In Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), the United States Supreme Court reaffirmed the validity of the “fraud on the market” presumption underlying securities fraud class action litigation. This presumption is vital to bringing suits as class actions because it excuses plaintiffs from proving individual reliance on an alleged corporate misstatement on the theory that any public statements made by the company are incorporated into its stock price and consequently relied upon by all investors. Thus, the Court’s decision to uphold the validity of the presumption has been hailed as a significant victory for those who bring securities fraud class actions. Overlooked by many commentators is the fact that in addition to upholding the fraud on the market presumption, the Court established a new avenue for defendants to rebut the presumption at the class certification stage of a case. Defendants can now rebut the presumption before a class is certified by presenting evidence that an alleged corporate misstatement had no impact on the price of the stock. This ruling is significant because securities fraud class actions, as a practical matter, often settle after a class has been certified. This article examines what that ruling could mean for modern securities fraud class action litigation.
Victor E. Schwartz & Christopher E. Appel,
Rebutting the Fraud on the Market Presumption in Securities Fraud Class Actions: Halliburton II Opens the Door,
Mich. Bus. & Entrepreneurial L. Rev.
Available at: http://repository.law.umich.edu/mbelr/vol5/iss1/2