The Supreme Court justices considered making it harder for investors to bring class-action securities lawsuits in a case argued before the court Wednesday.
The case, Halliburton Co. vs. Erica P. John Fund Inc., hinges on a 25-year-old legal precedent, which some justices indicated might be due for updating in light of market changes, and what Justice Anthony Kennedy called “a whole new genre of investors,” as well as more ways to measure economic harm. Business groups argue that the legal precedent established by the court's 1988 ruling in Basic Inc. vs. Levinson makes it too easy to bring such cases, which often lead to settlements regardless of a case's merits.
A decision is expected in early June.
The justices' questions were seen by many legal observers as a search for a middle ground in the legal steps needed for pursuing securities litigation. There was “extensive questioning of how various tools worked, such as event studies, and how they could be used more effectively,” said Thomas Dubbs, a senior partner with Labaton Sucharow, a securities law firm that represents major institutional investors. But Mr. Dubbs said in an interview that “there did not appear to be a strong groundswell for overturning 'Basic.'”
The Council of Institutional Investors and 20 public pension funds filed an amicus brief arguing to keep the status quo, which allows investors to pursue class actions where market fraud may be presumed to have occurred. If the Supreme Court decides to remove that presumption, “institutional investors will face serious impediments to pursuing securities-fraud lawsuits, whether class actions or individual suits,” said CII Executive Director Ann Yerger in a statement. “A robust private remedy for securities fraud is critical to achieving Congress' aims of deterring fraud and recouping investor losses.”