The United States Supreme Court left largely intact a 1988 decision regarding “fraud on the market” in its opinion on Halliburton Co. v. Erica P. John Fund, Inc.
The court’s June 23 ruling will make it slightly more difficult for individuals to get certification for class-action lawsuits that allege securities fraud because defendants now have the opportunity earlier in the legal process to show there was no fraud related to the stock price.
David Parker, a litigator at Kleinberg Kaplan in New York, believes the Halliburton case will continue to garner attention if only because it is the latest Supreme Court decision regarding securities laws claims and class actions.
“What is most important is that the opinion left essentially intact the decision in Basic v. Levinson that the plaintiffs can use the fraud-on-the-market approach based on the efficient market hypothesis to meet the reliance and commonality tests,” Parker told Advisen.
“While the presumption is rebuttable, the only contrary evidence the defendant can raise at the class-certification stage is that there was no impact on the price from the allegedly misleading statement or omission,” he said.
An opinion that dismantled Basic v. Levinson would have meant that plaintiff attorneys would be forced to demonstrate that each individual shareholder relieved fraudulent misrepresentations and made investment decisions accordingly.
“This change from existing law is a small one, albeit consistent with the narrowing of class-action rights especially in securities laws cases in recent decades, but not the sea change that many people following the issue anticipated,” said Parker.
Patricia O’Connell writes for the Advisen Risk Network. She has more than 15 years of experience writing about a variety of business subjects, including strategy, the C-Suite, and management. She is the former news editor at Businessweek.com, where she oversaw coverage for the daily web site.
