An appeal before the U.S. Supreme Court could limit your chances to join a class action lawsuit against companies who have committed securities fraud and cost you money.
The Supreme Court agreed last month to hear arguments from Halliburton Corp., which wants to block an investor lawsuit. If the court sides with Halliburton, it could set a precedent that severely weakens the ability of investors to make sure there is accountability from the companies they entrust their money to.
The mammoth Halliburton is one the world’s largest suppliers of products and services to the fossil fuels industries. It faces a suit from investors who bought the company’s stock between June 1999 and December 2001 (For part of that time, former U.S. Vice President Dick Cheney was its CEO.) It was during that time there was controversial behavior, says the investors.
The suit claims that when they purchased the stock, Halliburton was publicly under-estimating how much it would owe from asbestos litigation. It also over-valued the predicted profits of the buyout of troubled Dresser Industries.
Similarly, Halliburton also overestimated the profits its construction and engineering units would realize. When Halliburton later corrected its projections publicly, the stock price fell and caused the investors to lose cash. Eventually, these shareholders filed a class action suit against Halliburton.
To fight back, Halliburton launched its appeal, hoping to change a previous and hugely important securities ruling by the Supreme Court. In 1988, in a securities case, Basic Inc. v. Levinson, the Supreme Court dictated that to receive class action certification, investors don’t have to show they relied on a company’s misrepresentations. A judge ruling on the case can safely assume that a company’s misrepresentations are factored in by shareholders when they bought stock.
It’s hard to overestimate the importance of the Basic ruling. There were more than 3,000 private class action securities fraud lawsuits between 1997 and 2012, as The Wall Street Journal (subscription required) states. These actions led to $73 billion in legal settlements. It has given investors leverage against unscrupulous or sloppy managers.
“A reversal of Basic v. Levinson would represent the most radical change in the private enforcement of the federal securities law in a generation and would be a severe blow to investors’ rights, one legal expert told Bloomberg.
But now, Halliburton wants the rule to dictate that investors must prove any alleged misstatements definitely distorted its stock price. If Halliburton has its way, it will be harder for shareholders to form a class action lawsuit, even if a company raised its stock price through fraud, as the Motley Fool, a securities newsletter, explained.
The Supreme Court will most likely take up the case early next year.
Companies will bend the rules to increase their profits even if it hurts their shareholders. Where there is no accountability, there is no safety. Have you been the victim of a securities fraud or of a stockbroker fraud? Call Sokolove Law today to discuss a securities fraud lawsuit.