Supreme Court grants review to reconsider "fraud-on-the-market" theory of reliance in class-action securities litigation (CL&P Blog)

The Supreme Court has taken the opportunity to put another lance in the side of securities investors who seek redress for misrepresentation.  It would deliver the blow by permitting rebuttal at the class-certification stage of the presumption of class-wide reliance on the alleged misrepresentations made by the company.  - GWC
Supreme Court grants review to reconsider "fraud-on-the-market" theory of reliance in class-action securities litigation (CL&P Blog):

The Supreme Court has granted review in yet another class action, and this one has large implications for the future of securities-fraud litigation. In Haliburton v. Erica P. John Fund, the Court will decide whether to overrule or substantially modify the rule inBasic, Inc. v. Levinson (1988), which adopted the "fraud-on-the-market" theory of reliance in securities-fraud litigation.

Put simply, that theory says that stock prices of a publicly-traded company go up and down based on all the known relevant information about the company. So, in an open securities market, people can assume (and have a right to assume) that all material information is available to current and potential investors. The idea, then, is that when the company makes material misstatements about the company''s financial situation or expected course of conduct, it defrauds the entire market, and the company's stock price is affected for all shareholders. Basic therefore held that an individual shareholder was entitled to a presumption of reliance on the company's material misstatements, even if he or she did not knowingly rely on them. Among other things, that presumption greatly simplifies class certification in a securities-fraud case. On the other hand, imagine the difficulty if the law required a showing of individual actual reliance on material misstatements.

See the cert stage BRIEFS

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