Although a decision is not likely until June in Halliburton v. Erica P. John Fund, it doesn’t look as if the US Supreme Court will seek to overturn the “fraud on the market” theory, set up in 1988 in Basic Inc. v. Levinson. In that earlier ruling, it was determined that investors are allowed to depend on a presumption that the stock price of a company reflected all public information about the entity. This theory has allowed investors to ban together through class action securities certification without having to provide individual reliance of evidence.
In the securities case before the court, the investors’ fund claims that Halliburton misrepresented its liability related to asbestos litigation, benefits obtained from a merger, and revenue from a construction contract. Meantime, Halliburton and its allies are contending that investors shouldn’t be able to bring a class action case because of an economic theory that is based on the efficiency of markets.
Four of the justices recently appeared to be welcoming a challenge to the fraud on the market theory. Justice Samuel A. Alito Jr. wrote in a concurrence in Amgen V. Connecticut Retirement Plans and Trust Funds that there has been evidence recently to indicate that such a presumption may be based on a “faulty economic premise.”
Losing the presumption would make it hard for investors get together in class action cases unless they individually proved that reliance. This could impede a lot of individual securities cases as well, since investors wouldn’t be able to demonstrate that they depended on misstatements that were given.
Yesterday, during oral argument, a few of the Supreme Court justices seemed to be looking for a middle ground by suggesting that this dilemma could be partially tackled via a proposal made in a supporting brief by two law professors, who are suggesting that plaintiffs be made to show early on whether the alleged securities fraud impacted market price.
Companies that are potential defendants in securities fraud class actions typically would like to tackle as many of the issues involved as possible before a judge would get to decide whether a case should get class action certification. One reason for this is that upon class certification, the damages tend to be so huge that settling is usually the best option. Or, as Justice Antonin Scalia stated on Wednesday, usually “the case is over.”
Halliburton Company said that this proposal would be a good backup choice but that broader limits are the preference.
Some 200 securities class action claims are submitted annually, resulting in $73 billion of settlements. Over 40% of large companies found on the major stock exchanges have been sued.
At The SSEK Partners Group, our securities lawyers represent institutional investors and individuals. We believe that filing your own claim increases how much you may able to be recover. Contact our securities fraud law firm today.
Halliburton v. Erica P. John Fund, SCOTUSblog
Basic v. Levinson (PDF)
Justices May Limit Securities Fraud Lawsuits, New York Times, March 5, 2014
Supreme Court seeks compromise in securities fraud case, USA Today, March 5, 2014
More Blog Posts:
Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Blog, November 18, 2013
Just Because Supreme Court’s Rulings in Amgen and Halliburton Give Defendants Less Tools to Beat Weak Class Certifications But Doesn’t Mean Plaintiffs Can Rest Easy, Institutional Investor Securities Blog, April 27, 2013
Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013