Jill E. Fisch


In its recent Halliburton decision, the Supreme Court focused on the role of price distortion in meeting the requirements for class certification in private securities fraud litigation. Accepting the argument that the fraud-on-the-market theory requires fraudulent information to have an effect on stock price, the Court reasoned that defendants should therefore be allowed to introduce evidence of lack of price impact in an effort to defeat class certification. Specifically, the Court suggested that defendants might introduce event studies as direct evidence that could sever the link between the misrepresentation and stock price.

This conclusion, however, misapprehends the event study methodology. Specifically, the emphasis on event studies is misguided because the event studies proffered by defendants do not conclusively establish that the fraud did not distort stock price. More broadly, the limitations of existing quantitative methods suggest that they should not be the exclusive way of analyzing price distortion for purposes of class certification. Instead, the importance of price distortion suggests the need for greater consideration of materiality because a finding of materiality is an implicit determination that the information has the capacity to affect stock price.

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