The Supreme Court Decision in Halliburton Allows Defendants to Rebut Fraud-on-the-Market Presumption at Earlier Stages of the Case


On July 21, 2014, Gardere Partner Orin H. Lewis issued a client alert discussing the impact of the Supreme Court's decision in Halliburton Co. v. Erica John Fund, Inc., 573 U.S. ___, slip. op. at 1 (June 23, 2014).

"Investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant's misrepresentation in deciding to buy or sell a company's stock." Halliburton Co. v. Erica John Fund, Inc., 573 U.S. ___, slip. op. at 1 (June 23, 2014) ("Halliburton II"). Basic v. Levinson, 485 U.S. 224 (1988), held that investors could satisfy this requirement by invoking the presumption that the price of stock traded in an efficient market reflects all public material information—including material misstatements—and that anyone who buys or sells the stock at market price may be considered to have relied on those misstatements. Id. On June 23, 2014, the Court confirmed that defendants in a private securities class action can rebut this presumption at the class certification stage by, among other things, showing that the alleged misrepresentation did not actually affect the stock's price, that is, that the misrepresentation had no price impact. Halliburton II, slip. op at 1-2, 18.

To read the full client alert, click here. For Mr. Lewis' complete analysis of this matter, click here.

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