Thursday, January 2, 2014

Halliburton Insists Supreme Court Take Second Look at Securities Law

Oil titan Halliburton Co just requested that the US Supreme Court revisit an important Supreme Court Case, Erica P. John Fund v. Halliburton. To be certain, The Fund is among Halliburton's shareholders. The Fund’s years-old courtroom battles with the oil company comes from the allegation that Halliburton falsely represented key info involving its shareholder activities, like overstating revenue and mitigating liabilities. Crucially, the Fund has attempted to have its action against the defense (Halliburton) as a class action lawsuit (CAL) - a form of lawsuit that is made on behalf of a certain group who have been offended by the same injury. A class action suit would allow the Fund to litigate on behalf of all Halliburton shareholders, therefore increasing the money on the table in the lawsuit.

The New York Times just published a topical analysis of the case that the Court will have to decide in the Halliburton case, should it agree to hear the case. The New York Times publication illustrates how many lawsuits like the one involving Halliburton and The Fund revolve around the concept of “reliance”, which says the litigation - or in this particular case, the shareholders behaved in reliance on the company's dishonest conduct. Supreme Court precedent has viewed reliance expansively. In order to suggest reliance, a shareholder involved in the CAL need not read a prospectus and the fraudulent statements it contains. Instead, courts consider any allegedly criminal statements made by a corporation that is also accepted by the public that affects the financial value of the corporation as being thrown into the total price of the its securities. The court justifies this view based on the basis that markets will price securities with all information that is currently available, something that is widely accepted in the study of finance. Nevertheless, even though most investors/shareholders do not thoroughly review financial records and prospectuses made publicly available by the companies in which they invest; plaintiffs involved with the CAL can still demonstrate “reliance” so long as they have purchased securities of the business. As more and more shareholders are capable of showing their reliance, these suits become easier to assemble.

In its court request to re-open the case, Halliburton has hinted that it will likely argue that the current interpretation of reliance is far too expansive. They will claim that the Court should interpret reliance as requiring shareholders to do more than merely purchase securities; for instance, requiring them to review a financial statement or fraudulent prospectus. This kind of an argument will probably receive enthusiastic backing from the business community.

As the Times article mentions, last year four members of the Court in an unrelated case stated that they were willing to overrule the conventional, nebulous meaning of “reliance.” If the Court hears the Halliburton case, the most important question will be about whether Halliburton can find a decisive fifth vote from the Court.

More by Joe Garza Attorney

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