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The Supreme Court Decision in Halliburton Co. v. Erica P. John Fund, Inc. issued June 23, 2014 Impacts Future Class Actions.

The Supreme Court’s June 23, 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. upheld the “fraud on the market” theory it had previously established in Basic Inc. v. Levinson.

What is “fraud on the market”?  The fraud on the market theory permits plaintiffs in securities class actions to show that a defendant’s misrepresentation impacted its stock price uniformly throughout the market.  This makes it easier to demonstrate that investors had relied on those misrepresentations.  It would be virtually impossible for investors to bring securities fraud claims as class actions without the fraud on the market theory.

The Halliburton litigation was initiated more than a decade ago when a class of plaintiffs cited the fraud on the market presumption as part of their petition for class certification in order to demonstrate that classmembers had relied upon the defendant’s financial statements and projections.  The classmembers alleged that Halliburton had misrepresented material facts to investors by understating its projected liability for asbestos claims, overstating its revenues and exaggarating costs savings related to a merger.

Haliburton argued strongly for the Supreme Court to overrule Basic and to do away with the fraud on the market theory.  Instead, the Supreme Court held that the original decision in Basic was settled law and that Halliburton had failed to demonstrate the “special justification” required for overturning such a precedent.

The Supreme Court ruled that defendants in securities fraud cases were free to offer evidence that a particular misrepresentation did not uniformly impact its stock price in order to prove their case.  The Supreme Court’s decision does not give securities defendants a new right.  They have always been able to argue at various points that their supposed fraud did not affect share prices. The Halliburton Opinion clarifies that defendants can use those arguments to oppose class certification.

To review Opinion:  June 23 2014 Halliburton Opinion

To review Syllabus:  June 23 2014 Halliburton Syllabus



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