June 23, 2014

U.S. Supreme Court declines to overturn its landmark Basic v. Levinson decision

In rejecting Halliburton’s attempt to radically restrict the rights of investors, the Supreme Court today affirmed the principles it announced over a quarter century ago in Basic v. Levinson, a decision that ensured that investors can have the chance to prove their claims – and those of other investors – as class actions.  Affirming the continued vitality of Basic and the efficient market theory that underpins Basic is a significant victory for investors.  The procedural guidelines imposed by the Court today place the burden on defendants to rebut the presumption of reliance through the use of evidence that the alleged misrepresentation did not impact the price of the defendant’s stock.  This means that defendants may attempt to prove that their statements did not cause the stock price to be higher than it otherwise would have been.  This procedure, however, has always been available to defendants.  Accordingly, today’s ruling and should not unduly restrict the rights of investors and the conduct of securities class actions should not substantially change in the wake of this decision.  Indeed, in her concurrence, Justice Ginsburg made it clear that because the burden for demonstrating the lack of price impact rests solely on defendants, the Court’s ruling “should impose no heavy toll on securities-fraud plaintiffs with tenable claims.”

The decision is also significant because the Court squarely rejected Halliburton’s policy arguments contending that Basic should be overturned because of so-called “harmful consequences” of securities class actions.  The Court completely rejected these arguments properly noting that the forum for addressing these concerns is Congress, not the courts.  This portion of today’s ruling will hopefully put an end to repeated and baseless anti-investor policy arguments raised by defendants with the courts in an attempt to curtail investor rights.  

Statement Issued by: 

Daniel S. Sommers is co-chair of the Firm’s Securities Fraud practice group and is a member of the Firm’s Executive Committee.

Steven J. Toll is Managing Partner of the Firm and co-chair of the Securities Fraud/Investor Protection practice group.