And the bells rang out: “Wicked securities class action suits are dead!” At least this is what some hopeful prognosticators are saying now that the U.S. Supreme Court has decided to hear Halliburton v. Erica P. John Fund, a challenge to the way classes are certified in Section 10(b) securities cases. It’s a nice thought, but don’t drop the company’s D&O insurance just yet. While the Court has an opportunity in Halliburton to severely curtail securities class action suits, it probably won’t.
First, a quick reminder: securities class action suits are filed by a company’s shareholders against the company as well as its directors and officers. When they sue under section 10(b) of the Securities and Exchange Act, shareholders are suing for damages that resulted from material misrepresentations or omissions made by the company. Such a securities suit could be brought by an individual shareholder. The mega-dollar settlements reported in the press, however, are usually the result of a large group of shareholders suing as a class.