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.

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