Supreme Court Holds Future of Investor Class Action

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March 5 (Bloomberg) -- Sean Coffey, chair of complex litigation at Kramer Levin, discusses the issue of investor class action suits using the “fraud on the market” doctrine being heard today by the Supreme Court on Bloomberg Television’s “Market Makers.”

Pulls intention here.

One is the supreme court institutional interest in respecting precedent.

The shoe on the rocket -- on the market -- take a moment to explain the foundation of the fraud on the market hearing.

It's a theory that says in an efficient market like the newark stock exchange, the information that is publicly about bliss filtered and reflected in the price.

Let's say that companies issue its quarterly earnings release and they say they have made one dollar a share in profit.

If i buy that share and i later find out they lied, i have to show that i actually heard them say that.

The fraud on the market theory says i don't have to show i heard it.

I didn't have -- the market heard it.

When i bought the stock, and reflected that statement up one dollar a share had been baked and the price.

That is critical to the securities class-action device because it relieves the individual investors of having to prove they heard it.

The burden of proof is lower.

It it is it essential to the key aspect.

You have to persuade the court that it makes sense to hear all of this together.

It's more efficient than individual cases.

The issue of reliance -- did you rely on the statement?

If that is blown up, classes could be cobbled together if you can prove i bought reliance.

I don't think that is where the courts will go.

I think the tension -- the theory has been around for over 25 years.

That was only afforded to decision and has been attacked as illogical.

They say the fraud on the market theory is not supportable and that markets don't -- in the meantime, you have caught had congress leaving it intact.

It there are issues about undoing president that the market has relied on.

The key vote here is the chief justice.

The key vote is the chief justice because the supreme court has considered this issue before.

We already know where they all stand.

Four justices have indicated that they are not fans of the fraud on the market theory.

They have not addressed this had on.

They certainly will.

The question in my mind is, chief justice roberts -- he does not care much for the securities class-action device either.

If the conservative justices were to overturn this bedrock -- bedrock president, what will happen down the road if the conservatives go into the minority and the things they like our challenge?

I think there is a clinical aspect of this.

Even if the supreme court does not throw out the fraud on the market theory and as a result the class-action bar with it, but narrows it, what is the practical effect on investors and the companies that have to defend themselves against these lawsuit?

They will reach a middle ground and not destroy the front of the market to rebut accelerate into earlier in the process when defendants can attack it.

That is highly likely.

The class-action device has been diluted.

It is weaker.

The settlement value for class actions are lower.

I think large institutional investors will take a harder look at acting out of class actions.

You don't always have to stay in the class.

You can be passive, watch what happens and filed your claim form.

I think in the interest of large institutional investors where there think there is been real fraud, to consider bringing their own lawsuit, there has been a trend in the last few years -- you will see that accelerate.

It is one of the things i'm looking at right now.

My firm client base will be more inclined to evaluate whether they bring their own case because the class-action just won't be delivering the kind of -- you're building an op-ed business?

We are investigating that.

I thoroughly enjoyed my time in defending class actions.

There is a real opportunity here if halliburton goes the way i think it is.

For individual investors to bring their own lawsuits.

Companies being targeted -- the reality is, the class-action is the big rilla.

That is where the dollars are.

The bet that you are making as a company is that the opt outs will be far and few between.

No one will actually do a? right.

Before we run out of time, where does this leave the individual small investor?

On the courthouse steps with no access to the chamber?

It will have a dramatic affect on the mom-and-pop investor.

It does not make sense to bring individual action.

My former brethren are very creative.

They will come up with some theory.

It is a real danger for the mom-and-pop investor.

A lot of investors never got much of a payout anyway.

They paid it back to the lawyers.

I think that varies from case to case.

In the worldcom case on privacy, $.94 of every dollar we recovered went to the investors.

Some of the small cases, the legal fees are higher.

When congress passed the private securities reform act of 1995, and put investors in charge and introduced competition and drove down fees.

It is a case to case basis.

You are the perfect person to add here today to talk about this landmark case.

Great to have you.

Always great to see you.

The term ends the end of june.

I would target sometime in june we will hear it -- it will be a big deal whatever they do.

Good to have you back.

It the head of complex

This text has been automatically generated. It may not be 100% accurate.


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