A unanimous U.S. Supreme Court on June 6 ruled that private federal securities fraud plaintiffs do not need to prove loss causation in order to obtain class certification. In Erica P. John Fund Inc. v. Halliburton Co.,1 the high Court drew a firm line between two separate elements of a private securities fraud claim: (i) reliance on alleged misrepresentations or omissions, and (ii) loss causation. The availability of the fraud-on-the-market presumption of reliance is a linchpin to class certification in most private securities fraud suits. Without the presumption, reliance on alleged misrepresentations is an individual issue that in most cases will overwhelm any common issues and preclude class certification.
What is the evidentiary predicate for presuming class-wide reliance on alleged material misrepresentations? The Supreme Court stated that plaintiffs invoking the fraud-on-the-market presumption of reliance must “prove” that alleged misrepresentations were publicly known, that the relevant security traded on an efficient market, and that the plaintiffs traded in the stock between the time the alleged misrepresentations were made and the time the truth was publicly revealed.
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