Halliburton Company v. Erica P. John Fund, Inc. (Halliburton II)

Supreme Court of the United States · 2014 · Corporations

573 U.S. 258 (2014)

Updated August 22, 2026

CorporationsSecurities fraudClass certificationFraud-on-the-marketRule 10b-5Section 10(b)Basic presumptionreliance

Facts

EPJ Fund brought a putative securities fraud class action against Halliburton and one executive under Section 10(b) and Rule 10b-5, alleging Halliburton made public misrepresentations about asbestos liability, expected revenue from certain construction contracts, and benefits of a merger in order to inflate its stock price. EPJ Fund alleged Halliburton later made corrective disclosures that caused the stock price to drop and investors to lose money. On remand after Halliburton I, Halliburton argued that evidence previously used to contest loss causation also showed the alleged misrepresentations had no price impact, thereby rebutting Basic's presumption of reliance. The lower courts refused to consider that evidence for rebuttal at class certification and certified the class.

Issue

Whether the Court should overrule or modify Basic's presumption of reliance in Rule 10b-5 securities fraud actions. If Basic remains intact, whether defendants must be allowed at the class certification stage to rebut the presumption with evidence that the alleged misrepresentation did not actually affect the stock's market price.

Rule

Basic's fraud-on-the-market presumption of reliance remains valid. A plaintiff may invoke the presumption by showing that the alleged misrepresentations were publicly known, material, made concerning stock traded in an efficient market, and that the plaintiff traded between the time the misrepresentations were made and the truth was revealed; but because price impact is essential to the presumption and to Rule 23(b)(3) predominance, defendants must be permitted before class certification to rebut the presumption with evidence that the alleged misrepresentation had no price impact.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A pension fund in Cleveland sues Lakefront Robotics, a fictional Ohio manufacturer, under Rule 10b-5 after the company issued a public press release overstating expected sales. The fund seeks class certification and shows that Lakefront's shares traded on an efficient market and that class members purchased shares during the period before the truth came out, but it offers no showing that the alleged statement would matter to a reasonable investor.

Should the court allow the fund to invoke the fraud-on-the-market presumption of reliance at class certification?

Explanation. The presumption may be invoked only if the plaintiff shows publicity, materiality, market efficiency, and trading between the misstatement and the truth's revelation. The Court retained those prerequisites and did not replace them with a direct price-impact requirement. Materiality remains one of the presumption's prerequisites, even though it need not be proved before class certification.