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Thursday, January 2, 2014

Joe B Garza Remarks on Halliburton Supreme Court Case

Oil company Halliburton Co has requested that the Supreme Court review a seminal case, Erica P. John Fund v. Halliburton - To clarify, Erica P. John Fund is among the oil company's shareholders. EPJ's years-old litigation with the oil company is based on the accusation that the company misrepresented important info concerning Halliburton's shareholder operations, for instance, exaggerating income and reducing perceived liabilities. Because of this, the Fund is attempting to have its legal action against Halliburton in the form of a class action - a lawsuit that is enacted on behalf of a group suffering from similar injuries. A class action lawsuit would allow Erica P. John Fund to litigate on behalf of all shareholders of Halliburton stock, therefore increasing the capital on the table in the litigation.

NY Times just released an astute analysis of the question the Supreme Court will be faced with in the case, if it agrees to hear the case. The New York Times article explains how many lawsuits like the Halliburton case rely on the idea of “reliance”, meaning that the shareholders acted in reliance of the allegedly criminal operations of the company. Historically, the Court has a broad interpretations of "reliance". To prove reliance, an involved shareholder doesn't need to read a prospectus and the fraudulent statements it contains. Rather, courts consider any allegedly criminal statement(s) made by a corporation that is also publicly acknowledged that affects its financial value and is incorporated into the total price of the its securities. The court justifies this view on the basis that markets always price securities through the use of all information that is currently available, an idea that is largely encouraged in the field of finance. Nevertheless, although most shareholders do not critically analyze financial statements and prospectuses released by the companies in which they invest; they can still demonstrate “reliance” provided that they have purchased securities with the business. As more and more shareholders are able to prove their reliance, these types of suits become easier.

In defense's official request to review the case, Halliburton hinted that it will proceed to contest that the court is defining reliance too loosely. Halliburton co. will insist that the Court should define reliance as requiring shareholders to do more than just purchase securities; for instance, requiring plaintiffs in the CAL to review a financial statement/fraud. prospectus. This kind of an argument could definitely get strong backing from the greater business community.

As the Times piece indicates, '12 in an unrelated case, four members of the Court stated that they would be willing to overrule the conventional, nebulous interpretation of “reliance.” If the Halliburton case ultimately makes it to the court, the main question will be about whether they can find a decisive fifth vote on the Court.

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