U.S. Supreme Court

Justices consider middle ground to curb securities class actions

The U.S. Supreme Court on Wednesday mulled a middle ground as the justices considered the viability of a presumption that helps plaintiffs in securities-fraud class actions.

At issue is a rebuttable presumption in investor suits that the plaintiffs relied on public, material misrepresentations that affected stock prices. The presumption was established in a 1988 decision, Basic v. Levinson.

A lawyer for Halliburton Co., Aaron Streett, argued that Basic should be overruled, report the Los Angeles Times, the New York Times, Reuters and the Washington Post. He told the justices they should require proof that individual investors had actually relied on a company’s misleading statement. The law should require “actual eyeball reliance,” Streett said.

But several justices suggested a middle ground that would leave intact the fraud-on-the-market presumption but require proof before class certification that a company’s stock price was actually affected by its false statements. “I call it the midway position,” Kennedy said.

That midway position was proposed in an amicus brief (PDF) filed by law professors Adam Pritchard of the University of Michigan Law School and M. Todd Henderson of the University of Chicago Law School.

The case is Halliburton v. Erica P. John Fund. The plaintiffs claim Halliburton failed to disclose its exposure to asbestos claims.

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