U.S. Supreme Court

SCOTUS to revisit fraud-on-the-market theory that aids securities plaintiffs

The U.S. Supreme Court has agreed to revisit a presumption that helps plaintiffs in securities-fraud class actions.

The court will consider the fraud-on-the-market theory in a suit by investors who bought Halliburton stock, report the New York Times, the Wall Street Journal (sub. req.) and SCOTUSblog. The court granted cert on Friday.

The fraud-on-the-market theory establishes 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.

Four justices indicated in a February decision (PDF) that they would be willing to reconsider Basic. Among them was Justice Antonin Scalia, who complained in a dissent that the presumption is “to be found nowhere in the United States Code or in the common law of fraud or deception; it was invented by the court in Basic.”

Only six justices took part in Basic; Scalia and Justice Anthony M. Kennedy were among those who did not participate, SCOTUSblog says.

The new case is Halliburton v. Erica P. John Fund.

Untitled Document

We welcome your comments, but please adhere to our comment policy and the ABA Code of Conduct.

Commenting is not available in this channel entry.