Halliburton v. Erica P. John Fund:
Possible Defeat of the Fraud-on-the-Market Presumption
By Jim Hynes
On November 15, 2013 the Supreme Court agreed to hear Halliburton v. Erica P. John Fund ("Halliburton"), which puts squarely at issue the fraud-on-the-market theory adopted by the Supreme Court in the 1988 case of Basic, Inc. v. Levinson ("Basic"). In Basic, the Supreme Court held that investors in securities fraud cases may be presumed to have relied on public misrepresentations ("fraud-on-the-market doctrine"). Basic's presumption of investor reliance, while rebuttable, has made it possible for shareholders to achieve class certification of securities fraud suits without individualized proof that the class members' investment decisions were based on the alleged misstatements at issue in the securities fraud lawsuit. In the two decades since it was decided, Basic has become a bedrock case in securities fraud litigation. If overturned, the path to achieving class certification in securities fraud litigation will be undoubtedly more onerous for shareholders.
Fifth Third Bancorp v. Dudenhoeffer:
U.S. Supreme Court Reviews Presumption of Prudence in ERISA Stock Drop Case
By Jim Hynes
On December 13, 2013, The U.S. Supreme Court agreed to hear Fifth Third Bancorp v. Dudenhoeffer, ("Fifth Third Bancorp") which addresses the standard for fiduciary liability under ERISA applicable to claims brought by Eligible Individual Account Plan ("EIAP," including ESOPs and 401(k)-type plans) participants arising out of a decline in the value of stock of their employer, or a fund comprised of employer stock. A typical ERISA stock drop suit alleges that fiduciaries of the plan (typically officers and/or directors of the company) breached an ERISA-imposed duty of prudence by not removing the company stock fund as an investment from the plan before a drop occurred. Fifth Third Bancorp is significant as the Court's decision will resolve a split among lower courts over whether a presumption of prudence (the "Moench presumption") provides a heightened level of protection to EIAP fiduciaries, and at what stage of litigation the presumption should be applied.