By HLPR Online Staff
Yesterday, in Halliburton Co. v. Erica P. John Fund, Inc., the Supreme Court, among other holdings, upheld the more than 25-year-old “fraud on the market” theory for securities fraud class actions. Though at first glance this complex case may seem to involve only a very specific and technical distinction, the end result has wide-reaching (and expensive) implications for every large public company involved in U.S. securities markets.
Under SEC Rule 10b-5, one of the requirements for relief in a securities fraud action is that the plaintiff had to have relied on the fraudulent information in making his decision to buy or sell. As an individual plaintiff, showing this reliance is a simple factual inquiry. For a large class action, however, if each plaintiff had to show that he individually relied on the fraudulent information, no securities fraud class could ever get certified. The claims of the putative class members would become too uncommon with each other, rendering the class action device inappropriate. [Read more…] about Fraud on the (Inefficient?) Market