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Halliburton Co. Implores Supreme Court to Rethink Securities Legislation

December 2013

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The Oil company Halliburton Co has asked the US Supreme Court to review an important case, Erica P. John Fund v. Halliburton - To clarify, Erica P. John Fund is among the oil titan’s shareholders. The EPJ years-old litigation with Halli-burton comes from the notion that Halliburton “fudged” very important information concern-ing Halliburton’s operations to shareholders; for instance, they are now being accused of exag-gerating revenue and reducing liabilities. More importantly, the Fund woould like to have its legal offensive against the defense rec-ognized as a class action suit - a lawsuit that is carried out on behalf of a group of people who have been offended by the same injury. A CAL allows Erica P. John Fund to litigate on behalf of all shareholders of Halliburton stock, which would certainly increase the capital on the table in the suit.

The NY Times recently included an excellent analysis of the question that the Supreme Court will have to decide in the Halliburton case, if

it agrees to hear the case. The New York Times publication illustrates how most lawsuits like the one involving Halliburton and EPJ revolve around the notion of “reliance”, meaning that the litigation - or in EPJ’s case, the shareholders behaved in reliance on the organization’s (potentially) illegal activities. Historically, the US Supreme

Court has a expansive interpretations of “reliance”. To show reliance, a shareholder need not read a prospectus and the fraudulent state-ments it contains.

Rather, the court views any allegedly criminal statement(s) made by

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a corporation that is also publicly acknowledged that has any bearing on the financial value of the company and is incorporated into the total price of the the corporation’s securities. Courts typically justify

this decision on the grounds that markets price securities using all available market information, an idea that is widely accepted in finance. Nevertheless, although most shareholders/inves-tors do not critically analyze financial statements and prospectuses released by

the companies in whom they invest; plaintiffs involved with the class action suit can still demonstrate “reliance” as long as they can prove that they have acquired securities with the business. As an increasing number of shareholders come forward and are capable of showing their reliance, these suits become easier to take to court.

In its request to the Supreme Court to re-open the case, Halliburton suggested that it will argue that the current definition of reliance is too loose. It will suggest that the Supreme Court should define reliance as something more involved than simply purchasing securities; for ex-ample, they could start by requiring shareholders to read a fraudulent prospectus or financial statement. Such a contention will probably see some strong support from the business community.

As the NYT article illustrates, ‘12 in an unrelated case, four members of the Court stated that they would be willing to overrule the former, loose interpretation of “reliance.” If the Halliburton case eventually reaches court, the obvious question will be about whether Halliburton can muster a much-needed fifth vote from the Court.