According to the plaintiffs in the new case, the Supreme Court has not overruled a statutory precedent in an area in which Congress has been active since 1961, in a tax case. But lawyers for the defendants said the 1988 decision was entitled to “lessened precedential weight” because it was “largely a procedural and evidentiary construct.”
The decision, Basic v. Levinson, said investors claiming they were defrauded by false statements in securities filings need not show they relied on the statements. Instead, it said, they could rely on a presumption that all important publicly available information about a company is reflected in its stock price.
The presumption in Basic is known as the “fraud on the market” theory. Without it, it would be impossible to pursue most securities-fraud class actions.
Last year, four justices, including Justice Thomas, seemed to invite a challenge to the 1988 decision. “Recent evidence suggests that the presumption may rest on a faulty economic premise,” Justice Alito wrote in a concurrence in Amgen v. Connecticut Retirement Plans and Trust Funds. “In light of this development, reconsideration of the Basic presumption may be appropriate.”
Justice Thomas agreed that the Basic decision “is questionable.”