Section 10(b)

Halliburton Co. v. Erica P. John Fund, Inc.


Should the fraud-on-the-market theory of reliance be overruled or substantially modified to allow defendants to challenge a class certification by introducing evidence that the alleged fraud did not impact the price of its stock?

In 2002, the Erica P. John Fund, which supports the Archdiocese of Milwaukee, sued Halliburton, an oil-services company, for securities fraud.  The lawsuit accused Halliburton of lying about its asbestos liabilities, overstating its revenues, and building up hype about the company’s merger with Dresser Industries. The lawsuit was brought on behalf of a class consisting of all shareholders of Halliburton. Contesting this class action, Halliburton argues that the lawsuit could not be brought by all shareholders unless individual shareholders actually relied on Halliburton’s alleged fraudulent acts to make their investment decisions. However, the Fund contends that reliance by the individual shareholders is presumed due to the fraud-on-the market theory established by Basic v. Levinson. The theory assumes that all public information provided by a company is incorporated into its stock price. Thus, Halliburton’s fraudulent information harmed all of its shareholders even if not every one of them personally read and relied on the information. The Supreme Court’s decision in this case will determine whether the fraud-on-the-market theory remains valid. If the Court rejects the theory, then plaintiffs would have a harder time initiating lawsuits for securities fraud, and companies that allegedly commit the fraud would likely pay less in damages.

Questions as Framed for the Court by the Parties: 
  1. Whether this Court should overrule or substantially modify the holding of Basic Inc. v. Levinson, 485 U.S. 224 (1988), to the extent that it recognizes a presumption of classwide reliance derived from the fraud-on-the-market theory.
  2. Whether, in a case where the plaintiff invokes the presumption of reliance to seek class certification, the defendant may rebut the presumption and prevent class certification by introducing evidence that the alleged misrepresentations did not distort the market price of its stock.



The Erica P. John Fund, Inc. (“The Fund”) alleges that between June 3, 1999, and December 7, 2001, the Halliburton Company (“Halliburton”) and its top executives misrepresented significant aspects of its operations. See Erica P. John Fund, Inc. v. Halliburton Co. (“Erica v. Halliburton”), 718 F.3d 423, 426 (5th Cir. 2013).

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