Brad S. Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum by Mr. Karp, Charles E. Davidow, Audra J. Soloway, Andrew J. Ehrlich, and Geoffrey R. Chepiga. Related research from the Program on Corporate Governance includes Rethinking Basic by Lucian Bebchuk and Allen Ferrell (discussed on the Forum here).
On April 12, 2016, in IBEW Local 98 Pension Fund v. Best Buy Co., Inc., [1] the Eighth Circuit interpreted and applied the Supreme Court’s decision in Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), [2] which held that defendants have the right to rebut the fraud-on-the-market presumption of reliance created by Basic, Inc. v. Levinson, [3] prior to the certification of a class, by showing a lack of “price impact.” The Eighth Circuit held that the Best Buy defendants successfully rebutted the presumption with a “front-end” showing of a lack of price impact—i.e., that the alleged misstatements did not cause a statistically significant stock-price increase when made.