Following an active two weeks, with decision on some of the most pressing cases it heard this session, the Supreme Court of United States handed down its decision in Halliburton v. Erica P. John Fund on June 23. The much-awaited decision will change the way investors bring class action lawsuits against companies when their value takes a hit.
The case asked the Supreme Court to reconsider its ruling on Basic v. Levinson, a 1988 case that found investors did not need to show they relied on a misleading statement by the company when filing suit seeking to recover investment losses. The 1988 ruling sided with the fraud-on-the-market theory, which holds investors rely on efficient stock market and presume stock prices are accurate when they make investment decisions. They should therefore be allowed to bring suit when a company has been found to have filed misleading statements.