Generally, the larger the class size, the more damages a company faces and the more that plaintiffs' lawyers can make. Law firms can receive as much as a third of the settlement in attorneys' fees.
In the case before the Supreme Court, Halliburton is seeking to overturn a 1988 decision, Basic v. Levinson, which adopted the "fraud on the market theory." Under the theory, a defendant's material misrepresentation that affects the price of publicly traded securities is presumed to have been relied on by a purchaser who suffered a loss.
That theory assumes public information about a company is known to the market and plaintiffs do not have to show that they relied on a specific misrepresentation, only that they purchased shares before the truth came out.
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In the case against Halliburton, shareholders alleged it understated asbestos liabilities while overstating both revenues in its engineering and construction business and the benefits of its merger with Dresser Industries.
The court has several options, including leaving intact Basic v. Levinson to maintain the status quo. At the other extreme, it could overturn Basic v. Levinson - and so doom securities class actions by requiring plaintiffs to show they relied on misinformation when they purchased securities.
A third option would be to find a middle ground that would require plaintiffs to show that the misrepresentation had a significant effect on the stock price but that would not overturn Basic. During oral arguments, some of the justices appeared to signal that the middle option would be their preference.
The middle option would still be a win for the defendant corporations by creating more hurdles for shareholders to clear before being allowed to sue as a group.