Investors rely upon statements of brokers, investment firms and the corporations themselves when deciding where they should invest their money. This information is often crucial in developing a successful long-term investment strategy. If there are problems with these disclosures, the companies are expected to resolve the issues as soon as possible.
Recently, the Supreme Court has decided to hear a case concerning a securities fraud class action lawsuit, and what a class of investors must do in order to be certified as a class. In this particular case, investors had relied upon statements made by Halliburton that occurred from June of 1999 to December of 2001. Investors purchased stock at a certain value, and then experienced losses when the stock price of the company began to fall.
The plaintiffs in this case alleged that Halliburton made three misrepresentations in these statements, which led to the decrease in value. This included understating its responsibility in asbestos-related payouts, projecting earnings based on some accounts that it would not ever receive and also overestimating the amount of money a prospective merger would make the company. The case has led to concerns that previous decisions concerning class certification in securities fraud matters may be substantially changed.
In a prior decision by the Supreme Court, Basic Inc. v. Levinson, the court allowed investors to bring suits based on a “fraud-upon-the-market” theory. This means that all of the information that is publically available can be relied upon to determine the company’s stock price. Investors were not required to demonstrate that they relied upon any of the misleading statements, because this information was already being used when determining the value of the company’s stock.
The Basic decision held that it would be impractical for each potential member of a class to have to show that they relied on the information provided before making a purchase of stock. The Supreme Court ultimately resolved the Halliburton dispute in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014), declining to overturn the Basic presumption but establishing that defendants may rebut it at the class certification stage by introducing direct evidence that the alleged misrepresentation had no actual impact on the stock price. This means that if a defendant successfully demonstrates a lack of price impact, the fraud-on-the-market presumption of reliance does not apply, and plaintiffs will likely be unable to satisfy the predominance requirement necessary to certify a class under Rule 23(b)(3). The decision effectively gave defendants an earlier opportunity to challenge class certification through price-impact evidence, while preserving the core framework that has governed securities fraud class actions since 1988.
For investors, this case could lead to much more difficulty in being able to bring these types of lawsuits in the future. If you believe that you have been the victim of securities fraud, it is important that you speak with an attorney who has significant experience handling these kinds of cases.
Securities litigation is very complex, and you need to work with an attorney that understands how to investigation and present your claims. Companies will commit substantial resources to contesting your allegations, and it is essential that you have someone on your side, protecting your rights.
