In Securities Fraud News: "Prof. Charles Korsmo on the Supreme Court’s Halliburton decision"

From the Volokh Conspiracy (now at the WaPo):

[NOTE: I asked my colleague, Professor Charles Korsmo [bio/SSRN], to comment briefly on yesterday’s decision in Halliburton v Erica P. John Fund, an important securities fraud class action case.  Below are his comments.]

The Supreme Court handed down its opinion in Halliburton v. Erica P. John Fund on Monday.  The case was much-anticipated as the term’s most important securities law case. Some hoped, and others feared, the Court would grasp an opportunity to revisit its 1988 decision in Basic v. Levinson adopting the so-called “fraud on the market” doctrine.  This controversial doctrine makes the modern securities fraud class action possible by granting plaintiffs a presumption of reliance when plaintiffs can show that the relevant stock traded in an efficient market—the theory being that in an efficient market, any misrepresentations will be reflected in the market price and will thus affect any shareholder who trades in reliance on the market price.  In the absence of this presumption, individual issues of whether plaintiffs had actually heard and relied on allegedly fraudulent statements would predominate.  While aspects of the doctrine have come before the Court on numerous occasions, the Halliburton case was unusual in that Halliburton, picking up on cues from last year’s Amgen opinion, directly asked the Court to reconsider and overrule Basic.

The Court, somewhat predictably, declined to do so.  Instead, Chief Justice Roberts, in an opinion joined by five other Justices, took a more minimalist approach.  He held that Halliburton had showed no “special justification” for overturning the quarter-century-old holding of Basic, and that adhering to stare decisis was especially appropriate in a case involving interpretation of the securities laws, which Congress could presumably amend if they were so inclined.  Instead of wiping out the fraud on the market doctrine altogether, Roberts sought to chart a middle course, allowing defendants the opportunity to rebut the presumption of reliance at the class certification stage by showing that the alleged misrepresentations had no impact on the market price.  In taking this course, the Court largely adopted the position advocated by the law professors Adam Pritchard and Todd Henderson in an amicus brief that was heavily discussed at oral argument....MORE