(Slip Opinion) OCTOBER TERM, 2010 1 

Syllabus 

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader. 

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337. 

SUPREME COURT OF THE UNITED STATES 

Syllabus 

ERICA P. JOHN FUND, INC., FKA ARCHDIOCESE OF 

MILWAUKEE SUPPORTING FUND, INC. v. 

HALLIBURTON CO. ET AL. 

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR 

THE FIFTH CIRCUIT 

No. 09–1403. Argued April 25, 2011—Decided June 6, 2011 

Petitioner Erica P. John Fund, Inc. (EPJ Fund), is the lead plaintiff in a 

putative securities fraud class action filed against Halliburton Co. 

and one of its executives (collectively Halliburton). EPJ Fund alleges

that Halliburton made various misrepresentations designed to inflate

the company’s stock price, in violation of §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule

10b–5. EPJ Fund also contends that Halliburton later made a number of corrective disclosures that caused the stock price to drop and,

consequently, investors to lose money. EPJ Fund sought to have its 

proposed class certified pursuant to Federal Rule of Civil Procedure

23. The District Court found that the suit could proceed as a class 

action under Rule 23(b)(3), but for one problem: Fifth Circuit precedent required securities fraud plaintiffs to prove “loss causation”— 

i.e., that the defendant’s deceptive conduct caused the investors’ 

claimed economic loss—in order to obtain class certification. The 

District Court concluded that EPJ Fund had failed to satisfy that requirement. The Court of Appeals agreed and affirmed the denial of

class certification. 

Held: Securities fraud plaintiffs need not prove loss causation in order 

to obtain class certification. Pp. 3–10.

(a) In order to certify a class under Rule 23(b)(3), a court must find

“that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that

a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Considering whether “ques-
2 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Syllabus 

tions of law or fact common to class members predominate” begins, of

course, with the elements of the underlying cause of action. The elements of a private securities fraud claim based on violations of §10(b)

and Rule 10b–5 are: “(1) a material misrepresentation or omission by

the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance 

upon the misrepresentation or omission; (5) economic loss; and (6)

loss causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. ___, 

___. 

Whether common questions of law or fact predominate in such an 

action often turns on the element of reliance. The traditional way a

plaintiff can demonstrate reliance is by showing that he was aware of 

a company’s statement and engaged in a relevant transaction—e.g., 

purchasing common stock—based on that specific misrepresentation.

The Court recognized in Basic Inc. v. Levinson, 485 U. S. 224, however, that “[r]equiring proof of individualized reliance from each 

member of the proposed plaintiff class effectively would” prevent such 

plaintiffs “from proceeding with a class action, since individual issues” would “overwhelm[ ] the common ones.” Id., at 242. The Court 

in Basic sought to alleviate that concern by permitting plaintiffs to 

invoke a rebuttable presumption of reliance based on what is known

as the “fraud-on-the-market” theory. According to that theory, “the 

market price of shares traded on well-developed markets reflects all

publicly available information, and, hence, any material misrepresentations.” Id., at 246. Under that doctrine, the Court explained,

one can assume an investor relies on public misstatements whenever 

he “buys or sells stock at the price set by the market.” Id., at 247. 

The Court also made clear that the presumption could be rebutted by

appropriate evidence. Pp. 3–5.

(b) It is undisputed that securities fraud plaintiffs must prove certain things in order to invoke Basic’s rebuttable presumption of reliance. According to the Court of Appeals, EPJ Fund had to prove the 

separate element of loss causation in order to trigger the presumption. That requirement is not justified by Basic or its logic. This 

Court has never mentioned loss causation as a precondition for invoking Basic’s rebuttable presumption. Loss causation addresses a matter different from whether an investor relied on a misrepresentation,

presumptively or otherwise, when buying or selling a stock. 

The Court has referred to the element of reliance in a private Rule 

10b–5 action as “transaction causation,” not loss causation. Dura 

Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 341–342. Consistent 

with that description, when considering whether a plaintiff has relied

on a misrepresentation, the Court has typically focused on facts surrounding the investor’s decision to engage in the transaction. Loss 
Cite as: 563 U. S. ____ (2011) 3 

Syllabus 

causation, by contrast, requires a plaintiff to show that the misrepresentation caused a subsequent economic loss. That has nothing to do 

with whether an investor relied on that misrepresentation in the first

place, either directly or through the fraud-on-the-market theory. The 

Court of Appeals’ rule contravenes Basic’s fundamental premise—

that an investor presumptively relies on a misrepresentation so long

as it was reflected in the market price at the time of his transaction.

Pp. 5–8.

(c) Halliburton concedes that securities fraud plaintiffs should not

be required to prove loss causation in order to invoke Basic’s presumption of reliance. Halliburton nonetheless defends the judgment 

below on the ground that the Court of Appeals did not actually require EPJ Fund to prove “loss causation” as the Court has used that 

term. According to Halliburton, “loss causation” was shorthand for a 

different analysis. The lower court’s actual inquiry, Halliburton insists, was whether EPJ Fund had demonstrated “price impact”—that

is, whether the alleged misrepresentations affected the market price 

in the first place.

The Court does not accept Halliburton’s interpretation of the Court

of Appeals’ opinion. Loss causation is a familiar and distinct concept 

in securities law; it is not price impact. Whatever Halliburton thinks 

the Court of Appeals meant to say, what it said was loss causation.

The Court takes the Court of Appeals at its word. Based on those 

words, the decision below cannot stand. Pp. 8–9. 

597 F. 3d 330, vacated and remanded. 

ROBERTS, C. J., delivered the opinion for a unanimous Court. 
_________________ 

_________________ 

Cite as: 563 U. S. ____ (2011) 1 

Opinion of the Court 

NOTICE: This opinion is subject to formal revision before publication in the

preliminary print of the United States Reports. Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press. 

SUPREME COURT OF THE UNITED STATES 

No. 09–1403 

ERICA P. JOHN FUND, INC., FKA ARCHDIOCESE 

 OF MILWAUKEE SUPPORTING FUND, INC., 

PETITIONER v. HALLIBURTON CO. ET AL. 

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF 

APPEALS FOR THE FIFTH CIRCUIT

[June 6, 2011]

 CHIEF JUSTICE ROBERTS delivered the opinion of the

Court. 

To prevail on the merits in a private securities fraud

action, investors must demonstrate that the defendant’s 

deceptive conduct caused their claimed economic loss.

This requirement is commonly referred to as “loss causation.” The question presented in this case is whether

securities fraud plaintiffs must also prove loss causation

in order to obtain class certification. We hold that they 

need not. 

I 

Petitioner Erica P. John Fund, Inc. (EPJ Fund), is the

lead plaintiff in a putative securities fraud class action 

filed against Halliburton Co. and one of its executives

(collectively Halliburton). The suit was brought on behalf

of all investors who purchased Halliburton common stock 

between June 3, 1999, and December 7, 2001. 

EPJ Fund alleges that Halliburton made various misrepresentations designed to inflate its stock price, in violation of §10(b) of the Securities Exchange Act of 1934 and 
2 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Opinion of the Court 

Securities and Exchange Commission Rule 10b–5. See 48 

Stat. 891, 15 U. S. C. §78j(b); 17 CFR §240.10b–5 (2010).

The complaint asserts that Halliburton deliberately made

false statements about (1) the scope of its potential liability in asbestos litigation, (2) its expected revenue from

certain construction contracts, and (3) the benefits of its 

merger with another company. EPJ Fund contends that 

Halliburton later made a number of corrective disclosures 

that caused its stock price to drop and, consequently,

investors to lose money. 

After defeating a motion to dismiss, EPJ Fund sought to

have its proposed class certified pursuant to Federal Rule 

of Civil Procedure 23. The parties agreed, and the District

Court held, that EPJ Fund satisfied the general requirements for class actions set out in Rule 23(a): The class was 

sufficiently numerous, there were common questions of

law or fact, the claims of the representative parties were

typical, and the representative parties would fairly and

adequately protect the interests of the class. See App. to

Pet. for Cert. 3a. 

The District Court also found that the action could 

proceed as a class action under Rule 23(b)(3), but for one 

problem: Circuit precedent required securities fraud plaintiffs to prove “loss causation” in order to obtain class certification. Id., at 4a, and n. 2 (citing Oscar Private Equity 

Invs. v. Allegiance Telecom, Inc., 487 F. 3d 261, 269 (CA5 

2007)). As the District Court explained, loss causation is 

the “‘causal connection between the material misrepresentation and the [economic] loss’” suffered by investors. 

App. to Pet. for Cert. 5a, and n. 3 (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 342 (2005)). After 

reviewing the alleged misrepresentations and corrective

disclosures, the District Court concluded that it could not 

certify the class in this case because EPJ Fund had “failed 

to establish loss causation with respect to any” of its

claims. App. to Pet. for Cert. 54a. The court made clear, 
Cite as: 563 U. S. ____ (2011) 3 

Opinion of the Court 

however, that absent “this stringent loss causation requirement,” it would have granted the Fund’s certification 

request. Ibid. 

The Court of Appeals affirmed the denial of class certification. See 597 F. 3d 330 (CA5 2010). It confirmed that, 

“[i]n order to obtain class certification on its claims, [EPJ

Fund] was required to prove loss causation, i.e., that the 

corrected truth of the former falsehoods actually caused

the stock price to fall and resulted in the losses.” Id., at 

334. Like the District Court, the Court of Appeals concluded that EPJ Fund had failed to meet the “requirements for proving loss causation at the class certification

stage.” Id., at 344. 

We granted the Fund’s petition for certiorari, 562 U. S.

___ (2011), to resolve a conflict among the Circuits as to 

whether securities fraud plaintiffs must prove loss causation in order to obtain class certification. Compare 597

F. 3d, at 334 (case below), with In re Salomon Analyst 

Metromedia Litigation, 544 F. 3d 474, 483 (CA2 2008) (not 

requiring investors to prove loss causation at class certification stage); Schleicher v. Wendt, 618 F. 3d 679, 687 (CA7 

2010) (same); In re DVI, Inc. Securities Litigation, No. 08– 

8033 etc., 2011 WL 1125926, *7 (CA3, Mar. 29, 2011) 

(same; decided after certiorari was granted). 

II 

EPJ Fund contends that the Court of Appeals erred by 

requiring proof of loss causation for class certification. We 

agree. 

A 

As noted, the sole dispute here is whether EPJ Fund

satisfied the prerequisites of Rule 23(b)(3). In order to 

certify a class under that Rule, a court must find “that the

questions of law or fact common to class members predominate over any questions affecting only individual 
4 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Opinion of the Court 

members, and that a class action is superior to other

available methods for fairly and efficiently adjudicating 

the controversy.” Fed. Rule Civ. Proc. 23(b)(3). Considering whether “questions of law or fact common to class

members predominate” begins, of course, with the elements of the underlying cause of action. The elements of a 

private securities fraud claim based on violations of §10(b) 

and Rule 10b–5 are: “‘(1) a material misrepresentation or 

omission by the defendant; (2) scienter; (3) a connection

between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss 

causation.’” Matrixx Initiatives, Inc. v. Siracusano, 563 

U. S. ___, ___ (2011) (slip op., at 9) (quoting Stoneridge 

Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 

U. S. 148, 157 (2008)).

Whether common questions of law or fact predominate

in a securities fraud action often turns on the element of 

reliance. The courts below determined that EPJ Fund had 

to prove the separate element of loss causation in order to 

establish that reliance was capable of resolution on a 

common, classwide basis. 

“Reliance by the plaintiff upon the defendant’s deceptive

acts is an essential element of the §10(b) private cause of 

action.” Stoneridge, supra, at 159. This is because proof of

reliance ensures that there is a proper “connection between a defendant’s misrepresentation and a plaintiff’s

injury.” Basic Inc. v. Levinson, 485 U. S. 224, 243 (1988). 

The traditional (and most direct) way a plaintiff can 

demonstrate reliance is by showing that he was aware

of a company’s statement and engaged in a relevant 

transaction—e.g., purchasing common stock—based on 

that specific misrepresentation. In that situation, the 

plaintiff plainly would have relied on the company’s deceptive conduct. A plaintiff unaware of the relevant statement, on the other hand, could not establish reliance on 
Cite as: 563 U. S. ____ (2011) 5 

Opinion of the Court 

that basis. 

We recognized in Basic, however, that limiting proof of 

reliance in such a way “would place an unnecessarily 

unrealistic evidentiary burden on the Rule 10b–5 plaintiff

who has traded on an impersonal market.” Id., at 245. 

We also observed that “[r]equiring proof of individualized 

reliance from each member of the proposed plaintiff class 

effectively would” prevent such plaintiffs “from proceeding 

with a class action, since individual issues” would “overwhelm[ ] the common ones.” Id., at 242. 

The Court in Basic sought to alleviate those related

concerns by permitting plaintiffs to invoke a rebuttable

presumption of reliance based on what is known as the 

“fraud-on-the-market” theory. According to that theory,

“the market price of shares traded on well-developed 

markets reflects all publicly available information, and,

hence, any material misrepresentations.” Id., at 246. 

Because the market “transmits information to the investor 

in the processed form of a market price,” we can assume, 

the Court explained, that an investor relies on public

misstatements whenever he “buys or sells stock at the

price set by the market.” Id., at 244, 247 (internal quotation marks omitted); see also Stoneridge, supra, at 159; 

Dura Pharmaceuticals, 544 U. S., at 341–342. The Court 

also made clear that the presumption was just that, and 

could be rebutted by appropriate evidence. See Basic, 

supra, at 248. 

B 

It is undisputed that securities fraud plaintiffs must

prove certain things in order to invoke Basic’s rebuttable 

presumption of reliance. It is common ground, for example, that plaintiffs must demonstrate that the alleged 

misrepresentations were publicly known (else how would 

the market take them into account?), that the stock traded

in an efficient market, and that the relevant transaction 
6 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Opinion of the Court 

took place “between the time the misrepresentations were

made and the time the truth was revealed.” Basic, 485 

U. S., at 248, n. 27; id., at 241–247; see also Stoneridge, 

supra, at 159. 

According to the Court of Appeals, EPJ Fund also had to 

establish loss causation at the certification stage to “trigger the fraud-on-the-market presumption.” 597 F. 3d, at 

335 (internal quotation marks omitted); see ibid. (EPJ

Fund must “establish a causal link between the alleged 

falsehoods and its losses in order to invoke the fraud-onthe-market presumption”). The court determined that, in 

order to invoke a rebuttable presumption of reliance, EPJ

Fund needed to prove that the decline in Halliburton’s

stock was “because of the correction to a prior misleading

statement” and “that the subsequent loss could not otherwise be explained by some additional factors revealed then

to the market.” Id., at 336 (emphasis deleted). This is the 

loss causation requirement as we have described it. See 

Dura Pharmaceuticals, supra, at 342; see also 15 U. S. C. 

§78u–4(b)(4).

The Court of Appeals’ requirement is not justified by 

Basic or its logic. To begin, we have never before mentioned loss causation as a precondition for invoking Basic’s 

rebuttable presumption of reliance. The term “loss causation” does not even appear in our Basic opinion. And for 

good reason: Loss causation addresses a matter different 

from whether an investor relied on a misrepresentation,

presumptively or otherwise, when buying or selling a

stock. 

We have referred to the element of reliance in a private Rule 10b–5 action as “transaction causation,” not loss 

causation. Dura Pharmaceuticals, supra, at 341–342 

(citing Basic, supra, at 248–249). Consistent with that 

description, when considering whether a plaintiff has

relied on a misrepresentation, we have typically focused

on facts surrounding the investor’s decision to engage in 
Cite as: 563 U. S. ____ (2011) 7 

Opinion of the Court 

the transaction. See Dura Pharmaceuticals, supra, at 

342. Under Basic’s fraud-on-the-market doctrine, an investor presumptively relies on a defendant’s misrepresentation if that “information is reflected in [the] market 

price” of the stock at the time of the relevant transaction.

See Basic, 485 U. S., at 247. 

Loss causation, by contrast, requires a plaintiff to show

that a misrepresentation that affected the integrity of the 

market price also caused a subsequent economic loss. As 

we made clear in Dura Pharmaceuticals, the fact that a 

stock’s “price on the date of purchase was inflated because

of [a] misrepresentation” does not necessarily mean that

the misstatement is the cause of a later decline in value. 

544 U. S., at 342 (emphasis deleted; internal quotation

marks omitted). We observed that the drop could instead 

be the result of other intervening causes, such as “changed

economic circumstances, changed investor expectations,

new industry-specific or firm-specific facts, conditions, or 

other events.” Id., at 342–343. If one of those factors were 

responsible for the loss or part of it, a plaintiff would not 

be able to prove loss causation to that extent. This is true 

even if the investor purchased the stock at a distorted 

price, and thereby presumptively relied on the misrepresentation reflected in that price.

According to the Court of Appeals, however, an inability

to prove loss causation would prevent a plaintiff from

invoking the rebuttable presumption of reliance. Such a 

rule contravenes Basic’s fundamental premise—that an

investor presumptively relies on a misrepresentation so

long as it was reflected in the market price at the time of 

his transaction. The fact that a subsequent loss may have

been caused by factors other than the revelation of a misrepresentation has nothing to do with whether an investor 

relied on the misrepresentation in the first place, either 

directly or presumptively through the fraud-on-the-market 

theory. Loss causation has no logical connection to the 
8 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Opinion of the Court 

facts necessary to establish the efficient market predicate

to the fraud-on-the-market theory.

The Court of Appeals erred by requiring EPJ Fund

to show loss causation as a condition of obtaining class 

certification. 

C 

Halliburton concedes that securities fraud plaintiffs

should not be required to prove loss causation in order to

invoke Basic’s presumption of reliance or otherwise 

achieve class certification. See Tr. of Oral Arg. 26–29.

Halliburton nonetheless defends the judgment below on

the ground that the Court of Appeals did not actually

require plaintiffs to prove “loss causation” as we have used 

that term. See id., at 27 (“it’s not loss causation as this 

Court knows it in Dura”). According to Halliburton, “loss 

causation” was merely “shorthand” for a different analysis.

Brief for Respondents 18. The lower court’s actual inquiry, Halliburton insists, was whether EPJ Fund had 

demonstrated “price impact”—that is, whether the alleged 

misrepresentations affected the market price in the first 

place. See, e.g., id., at 16–19, 24–27, 50–51; see also Tr. of 

Oral Arg. 27 (stating that the Court of Appeals’ “test is 

simply price impact” and that EPJ Fund’s “only burden 

under the Fifth Circuit case law was to show price

impact”).*

“Price impact” simply refers to the effect of a misrepresentation on a stock price. Halliburton’s theory is that if a 

—————— 

*Halliburton further concedes that, even if its conception of what the

Court of Appeals meant by “loss causation” is correct, the Court of

Appeals erred by placing the initial burden on EPJ Fund. See Tr. of 

Oral Arg. 29 (“We agree . . . that the Fifth Circuit put the initial burden

of production on the plaintiff, and that’s contrary to Basic”). According 

to Halliburton, a plaintiff must prove price impact only after Basic’s 

presumption has been successfully rebutted by the defendant. Tr. of 

Oral Arg. 28, 38–40. We express no views on the merits of such a 

framework. 
Cite as: 563 U. S. ____ (2011) 9 

Opinion of the Court 

misrepresentation does not affect market price, an investor cannot be said to have relied on the misrepresentation 

merely because he purchased stock at that price. If the 

price is unaffected by the fraud, the price does not reflect 

the fraud. 

We do not accept Halliburton’s wishful interpretation of 

the Court of Appeals’ opinion. As we have explained, loss

causation is a familiar and distinct concept in securities

law; it is not price impact. While the opinion below may 

include some language consistent with a “price impact”

approach, see, e.g., 597 F. 3d, at 336, we simply cannot 

ignore the Court of Appeals’ repeated and explicit references to “loss causation,” see id., at 334 (three times), 334 

n. 2, 335, 335 n. 10 (twice), 335 n. 11, 336, 336 n. 19, 336

n. 20, 337, 338, 341 (twice), 341 n. 46, 342 n. 47, 343, 344

(three times).

Whatever Halliburton thinks the Court of Appeals

meant to say, what it said was loss causation: “[EPJ Fund] 

was required to prove loss causation, i.e., that the corrected truth of the former falsehoods actually caused the 

stock price to fall and resulted in the losses.” 597 F. 3d, at

334; see id., at 335 (“we require plaintiffs to establish loss

causation in order to trigger the fraud-on-the-market 

presumption” (internal quotation marks omitted)). We 

take the Court of Appeals at its word. Based on those 

words, the decision below cannot stand. 

* * * 

Because we conclude the Court of Appeals erred by

requiring EPJ Fund to prove loss causation at the certification stage, we need not, and do not, address any other 

question about Basic, its presumption, or how and when it 

may be rebutted. To the extent Halliburton has preserved

any further arguments against class certification, they

may be addressed in the first instance by the Court of

Appeals on remand. 
10 ERICA P. JOHN FUND, INC. v. HALLIBURTON CO. 

Opinion of the Court 

The judgment of the Court of Appeals is vacated, and

the case is remanded for further proceedings consistent

with this opinion. 

It is so ordered.