Thursday, January 2, 2014

Attorney Joe Garza Looks at Supreme Court Case Invilving Halliburton Co.

Leading Oilfield Services conglomerate Halliburton just requested that the US Supreme Court reconsider the 1988 case, Erica P. John Fund v. Halliburton - To clarify, the Erica P. John Fund (the “Fund”) is among the oil giant's shareholders. The EPJ years-old litigation with Halliburton is based on the accusation that Halliburton "fudged" some very important information involving Halliburton's shareholder activities, like overstating income and reducing perceived liabilities. Because of this, EPJ has attempted to have its suit against the defense recognized as a class action, a form of lawsuit which is enacted on behalf of a particular group who have suffered from similar injuries. A class action lawsuit allows the Fund to represent all shareholders of Halliburton stock, effectively increasing the dollars on the table in the suit.

NY Times recently included a relevant analysis of the case the Court will have to decide in the case, should it agree to hear the case. The Times publication illustrates how many securities fraud lawsuits revolve around the concept of “reliance”, meaning that the litigation - or in EPJ's case, the shareholders acted in reliance of the organization's (potentially) illegal activities. The Supreme Court has a vast interpretations of "reliance". To show reliance, an involved shareholder doesn't need to read a prospectus and the fraudulent statements it contains. Rather, courts consider any allegedly criminal statements made by a corporation (and accepted by the public) that has any bearing on the financial value of the business and is thrown into the total price of the the corporation's securities. The court justifies this view on the ground that markets will price securities using all available information, an idea that is largely accepted in the field of finance. Still, although most investors do not typically crucially review financial records and prospectuses released by the companies in which they invest; plaintiffs involved with the suite can still show “reliance” as long as they can prove that they have acquired securities of the company. As more and more shareholders are capable of proving reliance, class action suits become easier to take to court.

In defense's request to the Supreme Court to review the case, Halliburton has hinted that it will contest that the court’s traditional interpretation of reliance is far too loose. Halliburton will say that the Supreme Court should interpret reliance as requiring shareholders to do more than simply purchase securities; for example, they could require plaintiffs in the CAL to review a financial statement or fraudulent prospectus. This kind of a contention will likely see some enthusiastic backing from the greater business community.

As the Times article points out, '12 four justices in an unrelated case suggested that they would be willing to overrule the former, nebulous meaning of “reliance.” If the Court agrees to hear Halliburton’s case, the obvious question will be about whether the company can muster a necessary fifth vote from the Court.

More by Attorney Joe Garza

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