Wednesday, March 5, 2014

Justices May Limit Securities Fraud Suits

Torts Today: Justices May Limit Securities Fraud Suits -
At oral argument today in Halliburton v. Erica P. John Fund Associate Justice Antonin Scalia characteristically took the most hostile position toward plaintiffs - here investors alleging fraud.  Chief Justice Roberts - whose pro-business orientation is undoubted - nonetheless was looking for a middle way.  Of course in this environment a middle way usually means making things harder for plaintiffs.  He was clearly interested in the friend of the court brief of two law professors - Adam Pritchard and Todd Henderson.  They support " demands that a putative class show the presence of a true fraud on the market."  Of course - but when?

The two profs propose that an "event study" be presented before class certification - to show price impact.  Such a showing would then entitle plaintiffs to a presumption of reliance. Citing Georgetown law professor Donald Langevoort, work, the acknowledge that "while it may be more difficult in such instances to show price distortion as a result of a particular misstatement, this increased difficulty should not prevent the adoption of a market-impact inquiry in class actions."  Roberts liked the idea of raising the bar, and the lawyer for the United States actually suggested it would be good for plaintiffs.  David Boies - plaintiffs' lawyer - emphasized the complexity of "event studies",

I don't know how this works out but it seems to me that the "middle way" would be very expensive. I see no good reason to require such a showing before class certification - because such studies are relevant to loss, not to the appropriateness of a class-wide remedy.  Event studies - complex analyses of the market impact of a reckless misrepresentation and its disclosure - are inevitably the subject of a Daubert attack - asserting the conclusion to be methodologically deficient.  The so-called "middle way" seems to me to be another swing at the pinata and an invitation for judges to engage in the sort of evidentiary weighing that have made Daubert motions dangerous tools when the judge is ideologically unfriendly (as most Republican judges now are).  - GWC

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1 comment:

  1. This page illustrates how event studies apply regression analysis to estimate normal returns, which are then used to derive the abnormal returns.