Rule
 23(f) appeal, the parties mediated a binding settlement agreement. 2 Plaintiffs
         _____________________
         2
          Plaintiffs ask the court to take judicial notice of three documents relevant to the
 settlement: (1) a Notice of ADR/Mediation Outcome, filed in the district court; (2)
 Cassava’s Form 8-K, filed with the SEC; and (3) a December 2025 Cassava press release
 announcing the settlement. The ADR Notice and the Form 8-K are judicially noticeable
 matters of public record. Fed. R. Evid. 201(b)(2); In re Deepwater Horizon, 934 F.3d
 434, 440 (5th Cir. 2019) (court filings); Lovelace v. Software Spectrum Inc., 78 F.3d 1015,


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 argue the binding class settlement moots this action, invoking Article III’s
 familiar cases and controversies jurisdictional limit. They suggest each of 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. Rule 23(e) requires court approval of a class
 settlement. Fed. R. Civ. P. 23(e). And a “settlement that can take effect
 only with court approval does not moot an action unless the court grants
 approval.” 13B Charles Alan Wright, Arthur R. Miller &
 Edward H. Cooper, Federal Practice & Procedure § 3533.2
 (3d ed. 2026); In re Asbestos Litig., 90 F.3d 963, 988 (5th Cir. 1996) (“The
 Supreme Court has stated that the existence of a proposed settlement does
 not render an action moot where judicial approval of the settlement is
 required before the settlement will bind the parties.” (citing Havens Realty
 Corp. v. Coleman, 455 U.S. 363, 371 n.10 (1982))), vacated on other grounds by
 Ortiz v. Fibreboard Corp., 521 U.S. 1114 (1997) (mem).
         At oral argument, plaintiffs argued the proposed settlement’s non-
 approval does not matter—the agreement is binding on defendants. So, in
 their view, the 23(f) appeal is moot.But settlement approval requires a
 certified class—whether previously certified or certified for settlement
 purposes. Fed. R. Civ. P. 23(e). And the parties’ settlement itself carves
 out this appeal. Stipulation of Settlement at 41, In re Cassava Scis., Inc. Sec.
 Litig., No. 21-cv-00751 (W.D. Tex. June 18, 2026), Dkt. No. 381-1 (agreeing
 to stay proceedings apart from this appeal). We will not opine on the
 settlement’s effect on the remaining district court proceedings. A live

         _____________________
 1018 & n.1 (5th Cir. 1996) (SEC-required public disclosure documents). We need not
 address whether the press release is judicially noticeable because the relevant information
 is contained in the other two documents. We GRANT IN PART and DENY IN PART
 plaintiffs’ motion for judicial notice.


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 controversy remains, and we reject plaintiffs’ request to dismiss the appeal
 as moot or hold it in abeyance until the district court rules on the proposed
 settlement.
        On to the thrust of this appeal: the propriety of the district court’s
 class certification order.
                                        III.
        “We review class certification orders for abuse of discretion,
 recognizing the ‘essentially factual basis of the certification inquiry and of the
 district court’s inherent power to manage and control pending litigation.’”
 Kincannon v. United Airlines, Inc., 168 F.4th 713, 721 (5th Cir. 2026) (quoting
 Sampson v. United Servs. Auto. Ass’n, 83 F.4th 414, 418 (5th Cir. 2023)). If
 the district court has premised “its legal analysis on an erroneous
 understanding of governing law, it has abused its discretion.” Sampson, 83
 F.4th at 419 (citation modified).
        “Certification requires plaintiffs to satisfy all requirements of Rule
 23(a)—numerosity, commonality, typicality, and adequacy—and at least one
 of the three requirements listed in Rule 23(b).” Id. at 418 (citing Wal-Mart
 Stores, Inc. v. Dukes, 564 U.S. 338, 345–46 (2011)). In a Rule 23(b)(3) class
 action, like this one, “questions of law or fact common to class members
 [must] predominate” over individualized questions and the class action must
 be “superior to other available methods” of adjudication. See Fed. R. Civ.
 P. 23(b)(3). We start and end with predominance here, concluding the
 district court abused its discretion by applying an incorrect legal standard.
                                         A.
        The predominance inquiry begins with the “elements of the
 underlying cause of action.” Erica P. John Fund, Inc. v. Halliburton Co.
 (Halliburton I), 563 U.S. 804, 809 (2011). Section 10(b) and Rule 10b-5


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 claims require: (1) a material misrepresentation or omission; (2) scienter; (3)
 a connection between the misrepresentation or omission and the purchase or
 sale of a security; (4) reliance on the misrepresentation or omission; (5)
 economic loss; and (6) loss causation. 3 Id. at 809–10 (citing Matrixx
 Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37–38 (2011)). “Whether common
 questions of law or fact predominate in a securities fraud action often turns
 on the element of reliance.” Id. This case is no exception.
        In this securities-fraud context, “plaintiffs may show reliance on a
 defendant’s misrepresentations—and therefore satisfy [Rule] 23(b)(3)’s
 predominance requirement—by invoking the Basic presumption[.]” Ga.
 Firefighters’ Pension Fund v. Anadarko Petroleum Corp., 99 F.4th 770, 773 (5th
 Cir. 2024) (citing Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988)). Basic
 “allows courts to presume ‘an investor’s reliance on any public material
 misrepresentations’ if certain requirements are met.” Id. (quoting Basic, 485
 U.S. at 247). The Basic presumption’s fraud-on-the-market theory
 encompasses the understanding that (A) “the market price of shares traded
 on well-developed markets reflects all publicly available information, and,
 hence, any material misrepresentations,” and (B) that “an investor relies on
 public misstatements whenever he ‘buys or sells stock at the price set by the
 market.’” Halliburton I, 563 U.S. at 811 (quoting Basic, 485 U.S. at 244, 246–
 47). To avail themselves of the rebuttable presumption, plaintiffs must first
 prove (1) “the alleged misrepresentation was publicly known;” (2) “it was
 material;” (3) “the stock traded in an efficient market;” and (4) “the

         _____________________
         3
           Section 20(a) control liability claims exist only with a primary violation of, for
 example, section 10(b). See Alaska Elec. Pension Fund v. Flotek Indus., Inc., 915 F.3d 975,
 981, 986 (5th Cir. 2019) (concluding section 20(a) claim failed because plaintiffs had not
 pleaded a violation of section 10(b) and “[c]ontrol person liability [under section 20(a)] is
 secondary only and cannot exist in the absence of a primary violation” (citing Southland
 Sec. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 383 (5th Cir. 2004)).


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 plaintiff traded the stock between the time the misrepresentation was made
 and when the truth was revealed.” Ga. Firefighters’ Pension Fund, 99 F.4th at
 773 (citation modified).
       We zero-in on the efficient market element here. “Absent an efficient
 market, individual reliance by each plaintiff must be proven, and the
 proposed class will fail the predominance requirement.” Unger v. Amedisys
 Inc., 401 F.3d 316, 322 (5th Cir. 2005) (citation omitted). The market
 efficiency determination demands a “rigorous, though preliminary,
 standard[] of proof.” Id. (collecting cases). Basic counsels that efficient
 markets incorporate publicly available information in stock price. Basic, 485
 U.S. at 246–47; Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 461
 (2013) (“The fraud-on-the-market theory rests on the premise that certain
 well[-]developed markets are efficient processors of public information.”);
 Unger, 401 F.3d at 324 (“In an efficient market, where information is nearly
 perfect, material misstatements alter a stock’s price almost immediately.”).
 To assess whether the market for a particular security does so, our court often
 assesses the Cammer/Krogman factors:
        (1) the average weekly trading volume expressed as a
        percentage of total outstanding shares; (2) the number of
        securities analysts following and reporting on the stock; (3) the
        extent to which market makers and arbitrageurs trade in the
        stock; (4) the company’s eligibility to file SEC registration
        Form S–3 (as opposed to Form S–1 or S–2); (5) the existence
        of empirical facts showing a cause and effect relationship
        between unexpected corporate events or financial releases and
        an immediate response in the stock price; (6) the company’s
        market capitalization; (7) the bid-ask spread for stock sales; and
        (8) float, the stock’s trading volume without counting insider-
        owned stock.


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 Unger, 401 F.3d at 323 (citation modified) (outlining first five factors from
 Cammer v. Bloom, 711 F. Supp. 1264, 1286–87 (D.N.J. 1989), and remaining
 three factors from Krogman v. Sterritt, 202 F.R.D. 467, 477–78 (N.D. Tex.
 2001)). But the Cammer/Krogman factors are not exhaustive. Id. Courts must
 analytically weigh these “tools for gauging market efficiency,” instead of
 simply counting them. Id.; Bratya SPRL v. Bed Bath & Beyond Corp., 752 F.
 Supp. 3d 34, 54 (D.D.C. 2024) (recognizing Cammer/Krogman factors are a
 tool “probative of informational efficiency”).
       Critically, courts must consider all evidence for and against market
 efficiency in assessing whether the Basic presumption applies. See Unger, 401
 F.3d at 325 (“Because Rule 23 mandates a complete analysis of ‘fraud on the
 market’ indicators, district courts must address and weigh factors both for
 and against market efficiency.”); In re Petrobras Sec., 862 F.3d 250, 277 (2d
 Cir. 2017) (endorsing “holistic analysis” of market efficiency “based on the
 totality of the evidence presented”); Local 703, I.B. of T. Grocery & Food
 Emps. Welfare Fund v. Regions Fin. Corp., 762 F.3d 1248, 1254–55 (11th Cir.
 2014) (recognizing “flexibility to make the fact-intensive [market efficiency]
 inquiry on a case-by-case basis” considering “new factors yet unknown” that
 “market theorists might consider to indicate market efficiency”).
                                        B.
       The district court rejected defendants’ “meme stock argument” as
 “legally and factually inaccurate.” As a matter of law, the district court noted
 that “no Fifth Circuit case law” directs courts to avoid the Cammer/Krogman
 factors “when the defendant argues that the stock was a meme stock.” And,
 as a matter of fact, it rejected the notion that Cassava was a meme stock
 because defendants’ expert Stulz never explicitly opined that it was one or
 that it traded in an inefficient market. The district court relied on plaintiffs’
 expert Feinstein’s opinion and, without analysis, concluded the meme stock


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 argument “is unsupported and moot.” From there, the district court ticked
 through each Cammer/Krogman factor and concluded Cassava traded in an
 efficient market. The district court’s approach misapplied the legal standard
 by failing to evaluate evidence of market inefficiency and rejecting
 defendants’ meme-stock-dynamics argument out of hand. See Unger, 401
 F.3d at 325 (requiring “complete analysis of ‘fraud on the market’
 indicators”). Properly applied, the district court would have addressed and
 weighed “factors both for and against market efficiency.” Id. (emphasis
 added).
        The error of the district court’s approach is illuminated by record
 evidence that could suggest market inefficiency—like price volatility in the
 absence of news and short selling constraints. “[I]n an efficient market, a
 stock’s price remains relatively stable in the absence of news, and changes
 very rapidly as the market receives new and unexpected information.”
 Krogman, 202 F.R.D. at 477. Stulz opined on Cassava’s price volatility in the
 absence of news and in the face of meme-stock dynamics, comparing Cassava
 stock to well-recognized meme stocks like AMC and GameStop. Such
 evidence undermines Basic’s key premise that the stock was incorporating
 information efficiently. See Bratya SPRL, 752 F. Supp. 3d at 58 (noting that
 high trading volume could indicate stock price inflation “without any regard
 to value-relevant information” and that the relevant inquiry is “whether its
 stock price was information efficient” (citation modified)); cf. also
 Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), 573 U.S. 258, 272
 (2014) (recognizing that it is not stock price inaccuracy alone that is
 important but the effect of false statements on price).
        What’s more, short selling constraints provide “indirect evidence of
 market inefficiency.” Bratya SPRL, 752 F. Supp. 3d at 59 (quoting Smilovits
 v. First Solar, Inc., 295 F.R.D. 423, 434 (D. Ariz. 2013)). As Stulz explained,
 short selling constraints “impede market efficiency by . . . hindering the


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 process by which information is incorporated into prices.” Stulz opined
 about various short selling constraints affecting Cassava stock, such as the
 utilization rate peaking at over 93 percent during the class period and high
 borrowing costs peaking at 67 percent. These short selling constraints
 provide evidence that Cassava’s market may have inefficiently processed
 information. See id. at 59–60 (noting short utilization rate near 100 percent
 during the class period was evidence that stock was not informationally
 efficient and borrowing costs peaking at 50 percent during the class period
 “limited arbitrageurs from translating negative information into [stock]
 price”).
       Although the district court is tasked with considering the “essentially
 factual basis of the certification inquiry,” Kincannon, 168 F.4th at 721
 (internal quotation marks and citation omitted), the district court adopted
 Feinstein’s conclusions without engaging with defendants’ evidence. It
 instead faulted defendants’ expert for not expressly concluding Cassava was
 a meme stock and that the market was inefficient. But Stulz explained in his
 deposition that Cassava “may have been influenced by the meme
 phenomenon,” based on a “number of indicia.” The district court’s
 approach is divorced from the “rigorous” assessment of all the evidence
 required when assessing market efficiency. See Unger, 401 F.3d at 322, 325;
 Bratya SPRL, 752 F. Supp. 3d at 60 (recognizing “indirect evidence of
 market inefficiency” should “be weighed against the indirect evidence of
 market efficiency that plaintiffs present” (citation modified)). 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. See Sampson, 83 F.4th at 419 (explaining district court abuses
 discretion by premising “legal analysis on an erroneous understanding of
 governing law” (internal quotation marks and citation omitted)). We make


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 no judgment about whether Cassava, based on that evidence, traded in an
 efficient or inefficient market.
                                    *       *          *

       The parties raise other significant questions that we decline to resolve
 in this appeal. The skids are greased for the district court to address those
 issues on remand. Predominance in a section 10(b) securities fraud case often
 turns on reliance, shown through the Basic presumption. But in assessing
 Basic’s requirement that the relevant securities traded in an efficient market,
 we reiterate that courts must assess evidence of both market efficiency and
 market inefficiency. The Cammer/Krogman factors are merely a tool to that
 end, not the whole project. We VACATE the class certification order and
 REMAND for proceedings consistent with this opinion. We also GRANT
 IN PART and DENY IN PART plaintiffs’ motion for judicial notice,
 consistent with footnote 2.


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