(Adds lawyer's comments, other cases)
By Lawrence Hurley and Jonathan Stempel
WASHINGTON, June 23 (Reuters) - The U.S. Supreme Court onMonday made it harder for investors to band together to pursuesecurities fraud lawsuits against publicly traded companies, butstopped short of issuing a decision that could have effectivelyended such litigation.
In a majority decision by Chief Justice John Roberts, thecourt agreed with Halliburton Co that companies accusedof misleading investors deserved a chance, before a class actionis certified, to show that any alleged misrepresentation had noimpact on the stock price.
Companies were previously allowed to make such showingsafter class certification, an event that often leads tosettlements because the risk of large damage awards is greater.See FACTBOX
But the court refused to overturn a landmark 1988 precedent,Basic v. Levinson, that gave rise to the modern securities classaction industry, and by a 6-3 vote left that precedent intact.See Q&A
The vote in favor of Halliburton was unanimous.
Supporters and critics said Monday's middle-of-the-roaddecision imposes a new hurdle for securities fraud plaintiffsand their lawyers, but one they will often be able to overcome.
Justice Ruth Bader Ginsburg, in a concurring opinion, saidthis "should impose no heavy toll on securities-fraud plaintiffswith tenable claims."
Aaron Streett, a lawyer for Halliburton who argued forbroader limits, in an interview said: "It's a significant winfor defendants in restoring balance."
David Boies, a lawyer for the Erica P. John Fund Inc, whose2002 lawsuit prompted the case, said in a separate interview:"This could turn out to be a 'be careful what you ask for'ruling for defendants."
FRAUD ON MARKET "ALIVE AND WELL"
The decision follows recent Supreme Court rulings that havemade it harder for investors, consumers and workers to pursueclass actions.
It could also prompt companies that already face certifiedsecurities class actions, such as drug makers Merck & Co and Pfizer Inc and British bank HSBC Holdings Plc, to demand that plaintiffs meet the new standard. Thosecompanies had no comment or declined to comment.
Close to 200 U.S. shareholder class actions are filed eachyear. Sixty-seven settlements worth $4.77 billion won courtapproval in 2013, according to Cornerstone Research.
In Basic, the Supreme Court said investors could rely on a"fraud on the market" presumption that all public informationabout a company was reflected in its stock price, mirroring aview by many economists that markets are "efficient."
The presumption meant that investors need not show they hadrelied on specific misrepresentations when buying securities,only that they bought the securities before the truth came out.
Roberts rejected Halliburton's contention that investorsmust always prove direct reliance on misrepresentations.
He also said the Houston-based oilfield services companyfailed to show a "special justification" to overturn Basic,whether because of subsequent changes in economic theory or alack of Congressional intent.
Roberts said the principle of "stare decisis," or lettingprior decisions stand, had "special force" when interpretingstatutes such as federal securities laws, and that "Congressremains free to alter what we have done."
John Donovan, a partner at Ropes & Gray, said the decision adds a "modest, additional argument to a defendant's arsenal,"and could prompt more cases targeting companies with smallermarket capitalizations, where it may be easier to show the priceimpact of particular disclosures.
"Fraud on the market is alive and well," he said. "Thebusiness community gets a modest victory, but it took a home runswing and got only a single."
THOMAS REJECTS BASIC
Justice Clarence Thomas, joined by Justices Antonin Scaliaand Samuel Alito, agreed with the bottom-line holding forHalliburton, but said Basic should have been overruled.
"Basic took an implied cause of action and grafted on apolicy-driven presumption of reliance based on nascent economictheory and personal intuitions about investment behavior," hewrote. "The result was an unrecognizably broad cause of actionready made for class certification."
In its lawsuit, the Erica P. John Fund had accusedHalliburton of misleading investors by understating asbestosliabilities, overstating construction and engineering revenue,and inflating the benefits of a merger with Dresser Industries.
Monday's decision returns the Halliburton case to lowercourts to give the company a chance to meet the new standard.
The case is Halliburton v. Erica P. John Fund, U.S. SupremeCourt, No. 13-317. (Reporting by Lawrence Hurley in Washington and JonathanStempel in New York; Additional reporting by Bill Berkrot,Alison Frankel and David Ingram; Editing by Howard Goller,Bernard Orr)
HSBC Holdings (HSBA)
