## Facts

- A former Halliburton shareholder sought to represent a class of investors who bought Halliburton stock between June 3, 1999, and December 7, 2001, asserting claims under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.
- The complaint alleged Halliburton made materially false or misleading public statements that inflated its stock price, including statements that (1) understated asbestos liabilities from a merger, (2) overstated revenue and contract performance, and (3) overstated merger benefits and business prospects.
- The investors alleged they suffered losses when later disclosures revealed the truth and the stock price declined.
- In an earlier appeal, the Supreme Court held plaintiffs need not prove loss causation to obtain class certification.
- On remand, Halliburton argued it should be permitted at class certification to rebut the fraud-on-the-market presumption of reliance by showing the alleged misstatements had no impact on the stock’s market price.
- The district court certified the class, and the Fifth Circuit affirmed, concluding Halliburton could not use lack-of-price-impact evidence to defeat the presumption at the certification stage.
- The Supreme Court granted review to consider whether to overrule or modify Basic’s presumption and whether defendants may rebut the presumption at class certification with price-impact evidence.

## Issues

1. Whether the Court should overrule or substantially modify Basic Inc. v. Levinson’s fraud-on-the-market presumption of classwide reliance in Rule 10b-5 actions.
2. Whether, at Rule 23(b)(3) class certification, a defendant may rebut the Basic presumption by introducing evidence that the alleged misrepresentations did not affect the stock’s market price.

## Decision

- The Court declined to overrule or substantially modify Basic and retained the fraud-on-the-market presumption of reliance.
- The Court held defendants must be allowed at class certification to rebut the presumption with evidence that the alleged misrepresentation did not actually affect the stock’s market price (no “price impact”).
- The Court vacated the Fifth Circuit’s judgment and remanded for proceedings consistent with allowing price-impact rebuttal at the certification stage.

## Legal Principles

- Private Rule 10b-5 plaintiffs must prove reliance, but Basic permits a rebuttable presumption of classwide reliance when a security trades in an efficient market and the alleged misstatement is public and material.
- Stare decisis supported retaining Basic absent a special justification for overruling it, including reliance interests and Congress’s repeated amendments to securities laws without displacing the presumption.
- Because the Basic presumption is rebuttable, Rule 23(b)(3) predominance permits defendants to present evidence at class certification aimed at defeating the presumption by showing no price impact.
- Price impact (whether the misstatement affected the market price at the time of trading) is distinct from loss causation (whether the later correction caused the plaintiff’s economic loss); allowing price-impact rebuttal at certification does not require plaintiffs to prove loss causation at that stage.

## Conclusion

The Court preserved the fraud-on-the-market framework for securities class actions while holding that, at class certification, defendants may attempt to defeat classwide reliance by proving the challenged statements did not distort the stock’s market price, potentially preventing a finding of Rule 23(b)(3) predominance.


Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014)