Earlier this year, the U. S. Supreme Court rejected Halliburton’s radical suggestion that the Court overrule 26 years of precedent to essentially grant corporations a license to commit securities fraud. We are proud and relieved that the Court stood up to preserve the rights of investors to hold corporations accountable, and did not grant this huge push for broad-based immunities.
In Erica P. John Fund, et al., v. Halliburton inventors claimed Halliburton falsified financial documents and issued misleading public statements, resulting in an inflated price of Halliburton’s stock. Later, Halliburton issued a number of public corrections, causing its stock to drop in price to the detriment of investors.
In the Court’s most recent decision, it upheld the 1988 decision Basic Inc. v. Levinson by preserving the fraud-on-the-market rule that presumes that when corporations lie to the public or deceive investors, the prices of stocks are impacted to the detriment of investors.
Under the rule, it is recognized that investors rely on the stock market price to reflect the accurate value of a stock and the integrity of a corporation. If a corporation provides false or deceptive information, the market will alter the value of a stock based on this information, resulting in a fraudulent valued stock-unbeknownst to investors.
Retaining the accountability of the fraud on the market rule is essential to retaining faith in our economy and our markets by investors. We are relieved that this is still the rule.