The U.S. Court of Appeals for the Eleventh Circuit agreed it was appropriate to certify a securities class action against Regions Financial Corp., but ordered further proceedings in light of the U.S. Supreme Court’s most recent ruling on securities class actions.
The plaintiffs allege that Regions misrepresented its financial health before and during the recession, including by manipulating its books to avoid disclosing significant losses related to its investments in the real estate market .
In Halliburton Co v. Erica P. John Fund Inc., the Supreme Court tweaked the rebuttable presumption afforded to classes of stockholders so they don’t have to show they individually relied upon misrepresented information in making their investment decisions. Reliance is presumed under the theory that stock prices in efficient markets reflect all publicly available information, including material misrepresentations.
The justices clarified that defendants may introduce price-impact evidence to undermine plaintiffs’ case “for market efficiency and rebut the … presumption once it has been established,” Circuit Judge Beverly Baldwin Martin wrote for the panel.
The circuit court told the district court to consider whether Regions had indeed rebutted the presumption.
According to plaintiffs, after Regions disclosed it had $5.6 billion in losses, its stock dropped from $23 per share to $4.60. The class covers the period from Feb. 27, 2008, to Jan. 20, 2009. But Regions presented evidence that its stock price did not change following the alleged misrepresentations, Martin wrote.
The Eleventh Circuit rejected Regions’ request to establish a “comprehensive analytical framework” to determine whether the market for a particular stock is efficient. The court said that flexibility would allow trial courts to “consider new factors yet unknown to this court that market theorists might consider to indicate market efficiency.”
The panel agreed that there is no per se rule that stocks trading on a national exchange are part of an efficient market.
Amaris Elliott-Engel is a contributor to law.com.