Supreme Court raises bar for securities class action cases

WASHINGTON – The Supreme Court on Monday made it tougher for investors to join together to sue corporations for securities fraud, a decision that could curb the number of multimillion-dollar legal settlements companies pay out each year.

But the unanimous ruling was only a modest step. It stopped short of tossing out a quarter-century-old legal theory that might have ended securities class action lawsuits altogether. Only three of the nine justices said they would have gone that far.

Writing for the court, Chief Justice John Roberts said companies should have a chance in the early stages of a lawsuit to show that any alleged fraud was not responsible for a drop in the company’s stock price.

The change could make it more expensive and time consuming for plaintiffs at the early stages of litigation. That gives corporations a better chance to mount a defense and could discourage lawyers from bringing weaker securities cases.

The ruling is a partial victory for Halliburton Co., which is trying to block a class-action lawsuit claiming the energy services company inflated its stock price. A group of investors claims they lost money when Halliburton’s stock price dropped after revelations the company misrepresented revenues, understated its liability in asbestos litigation and overstated the benefits of a merger.