U.S. Supreme Court Rules on Critical Reliance Issue for Securities Class Actions: Court Reaffirms Basic's Fraud-on-the-Market Presumption but Allows Defendants To Rebut that Presumption at Class Certification Stage

Sullivan & Cromwell LLP - June 23, 2014

In its much anticipated opinion in Halliburton v. Erica P. John Fund, Inc.,  the U.S. Supreme Court declined to overrule the fraud-on-the-market presumption of classwide reliance in securities fraud cases.  The Court, however, clarified current law by holding that defendants may rebut that presumption at the class certification stage (as well as the later merits stage) by showing that the alleged misstatements at issue had no impact on the price of the issuers’ securities.  That holding provides defendants with a potentially powerful tool for defeating class certification in certain cases.