Securities Fraud & Securities Class Actions
Securities class certification and market efficiency
Conducting event studies to investigate price impact, inflation, and loss causation
Calculating and evaluating securities litigation damages
Catalyst Economic Consulting provides securities fraud expert witness support and consulting in all phases of securities class actions, including Rule 10b-5, Section 11 and 12 and ERISA matters. We conduct the complex economic, financial, and statistical analyses required to evaluate market efficiency, materiality, loss causation and damages in securities litigation. We have worked on a range of securities fraud cases involving stocks and bonds traded on the NASDAQ and NYSE, dual listed ADRs, and OTC traded stocks, bonds and derivatives. Our work spans a variety of industries including automotive, computer hardware and software, consumer electronics, financial institutions, healthcare and pharmaceuticals, and technology.
Securities Class Certification
The fraud-on-the-market doctrine provides a pathway to satisfy the requirements of Rule 23(b) for reliance under Section 10 and Rule 10b(5). This pathway requires showing that the security traded in an efficient market and that the information at issue impacted the security’s price. While courts have traditionally relied on the Cammer Factors as a litmus test for efficiency, we have been successful in focusing the court’s attention on the import of the cause and effect relation between information and price (i.e.price impact) in determining whether class certification is appropriate.
Catalyst is a market leader in class certification. Our precedent setting opinions on market efficiency have been favorably cited by courts and we are recognized experts in conducting event studies to assess market efficiency and price impact. Our research in materiality and market efficiency has been cited by courts in rendering opinions.
We were asked to examine whether the fraud-on-the-market doctrine could be applied to this issuer given the securities’ market characteristics. We demonstrated that the market in question did not exhibit the characteristics associated with an efficient market. We determine that the fraud-on-the-market presumption commonly applied in securities class action litigation was not appropriate in this matter. The Court agreed with our conclusion and denied class certification.
Plaintiffs must plead and prove that security holder’s losses were caused by the alleged misrepresentation in Security Class Actions cases. Analysis of loss causation typically requires an event study to separate company-specific price declines from other news likely to cause a price decline. In addition, careful economic analysis of the total mix of information is required to determine whether any of these company-specific price declines were caused by the alleged misrepresentation as opposed to confounding company specific news.
Catalyst is a recognized market leader in loss causation and event studies. Our opinions on loss causation have been relied on by courts at summary judgement and trial. Clients have used our testimony in mediation to achieve economically reliable settlements.
In this matter, we were asked to examine whether a securities’ price decline was caused by the alleged misrepresentations. We performed an event study and determined that there were multiple confounding factors contributing to the price decline and that the information allegedly revealed was in fact already publicly disclosed. As such, the price decline was not evidence of loss causation. Following the delivery of our analysis to the adverse side, the matter settled within days at favorable terms for our client.
Securities Fraud Damages
Section 10B and Rule 10b(5) damages are commonly measured as out-of-pocket damages subject to loss causation. Out-of-pocket damages measure the change in share price inflation from the time of purchase to the time of sale. Loss causation limits out-of-pocket damages to those price declines caused by the revelation of the alleged truth in corrective disclosures. Loss causation analysis also helps to separate economic loss from recoverable damages in Section 11 claims with statutory damage calculations.
Catalyst has experience in estimating and evaluating securities class action damages in a variety of settings, including trial. We are experts in measuring and evaluating inflation and recoverable damages. We have taught law students at the nation’s leading law schools and AMLAW 100 clients how to reliably assess damages.
In this matter, we were asked to review Section 10B damages calculations from the adverse party. Our analysis revealed critical flaws in the damages analysis, including a paradoxical result that damages increased when certain alleged misstatement were removed. Finally, we demonstrated how the Section 11 claims required a different analysis given the share issuance and misrepresentations in question and that these specific facts implied no Section 11 damages. Our client won a complete victory at trial.
Courts require that economic expert witness testimony be based on reliable commonly accepted methodologies. As gate-keepers, courts consider the reliability of expert testimony and can exclude testimony deemed unreliable under the Daubert standards.
Catalyst Economic Consulting has assisted clients in evaluating expert testimony for the purposes of Daubert. We have helped courts better understand the limits of expert testimony relating to event studies, materiality, loss causation and market efficiency in a variety of cases. Our testimony has been relied on by courts to exclude the testimony of several economic expert witnesses.
We were asked to examine the methods employed by the adverse party to assess market efficiency in a thinly traded China-based company with equity trading in the U.S. We demonstrated how the methods employed differed from commonly accepted methodologies including the reliance on the researchers subjective assessments that could not be replicated by others. The Court agreed with our finding, Dauberting two opposing experts.