Basic survives — barely
The Supreme Court held today that plaintiffs in securities fraud cases may continue to use a 26-year-old presumption that "the price of stock traded in an efficient market reflects all public, material information — including material misstatements." Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317, slip op. at 1 (U.S. June 23, 2014) (declining to overrule Basic Inc. v. Levinson, 485 U.S. 224 (1988).
But the Court went on to hold that defendants may "rebut the presumption of reliance with evidence of a lack of price impact" in order to defeat class certification. Id. at 16.
Chief Justice Roberts authored the majority opinion, in which Justices Breyer, Ginsburg, Kagan, Kennedy, and Sotomayor joined.
Justice Ginsburg, in concurrence, noted that "[a]dvancing price impact consideration from the merits stage to the certification stage may broaden the scope of discovery available at certification" but "should impose no heavy toll on securities-fraud plaintiffs with tenable claims." Id. concurrence at 1. Justices Breyer and Sotomayor joined her opinion.
Justice Thomas, also concurring, explained why he would overrule Basic. Justices Alito and Scalia agreed with him.
Contrary to Justice Ginsburg's optimistic view, the Court's allowance of attacks on the presumption of reliance at the class certification stage will vastly increase the expense of litigating certification issues. Event studies and other analyses by experts will result in expenditures of hundreds of thousands if not millions of dollars.
The number of law firms that can afford to prosecute securities class actions will continue to shrink.
Securities fraud will become less risky and more profitable.