Federal Court Could Take On Seminal Securities Case

Oil giant Halliburton Co has requested that the Supreme Court review a crucial securities case, Erica P. John Fund v. Halliburton. To clarify, The Fund is an official shareholder of Halliburton. The EPJ years of litigation with Halliburton is predicated upon the notion that Halliburton “fudged” important information involving Halliburton’s operations to shareholders; for instance, Halliburton is currently being accused of overstating revenues and mitigating potential liabilities. Now, EPJ insists on having its case against the defense recognized as a class action: a lawsuit which is enacted on behalf of a specific group experiencing the same injury. A CAL allows the Fund to litigate on behalf of all Halliburton shareholders, which would quickly increase the damages at stake in the case.

The Times just included a thorough analysis of the case that the Court will have to decide in the Halliburton case, should it hear the case. The New York Times piece illustrates how the majority of lawsuits like the Halliburton case revolve around the idea of “reliance”, which holds that the litigation – or in this particular case, the shareholders acted in reliance on the dishonest operations of the company. Historically, the US Supreme Court has a broad interpretations of “reliance”. To demonstrate reliance, an involved shareholder need not read a prospectus and the fraudulent statements it contains. Rather, courts treat any deceptive statements made by a business that is also publicly acknowledged that has any bearing on the financial value of the business as being thrown into the total price of the companys securities. Courts typically justify this decision based on the grounds that markets price securities with the help of all available information, an idea that is widely encouraged in the world of finance. Regardless, although most investors don’t completely review financial records and prospectuses released by the companies in which they invest; plaintiffs can still show “reliance” assuming that they can prove that they have acquired securities of the business. As more shareholders are capable of showing their reliance, these suits become easier.

In their court request to review the case, Halliburton suggested that it will argue that the courts traditional definition of reliance is too expansive. They will argue that the Supreme Court should define reliance as something more serious than merely purchasing securities; such as requiring them to read a fraudulent prospectus or financial statement. Such a proposal could see some strong backing from the business community.

As the NYT piece illustrates, in 2012 in an unrelated case, four members of the Court claimed that they would be willing to overrule the conventional, nebulous meaning of “reliance.” If the Halliburton case ultimately reaches the court, the most important question will be whether they can muster a necessary fifth vote on the Court.

Frank Stafford got his start writing about finance after graduating with a degree from Southern Methodist University in Dallas, TX. After writing on the web for some time, he moved into more professional avenues, and now writes for attorney Joe B Garza. You can see more of Frank’s writing at his own online publication, TheCapitalPress.com, or by looking for more of his law news across the web.

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