Judgment Day for Fraud-on-the-Market?: Reflections on Amgen and the Second Coming of Halliburton

Abstract

In November 2013, the Supreme Court granted certiorari in the Halliburton litigation to reconsider, and perhaps overrule, its seminal decision in Basic Inc. v. Levinson. Basic legitimated the fraud-on-the-market presumption of reliance, making securities class actions for claims of false corporate publicity viable, and such cases have become the central mechanisms for private securities fraud litigation. This move came after last Term’s Amgen decision, where four justices signaled their doubts about Basic. This essay looks at the connection between Amgen and the continuing viability of fraud-on-the-market litigation. How Halliburton comes out will likely depend on how the Court views the Private Securities Litigation Reform Act of 1995 — was there an implicit Congressional endorsement of fraud-on-the-market as part of a broader political bargain to make such class actions harder (but not impossible) to bring? My essay considers that question along with others that are raised in the effort to overturn Basic.

Keywords: securities fraud, class actions, private securities litigation

JEL Classification: K00, K20, K22