The Future of Fraud-on-the-Market Theory: What’s In and Out of 2016?
In the Halliburton Co. v. Erica P. John Fund, Inc. decision in June 2014, the U.S. Supreme Court reiterated the validity of the fraud-on-the-market presumption. The presumption excuses plaintiffs from providing individual reliance on an alleged corporate misstatement, thus, essential in bringing suits as class actions. However, the Court explained that the defendant can rebut presumptions before a class by showing the absence of "price impact". Defendants may show that an alleged misstatement did not affect the stock's market price.
As the trend toward US/Canada filings continuously increases, Canadian domiciled companies are greatly anticipating for the significant outcome of the Halliburton both for the U.S. companies and more importantly to Canadian companies that are exposed to Rule 10b-5 liability in the U.S. Moreover, the decision is expected to reshape Canadian common and civil law with respect to the principle of reliance in securities class actions.
In this LIVE Webcast, a panel of thought leaders and professionals assembled by The Knowledge Group will provide the audience with an in-depth discussion and analysis of the fundamental framework of Fraud-on-the-Market Theory. Speakers will also present their expert thoughts and opinions with regard to this remarkable topic and will examine the impact of new rulings to the modern securities fraud class action litigation both in the U.S. and Canada.
Key topics include:
- Fraud-on-the-Market Theory – A Legal Perspective
- U.S. and Canadian Class Action Frameworks
- Securities Fraud Class Action Litigation
- Basic Fraud on the Market Presumption
- Fraud on the Market Presumption in Halliburton II and CIBC v. Green Case
- Scope and Limitation
- Risks and Legal Challenges
- Recent Developments
Niraj J. Parekh, Counsel
Wollmuth Maher & Deutsch LLP
David J. Aveni, Attorney
Wilson Elser Moskowitz Edelman & Dicker LLP
- Securities Fraud Claims Generally [Niraj Parekh]
- Elements of claim under 10b-5 – Plaintiffs must show reliance on material misrepresentation or omission by defendant
- Relationship with other elements – Materiality (flip side of reliance); loss causation
- Heightened pleading standards under Twombly and PLSRA – Need to plead and prove reliance
- Motions to dismiss for failure to plead reliance with specificity
- Summary of Major Securities Fraud Class Actions [David Aveni]
- Adoption of PLSRA – Purpose and effect of PLSRA on class actions
- Importance of class certification stage – Class certification is watershed moment in litigation and often results in settlement
- Rule 23 issues and overlap with proving case on the merits – Must prove not only plead elements for class certification
- Whether individual issues predominate over common issues under Rule 23(b)
- As a practical matter, it places undue evidentiary burden on plaintiff class trading in open market to require proof of direct reliance by every securities fraud plaintiff – e.g., individual issues would necessarily overwhelm over common ones
- Overview of securities fraud class action jurisprudence
- Introduction to Fraud-on-the-Market Theory [Niraj Parekh]
- Basic Inc. v. Levinson – Judicially created presumption of reliance
- Theory behind Basic and fraud-on-the-market presumption in efficient markets
- Market price of securities reflects all publicly available information and investors buy securities by relying on integrity of market – Two part test
- Defendants’ misrepresentations affected stock price; and
- Plaintiff purchased stock at market price in reliance on misrepresentations
- Rebuttable presumption – If the link between misrepresentation and the stock price paid by plaintiff is severed then presumption of reliance does not apply
- Questions as to how and when defendants may rebut the theory became the subject of much debate between plaintiffs and defendants
- Halliburton II Addresses Fraud-on-the-Market Theory [David Aveni]
- Halliburton Co. v. Erica P. John Fund, Inc. – In 2014, the Supreme Court preserves fraud-on-the-market theory
- Rejects defendant’s attempts to overrule Basic or, in the alternative, require plaintiff to prove that misrepresentation affected stock price
- Addresses defendants’ request to rebut presumption of reliance with evidence of lack of price impact before class certification
- Supreme Court rejected Fifth Circuit’s holding that defendant could not introduce such evidence in opposition to class certification – if not then, then at what stage does rebuttal evidence come into play?
- Modest victory for defendants – Going forward, defendants can rebut fraud-on-the-market presumption at class certification stage by disproving stock price as a proxy for reliance
- Implications of Halliburton II [David Aveni]
- Halliburton II presents potential opportunities for defendants to narrow or defeat class certification entirely
- Raises questions as to how the Supreme Court’s decision will be applied to future securities class actions
- Other ways that defendants can rebut the presumption of reliance at class certification will also be impacted:
- Demonstrate that the market on the which the securities were traded was not efficient. E.g., George v. China Auto. Sys. (SDNY 2013)
- Eight Circuit’s April 2016 Best Buy Decision [Niraj Parekh]
- These issues were addressed in April 2016 by the Eighth Circuit in IBEW Local 98 Pension Fund v. Best Buy Co. – First federal appellate court to provide substantive guidance on the application of Halliburton II
- Overview of Best Buy decision reversing district court’s class certification based on fraud-on-the-market theory and finding that defendant Best Buy had successfully rebutted the presumption of reliance
- Plaintiffs’ claims were based on statements released in Best Buy’s press release and subsequent investor call two hours later
- Press release claims were protected as forward-looking statement under PLSRA
- Defendants established that price impact occurred immediately after the press release and not the later investor conference call – Thus, presumption of reliance was rebutted
- Eight Circuit rejected plaintiffs’ theory that the earnings call “maintained” the artificially inflated price based on stock price declined based on post-corrective disclosure showing that earn
- The Meaning of Best Buy on the Future of Fraud-on-the-Market [Niraj Parekh and David Aveni]
- The decision establishes the importance of the timing and impact on stock based on the alleged misrepresentations
- Provides defendants with another opportunity to defeat securities claims after motion to dismiss stage – By showing no discernable price impact
- Inform strategy and shape the nature of case including the scope and size of putative plaintiff classes
Jonathan G. Bell, Partner
- A review of Canadian class action plaintiffs' historical efforts to avoid the need to prove individual reliance in securities class actions;
- CIBC v. Green: the Supreme Court clarifies the need to demonstrate individual reliance in Canadian securities class actions;
- What CIBC v. Green will mean for Canadian securities actions going forward.
Who Should Attend:
- Securities Attorneys
- Business Lawyers
- General Counsel
- Senior Management
- Legal Counsel
- In-House Counsel
- Top Level Management
- Other Related/Interested Professionals and Organizations
David Aveni is a commercial litigation and trial attorney whose practice focuses on the defense of securities matters. David defends clients in a wide variety of securities proceedings, including securities class actions and other civil litigation, enforcement proceedings involving the Securities and Exchange Commission and other regulatory entities, defense of securities arbitrations before the Financial Industry Regulatory Authority (FINRA), and internal investigations related to securities and accounting misconduct. These matters have involved a broad range of issues, including securities fraud, insider trading, financial reporting, accounting and disclosure issues, and regulatory compliance. David regularly defends private and publicly traded corporations and their officers and directors, financial institutions, broker-dealers and registered representatives in a wide variety of securities proceedings. He has represented numerous Fortune 100 companies and “big four” accounting firms and played a prominent role in an internal investigation on behalf of one of the largest companies in Canada.
David Aveni is a commercial litigation and trial attorney whose practice focuses on the defense of securities matters. David defends …
Mr. Parekh represents clients in a broad range of complex commercial disputes including securities and structured finance litigation, antitrust matters, corporate disputes, insurance litigation, and pharmaceutical and medical device litigation. He has extensive experience representing clients involving complex securities transactions and other derivative financial instruments. He currently represents several financial services firms, insurance companies and funds in active litigations pending in federal and state courts involving multi-billion dollar claims and losses relating to the issuance of mortgage-backed securities and related transactions.
Mr. Parekh received his J.D. from Fordham University School of Law, cum laude, in 2004. He received his B.A. in Economics from Tufts University in 2000. Prior to Wollmuth Maher & Deutsch LLP in February 2015, Mr. Parekh was an attorney at Patterson Belknap Webb & Tyler from 2004 through 2012. He also founded Parekh Law, P.C. in 2013 representing an individual client and affiliated entities in various business matters.
Mr. Parekh represents clients in a broad range of complex commercial disputes including securities and structured finance litigation, antitrust matters, …
Jonathan Bell's general litigation practice focuses on complex corporate and commercial disputes, securities litigation and class actions. Jon has motion, application, trial and appeal experience before all courts in Ontario, as well as a number of administrative and regulatory boards and tribunals. He has experience in matters pertaining to domestic and cross-border securities regulatory and enforcement matters, internal investigations, shareholder and partnership disputes, directors' and officers' liability, professional negligence, domestic and international arbitration, oppression proceedings and class proceedings, among others. Jon has extensive experience in managing the unique challenges posed by complicated multijurisdictional investigations and proceedings.
Jonathan Bell's general litigation practice focuses on complex corporate and commercial disputes, securities litigation and class actions. Jon has motion, …
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