U.S. Supreme Court "inches toward bringing securities laws back in line with ordinary rules for proving fraud"
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-themarket 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.
In its brief, the U.S. Chamber and other business groups urged the U.S. Supreme Court to overrule or modify the fraud-on-the-market theory endorsed by Basic Inc. v. Levinson, 485 U.S. 224 (1988). This theory allows plaintiffs to establish the reliance element in a securities fraud class action merely by showing that they traded stock around the time of the public misrepresentations. In other words, the Court created a shortcut to make it very easy to certify securities class action. This approach has led to confusion among the lower courts, enabled a wave of class action litigation, and "inflicted tremendous costs on public companies and their shareholders without producing corresponding benefits to investors."
Previously, the Chamber filed an amicus brief asking the U.S. Supreme Court to grant the certiorari petition.
The Chamber filed this brief jointly with the National Association of Manufacturers.
The U.S. Supreme Court ruled that defendants in securities class actions must be afforded an opportunity to rebut the "presumption of reliance" - a judicially-created shortcut making it easier for plaintiffs to certify securities class actions - before class certification by providing evidence of a lack of price impact. However, the Court declined to overrule Basic Inc. v. Levinson.
The U.S. Chamber of Commerce reacted to a decision by the U.S. Supreme Court in Halliburton Co. v. Erica P. John Fund, Inc. with the following statements:
“The Court today took a small first step in a long journey toward reducing the costs of securities class actions for investors. We are disappointed, however, that the Court missed an important opportunity to correct the mistake that Basic has turned out to be for investors. Meritless securities class actions benefit only a few plaintiffs’ lawyers and ultimately cost investors billions,” said Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform. “Congress must now finish this important journey toward shareholder justice by acting to cut back on litigation driven solely by a few plaintiffs’ lawyers.”
“While today’s decision inches toward bringing securities law back in line with the ordinary rules for proving fraud cases, much more can and should be done,” said Lily Claffee, general counsel of the U.S. Chamber and executive vice president of the U.S. Chamber Litigation Center.
U.S. Supreme Court Briefing
(reverse chronological order)
- Decided 6/23/14
- Argued 3/5/14
- Petitioners Reply Brief filed 2/21/14
- 12 Amicus Briefs filed 2/4/14 and 2/5/14 by
- Civil Procedure Scholars
- Council of Institutional Investors
- Current and Former Members of Congress
- Financial Economists
- Former SEC Chairmen William Donaldson and Arthur Levitt, Jr.
- Institutional Investors
- Scholars re Stare Decisis
- Securities Law Scholars
- United States
- Testifying Economists
- Respondent's brief filed 1/29/14
11 Amicus Briefs filed 1/6/14 by
- U.S. Chamber of Commerce, et al.
- American Institute of Certified Public Accountants
- Amgen, Inc.
- Committee on Capital Markets Regulation
- Former Members of Congress
- Former SEC Commissioners and Officials, and Law Professors
- Law Professors
- Securities Industry and Financial Markets Association
- Vivendi, S.A.
- Washington Legal Foundation
- Petitioner's Opening Brief filed 12/30/13
- Cert. granted 11/15/13
- Reply Brief filed 10/29/13
- 3 Amicus Briefs filed 10/11/13 by
- Brief in opposition filed 10/11/13
- Cert. petition filed 9/9/13
Fifth Circuit Decision filed 4/29/13