Supreme Court Adopts a “Midway Position” on the Fraud-on-the-Market Theory in Securities Class Actions

Summary: On June 23, 2014, the US Supreme Court determined the continuing vitality of the fraud-on-the-market theory in securities class actions. As predicted in our March 7, 2014 Litigation Alert, the Court adopted a “midway position” in Halliburton Co. v. Erica P. John Fund, Inc. by keeping the presumption alive, but providing a defendant with the opportunity to rebut the presumption at the class-certification stage. While the decision may not fundamentally change securities class actions, it does provide defendants with the ability to end a class action at the class-certification stage (prior to discovery) where an event study establishes that there is no price impact as a result of the alleged fraud.