The Supreme Court May Soon Take Away This Important Right

On March 5, the Supreme Court is scheduled to hear oral arguments in a case that could take away a 30-year-old right that Americans have come to rely on.

Feb 15, 2014 at 1:33PM

Supreme Court Building
Source: Thinkstock by Getty Images.

If the controversial oil-services company Halliburton (NYSE:HAL) has its way, then small investors may soon lose one of their most potent weapons against corporate fraud: the ability to file class-action lawsuits under the Securities Exchange Act of 1934.

At the end of last year, the U.S. Supreme Court agreed to hear Halliburton's appeal in a class-action case brought by investors against it and CEO David Lesar for "knowingly or severely recklessly misleading" the public more than a decade ago about the company's liability for asbestos claims.

Indeed, it's no exaggeration to say that the very existence of securities fraud class actions hinges almost entirely on the outcome of this case.

The facts of the case
The facts involve statements made by Halliburton in 2001 about the extent of exposure to asbestos litigation assumed in its acquisition of Dresser Industries.

In January of that year, the company reported that "prospective asbestos liabilities ... should have minimal adverse impact on the company going forward." In August, it claimed that "asbestos exposure concerns appear to be overblown." And in November, it stated that "open asbestos claims will be resolved without a material adverse effect on our financial position or the results of operations."

Yet less than a month after the last statement, Halliburton was hit with a $30 million asbestos verdict, causing investors to lose faith in the company's assurances and fear the worst. Shares in the oil services company proceeded to plummet, dropping by 42.7% on the day of the announcement.

The current class-action lawsuit was filed on behalf of investors soon thereafter and has made its way through various courts ever since.

A critical legal wrinkle
The specific issue before the Supreme Court is a nuanced one. Halliburton isn't simply professing its innocence or asking the justices to hold that it didn't mislead investors. Instead, it's moving the court to bar plaintiffs from litigating the case as a class action as opposed to separate lawsuits.

On the surface, this doesn't seem like a big deal. Who cares if investors have to sue Halliburton individually as opposed to as a class? What difference does it make to people who didn't own Halliburton stock when the alleged misrepresentations took place?

The answer is that it makes a huge difference.

This is because Halliburton is asking the court to overturn a legal doctrine known as the "fraud on the market" theory, which creates a rebuttable presumption that investors rely on statements of material fact made publicly by corporate executives. Without this presumption, securities fraud cases would be far too complicated to litigate as class actions, leaving individual investors to fend for themselves against deep-pocketed corporations.

The implications of this would be considerable. Most importantly, for nearly three decades, the securities laws have been predicated on both public and private enforcement -- the former by the SEC and Justice Department and the latter by private class-action lawsuits. Without the latter, in turn, the market would lose a critical overseer and, one can only assume, be far more susceptible to deceit.

The No. 1 Way to Lose Your Wealth Without Even Knowing It
You’ve fought hard to build wealth for you and your family. Yet one all-too-common pitfall could completely derail your dreams before you even know it. That's why a company The Economist hails as "an ethical oasis" has isolated five simple questions you must answer to ensure that your financial future is really secure.

Can you answer YES to all five of these eye-opening questions?
Click here to find out -- before it’s too late!

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers