Since the U.S. Supreme Court agreed to revisit the “fraud on the market” theory by granting cert in the Halliburton case a few weeks ago, many commentators (including this blog) have considered whether the Court might wind up taking an intermediate position that addresses criticisms of the theory while preserving securities plaintiffs’ ability to try to establish reliance at the class certification stage.
In a December 2013 paper entitled “Rethinking Basic” (here), Harvard Law School Professors Lucian Bebchuk and Allen Ferrell suggest an intermediate path for the Court to take. They propose a “meaningful modification” of the Court’s holding in Basic, Inc. v. Levinson, to ensure that the reliance inquiry at the class certification stage avoids the “efficient market” debate and asks instead whether or not the alleged misrepresentation caused “fraudulent distortion” to the defendant company’s share price.
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