In Halliburton Co. v. Erica P. John Fund, Inc., the U.S. Supreme Court will decide whether to overrule or modify the “fraud-on-the-market” presumption of reliance in 10b-5 securities fraud class actions. The fraud-on-the-market presumption has helped plaintiffs surmount the class certification hurdle for over 25 years, and if it is overruled or modified, class certification in securities fraud cases may become a more challenging — and costly — endeavor.
Basic v. Levinson and the fraud-on-the-market presumption
The arguments before the Court in Halliburton II
The Supreme Court will consider two questions on appeal. First, whether the Court should “overrule or substantially modify the holding in Basic to the extent that it recognizes a presumption of classwide reliance derived from the fraud-on-the-market theory.” Second, whether a defendant may rebut the presumption and defeat class certification by introducing evidence that the alleged misrepresentations did not distort the market price.