Halliburton is asking the courts to decide on its appeal against allowing shareholders to file lawsuits against companies for inflating share prices fraudulently. The Supreme Court has now agreed to hear Halliburton’s case.
The company is attempting to block off legal action from shareholders, who purchased stock in Halliburton between June 1999 and December 2001. According to the shareholder lawsuit, Halliburton deliberately engaged in fraudulent practices in order to inflate as share prices. The company’s liability in asbestos litigation, for instance, was deliberately understated, and the company also over projected how much revenue its construction and engineering divisions would bring in. The company also overstated the benefits of a business merger with Dresser Industries. When the company then made corrective disclosures, stock prices dropped significantly, causing severe losses to investors.
Halliburton is specifically asking the Supreme Court, to throw out a decision made in Basic Versus Levinson in which the court ruled that shareholders do not have to prove that they relied on the company’s misrepresentation of the facts. Halliburton wants that ruling thrown out, and wants the court to rule that plaintiffs have to prove their reliance on corporate misrepresentations. The case will be heard next year by the Supreme Court.
Needless to say, the Supreme Court decision is likely to have a tremendous impact on investor class-action lawsuits. If investors have to prove that they actually relied on misleading corporate statements, they will have more difficulty maintaining class-action. Any decision in favor of Halliburton ultimately could make it more difficult for investors to bring class-action lawsuits against corporations, alleging that they were misled, or that there was fraudulent representation of the facts.