U.S. Supreme Court Holds Loss Causation Not Required For Class Certification

On June 6, 2011, in Erica P. John Fund, Inc. v. Halliburton Co.,¹ the United States Supreme Court issued a unanimous decision overruling the Court of Appeals for the Fifth Circuit and expressed the limited holding that investors are not required to prove "loss causation" to obtain class certification in a federal securities fraud case. The Court, however, reiterated its prior holdings that an essential element of any federal securities fraud action is proof that the deceptive conduct actually caused an investment, or economic, loss to the plaintiff(s).

Plaintiffs here alleged that Halliburton and one of its executives inflated Halliburton's stock price through misrepresentations concerning (i) the scope of the company's potential liability in asbestos litigation, (ii) its expected revenue from certain construction contracts, and (iii) the benefits of a merger. Halliburton later made corrective disclosures, which, according to lead plaintiff Erica P. John Fund, Inc.