BR&B Submits Supreme Court Amicus Brief on Behalf of Financial Economists Including Nobel Laureate Eugene Fama

2/5/2014 - In November 2013, the United States Supreme Court granted certiorari in Erica P. John Fund v. Halliburton, a securities fraud class action.  The Court agreed to hear Halliburton’s appeal of the district court’s decision to allow the lawsuit to proceed as a class action.  The Supreme Court is being asked to overturn the 1988 landmark decision in Basic, Inc. v. Levison, which established the “fraud-on-the-market” presumption of reliance, now a cornerstone of securities fraud class actions.  Under the decision in Basic, investors are not required to prove directly that they relied on a defendant’s material misstatements.  The Basic decision held that such reliance may be presumed where the investor shows that the security at issue traded on an efficient market.  The fraud-on-the-market theory allows investors to rely on the integrity of the market price of the security in question on the theory that in well-developed markets the stock price incorporates and reflects publicly available information.  In the years since Basic, when seeking class certification, plaintiffs have been able to show class-wide reliance by demonstrating that the market for a particular stock was efficient and, as a result, the stock price reflected material, publicly-available material information. 

Barrack, Rodos & Bacine, working on behalf of 14 renowned financial economists, including Nobel Laureate Eugene Fama, submited an amicus brief in the Halliburton case.  The brief filed by BR&B explains that while financial economists may disagree about whether markets perfectly process information and how quickly they do so, there is generally no disagreement about whether market prices respond to material information for securities that trade in well-developed markets.  The brief explains that under the Efficient Capital Market Hypothesis, financial economists generally believe that stock prices respond to material information in a predicable direction and that the primary debate among economists is whether stock prices reflect fundamental value—the actual value of the company—not whether stock prices will move in response to material information.  The brief demonstrates that the premise upon which the fraud-on-the-market theory rests is widely accepted by financial economists, and takes the position that the Supreme Court should not overrule or significantly modify the fraud-on-the-market presumption enunciated in Basic.

Click here for a copy of the amicus brief submitted by BR&B on behalf of the financial economists.  BR&B is gratified and proud to have filed the amicus brief on behalf of the group of distinguished scholars.  A ruling on this case is expected this year.