In our October 2013 column, “Class Certification: Back to Basic,” we discussed the need for guidance from the Supreme Court regarding the fraud-on-the-market presumption of reliance recognized by the four-justice majority in Basic v. Levinson, 485 U.S. 224 (1988) and pointed to the then-pending petition for a writ for certiorari by Halliburton in Erica P. John Fund v. Halliburton, 718 F.3d 423 (5th Cir. 2013) as providing an opportunity for the court to reconsider Basic. Relying upon the premise that, in an efficient market, the price of a security reflects all material publicly-available information relating to its issuer, the Supreme Court held in Basic that, under such circumstances, class plaintiffs were entitled to a rebuttable presumption of reliance at the class certification stage.
Halliburton held that price impact should not be considered at class-certification because it is determinative of loss causation, a class issue common to all members. We noted the extensive scholarly and empirical evidence undermining the efficient capital market theory, the inconsistency among district courts in determining market efficiency, and the split among the circuits with respect to consideration of price impact at the class certification stage.
