[JURIST] The US Supreme Court [official website] on Monday limited [opinion, PDF] shareholders’ class action suits for securities fraud. In Halliburton Co. v. Erica P. John Fund, Inc. [SCOTUSblog backgrounder], the court declined to overturn its 1988 decision in Basic Inc. v. Levinson [text]. Halliburton Co. [corporate website] has faced numerous lawsuits concerning allegations the company put out seriously misleading information in order to manipulate its stock prices. In Basic, Inc. the court adopted the fraud-on-the-market [17 CFR 240.10b-5] presumption, ruling that investors in securities-fraud cases do not need to prove their reliance on misleading statements from a company in order to bring a successful claim. The court declined to overrule that decision but held that defendants must be allowed to rebut the presumption of reliance:

More than 25 years ago, we held that plaintiffs could satisfy the reliance element of the Rule 10b-5 cause of action by invoking a presumption that a public, material misrepresentation will distort the price of stock traded in an efficient market, and that anyone who purchases the stock at the market price may be considered to have done so in reliance on the misrepresentation. We adhere to that decision and decline to modify the prerequisites for invoking the presumption of reliance. But to maintain the consistency of the presumption with the class certification requirements of Federal Rule of Civil Procedure 23, defendants must be afforded an opportunity before class certification to defeat the presumption through evidence that an alleged misrepresentation did not actually affect the market price of the stock.

The court vacated the judgment [text] of the US Court of Appeals for the Fifth Circuit and remanded the case for further proceedings.

The court heard arguments [JURIST report] in the case in March. Halliburton had argued that the Basic, Inc. decision was outdated and no longer represented the economic reality and should be overturned. The court granted certiorari [JURIST report] last November.