Thank you for sharing!

Your article was successfully shared with the contacts you provided.

stock-chartNearly three decades after the U.S. Supreme Court embraced the “fraud on the market” presumption of reliance in securities fraud class actions (Basic v. Levinson, 485 U.S. 224 (1988)), significant recalibrations have been made. In two recent decisions, In re Petrobras Sec. Litig., 862 F.3d 250 (2d Cir. 2017) and Waggoner v. Barclays PLC, No. 16-1912-cv, 2017 U.S. App. LEXIS 22115 (2d Cir. Nov. 6, 2017), en banc petition pending, the Second Circuit held:

• In cases involving large cap, actively traded and well followed stocks (such as most listed on the NYSE and NASDAQ), plaintiffs need not present an “event study” to demonstrate that the stock traded in an “efficient” market. Petrobras, 862 F.3d at 278.

• When considering the efficiency of smaller cap stocks, district courts should “holistically” consider indirect factors of efficiency (e.g., trading volume, analysts and bid/ask spreads) along with event studies, rather than elevate event studies to a sine qua non status. Id. at 277.

• Plaintiffs need not show price movements when the alleged misrepresentations were first made, but rather may proceed on a “price maintenance theory,” i.e., that the misstatements “merely maintained inflation already extant in a company’s stock price.” Barclays, 2017 U.S. App LEXIS 22115, at *48, quoting In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 256 (2d Cir. 2016).

• Courts indeed should be wary of excessive reliance on event studies, given that such studies were intended for analysis of massive amounts of data involving multiple stocks, not individual firms with few “events.” Petrobras, 862 F.3d at 278.

• While Halliburton II afforded defendants an opportunity to rebut the reliance presumption by demonstrating that the alleged fraud had no impact on the price of the stock, defendants must do so by a “preponderance of the evidence.” 2017 U.S. App. LEXIS 22115, at **41-42.

Presuming no further review by either the Second Circuit en banc or the U.S. Supreme Court, these two decisions mark a pivotal point where proof of market efficiency is no longer “wedded” to event studies in every federal securities fraud class action. This should simplify class certification motions. That said, event studies will still remain useful for measuring damages.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at customercare@alm.com


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2018 ALM Media Properties, LLC. All Rights Reserved.