The U.S. Supreme Court has granted certiorari in Halliburton v. Erica P. John Fund, setting up what could be the most important securities litigation decision in the last twenty-five years. At issue is the continued validity of the fraud-on-the market-theory, whereby reliance by investors on a misstatement is presumed if the company’s shares were traded on an efficient market that would have incorporated the information into the stock price. The presumption is routinely invoked in securities class actions to justify the grant of class certification.In its petition, Halliburton presented the following two questions: 1. Whether this Court should overrule or substantially modify the holding of Basic Inc. v. Levinson, 485 U.S. 224 (1988), to the extent that it recognizes a presumption of classwide reliance derived from the fraud-on-the-market theory. 2. Whether, in a case where the plaintiff invokes the presumption of reliance to seek class certification, the defendant may rebut the presumption and prevent class certification by introducing evidence that the alleged misrepresentations did not distort the market price of its stock. In granting review, the Court did not limit its consideration to either question. As a result, SCOTUSBlog notes that the Court presumably “at least will consider the broader plea to cast aside the prior ruling.” The case will be argued early next year. Reuters and Bloomberg have coverage of the cert grant. For more on the underlying case and the cert petition, see this recent blog post. Quote of note (Bloomberg): “Four justices — Antonin Scalia, Clarence Thomas, Anthony Kennedy and Samuel Alito — suggested in a ruling in February that they might jettison the ‘Basic presumption,’ as it has become known. The outcome of the case may be in the hands of Chief Justice John Roberts, who usually joins that group in ideologically divisive cases.”
