A Collaboration with the University of Pittsburgh

Supreme Court hears arguments on securities fraud

The US Supreme Court [official website] heard oral arguments [day call, PDF] Wednesday on class certification procedures in stock and securities fraud litigation. In Halliburton Co. v. Erica P. Johnson Fund, Inc. [transcript, PDF] the court will decide whether the Fifth Circuit's ruling [text] is contradictory both to prior Supreme Court precedents and to the Federal Rule of Civil Procedure 23 [text] by requiring plaintiffs in securities fraud cases to show loss causation to obtain class certification, or whether that causation should be brought at trial. The Supreme Court ruling will settle a circuit split between the Fifth Circuit and the Third, Seventh and Second Circuits [opinions, PDF]. In deciding this case, the Supreme Court will determine what role causation of loss plays in the stage of certifying a class during a fraud-on-the-market securities case, which will impact the standard necessary to determine reliance in a class action securities lawsuit.

This is not the Supreme Court's only reflection on class action lawsuits and securities. Last month, the Supreme Court ruled [JURIST report] 7-2 in Chadbourne and Parke LLP v. Troice [opinion, PDF] that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) [text, PDF] did not bar the plaintiffs' state law class action suit. The lawsuit was brought by the victims of the multibillion dollar Ponzi scheme orchestrated by Allen Stanford [BBC profile; JURIST news archive]. In August a federal judge in Florida dismissed [JURIST report] a lawsuit against the Securities and Exchange Commission (SEC) [official website] over the agency's alleged failure to report Stanford's Ponzi scheme to the Securities Investor Protection Corporation (SIPC) [official website]. In June 2012 Stanford was sentenced [JURIST report] to 110 years in prison for his Ponzi scheme. The trial against Stanford began after a federal judge ruled in 2011 that he was competent to stand trial, overruling a previous determination [JURIST reports] that his anti-anxiety and anti-depression medications rendered him unable to meaningfully contribute to his defense.

About Paper Chase

Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

© Copyright JURIST Legal News and Research Services, Inc., 2013.