A MAJOR VICTORY FOR INVESTORS: THE US SUPREME COURT’S DECISION IN HALLIBURTON PRESERVES THE STATUS QUO IN US SECURITIES LITIGATION
On 23 June 2014, the US Supreme Court issued an important decision in Halliburton Co. v. Erica P. John Fund, a case that tested the continuing vitality of the ‘fraud on the market’ presumption of reliance, one of the cornerstones of class action litigation under the US securities laws. The fraud on the market presumption is a legal presumption that all investors who buy or sell securities on public exchanges rely on the fact that the prices of those securities accurately reflect material public information about the company that issued those securities. In Halliburton, the Supreme Court rejected the defendant company’s attack on the presumption. This was a major victory for investors because a contrary decision would have drastically limited US securities class action litigation. However, the Court held that defendants should be permitted to rebut the presumption at the class certification stage by showing that the alleged fraud had no impact on the price of the securities at issue. Because the Supreme Court’s decision in Halliburton is largely consistent with precedent from the Supreme Court and certain of the lower US federal courts, the decision will not have a significant impact on the US securities litigation landscape.
The relevant factual and procedural background of Halliburton. The Halliburton plaintiffs alleged that, in violation of US securities law, the defendant company artificially inflated the price of its stock by making material misstatements regarding certain costs and liabilities relating to asbestos exposure, and the purported benefits from its merger with another company. When the defendant company finally revealed the truth to its investors, the company’s stock price dropped significantly.
Oct-Dec 2014 issue
Labaton Sucharow LLP