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U.S. Supreme Court Limits Shareholder Class-Action Suits

The U.S. Supreme Court gave Halliburton Co. a partial victory recently, putting further restrictions on class-actions lawsuits by shareholders just shy of eradicating such suits altogether. Halliburton tried to overturn twenty-six year old precedent and end class-action fraud suits over securities brought on public exchanges. A divided court declined to do so, and Chief Justice John Roberts stated that Halliburton had not shown "the kind of fundamental shift in economic theory" that would warrant overruling the precedent. The court did, however, make it easier for defendants to prevent approval of a class action. Roberts stated that a defendant can prevent such approval by showing that an alleged misstatement had no effect on a company's stock price.

The precedent in this case comes from Basic v. Levinson, a 1988 case which stated that judges considering misrepresentation claims should presume that investors will take any public misstatement into account before buying shares.

The shareholders, with the Erica P. John Fund at the lead, allege that between 1999 and 2001 Halliburton falsified earnings reports, played down estimated asbestos liability, and exaggerated the benefits of a merger.

Securities-fraud litigation has boomed as of late despite Congress' attempt limit it. In fact, more than 4,000 class-action suits have been filed since 1996, producing nearly $80 billion in settlements.