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A woman walks to the Supreme Court in Washington.JOSHUA ROBERTS/Reuters

The U.S. Supreme Court issued a much-anticipated ruling in a case against Halliburton Co. on Monday that some thought the top court would use to essentially crush the ability of U.S. shareholders to launch securities class actions.

But instead, the court let what is known as the "fraud-on-the-market theory" stand, a concept that is at the centre of this kind of case in the U.S.

Under this legal theory, courts presume that a company's misrepresentations have an effect on its stock price, since markets are supposed to incorporate all available public information. This presumption allows class-action plaintiffs' lawyers to get out of having to prove in court that everyone who bought a stock relied on the misrepresentation a company made.

The U.S. Supreme Court did rule that Halliburton could try to rebut this presumption before the case wins its certification to proceed from a judge, not just afterward at trial – shifting the rules slightly in favour of defendants in this kind of case.

But Dimitri Lascaris, a lawyer with Siskinds LLP in London, Ont., who acts for shareholders in some of the biggest securities class actions now before Ontario's courts, dismissed claims that the U.S. ruling was a blow to plaintiffs, saying the decision was a good one given the number of recent cases in which the U.S. Supreme Court has ruled in favour of large corporations.

Plus, he said, plaintiffs simply don't bring cases where they may have trouble proving that a company's misrepresentations affected its stock price: "The practical impact on the plaintiffs' side is going to be negligible."

The case was also being watched closely in Canada, where the law on "fraud on the market" is much less clear – although plaintiffs no longer need it to advance their cases because of the legal framework around this kind of court battle. Ontario amended its securities legislation in 2005 to make it easier for shareholders who bought shares on stock markets to sue companies they believed had misled them and caused their share prices to tumble. Other provinces followed.

That legislation essentially enshrined the effect of the "fraud on the market" theory by giving plaintiffs a pass on having to argue that they relied on a company's false statements when they bought their stock, in exchange for caps on the amount of money shareholders could receive in damages.

But despite this, plaintiffs' lawyers here often also include common-law claims that assert "fraud on the market" over and above the claims they make under securities legislation. They do this because those common-law claims, if successful, are not constrained by the damages caps in securities legislation – a potential difference worth hundreds of millions or billions on a big securities class-action case.

But the consensus seems to be that proving these claims remains a very steep trek uphill at a trial.

Andrea Laing, a Toronto partner with Blake Cassels & Graydon LLP who acts for corporate defendants in class-action cases, said it was unfair for plaintiffs' lawyers to launch both common-law "fraud on the market" claims and securities act claims: "It's having their cake and eating it too."

And she points out that Canada's Supreme Court court could soon weigh in on the issue. It has been asked to consider whether it will grant leave to appeal in the case of Green v. Canadian Imperial Bank of Commerce, in which the bank faces allegations that it misled shareholders about its exposure to the U.S. subprime mortgage market before the financial crisis of 2008. In that case, the Ontario Court of Appeal agreed with a 2012 decision by Justice George Strathy (just named Chief Justice) that poured large amounts of cold water on the notion of "fraud on the market" claims.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 8:42am EDT.

SymbolName% changeLast
HAL-N
Halliburton Company
+0.64%39.08

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