Halliburton Co. v. Erica P. John Fund, Inc.

Fraud-on-the-market reliance, class certification, and price-impact evidence in securities-fraud class actions.

Investors alleged that Halliburton made misstatements concerning asbestos liability, construction-contract revenue, and merger benefits, inflating its stock price. Halliburton sought to defeat class certification by challenging the Basic fraud-on-the-market presumption.

The Court declined to overrule Basic but held that defendants may rebut the presumption of reliance at class certification with evidence that alleged misstatements had no price impact.

Chief Justice Roberts relied on stare decisis and Congress's decision to leave Basic in place while reforming securities litigation. At the same time, the Court reasoned that because price impact is central to the Basic presumption, defendants must be allowed to contest it before classwide reliance is presumed.

1. How does the rule affect information production, investor reliance, and enforcement costs?
2. What are the likely error costs for lawful market activity and for undetected misconduct?