NEW YORK, Nov. 06, 2017 (GLOBE NEWSWIRE) -- Pomerantz LLP achieved another seminal post-Halliburton II victory in the Second Circuit today for investors in Strougo v. Barclays PLC, 16-1912 (November 6, 2017).  The Second Circuit affirmed the district court’s February 2, 2016, Opinion and Order granting Plaintiffs’ motion for class certification, holding that direct evidence of price impact is not always necessary to demonstrate market efficiency, as required to invoke the Basic presumption of reliance and was not required here; that defendants seeking to rebut the Basic presumption must do so by a preponderance of the evidence, which the Defendants, in this case, failed to do; and that the district court’s conclusion regarding the Plaintiffs’ class-wide damages methodology was not erroneous.

The case, which involves claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, concerns defendants’ concealment of information and misleading statements over a three-year period regarding its management of its “LX” dark pool, a private trading platform where the size and price of the orders are not revealed to other participants.  In certifying the class in February 2016 following a thorough analysis of the parties’ briefing, expert reports, and an in-depth evidentiary hearing, Judge Scheindlin concluded that under the Supreme Court’s Basic “fraud-on-the-market” doctrine, reliance by investors on Defendants’ affirmative misleading statements could be presumed, because Barclays’ American Depository Shares trade in an efficient market.  The district court rejected defendants’ argument that to show market efficiency, plaintiffs must provide event studies showing that the market price of the company’s stock price reacted quickly to the disclosure of new material information about the company. While plaintiffs did, in fact, proffer an event study, the court held – consistent with a vast body of case law – that no one measure of market efficiency was determinative and that plaintiffs could demonstrate market efficiency through indirect evidence of market efficiency. In so holding, the court observed that event studies are usually conducted across “a large swath of firms,” but “when the event study is used in a litigation to examine a single firm, the chances of finding statistically significant results decrease dramatically,” thus not providing an accurate assessment of market efficiency. The district court then found, following its extensive analysis, that plaintiffs sufficiently established market efficiency indirectly, and thus direct evidence from event studies was unnecessary.

Leaving no ambiguity, the Second Circuit’s decision affirming Judge Scheindlin’s opinion cited another Pomerantz victory in Petrobras, 862 F.3d at 276, and made clear that, “We have repeatedly—and recently—declined to adopt a particular test for market efficiency.”  This decision is a significant win for plaintiffs as it conclusively holds that “direct evidence of price impact under Cammer 5 is not always necessary to establish market efficiency and invoke the Basic presumption.” The Court made clear that the burden on plaintiffs is not “onerous” and that there would be little point to considering factors looking at indirect evidence of market efficiency if they only came into play after a finding of direct efficiency through an event study. 

The Second Circuit also put an end to the effort by defendants to minimize their burden of rebuttal.  The Court made abundantly clear that defendants seeking to rebut the Basic presumption must do so by a preponderance of the evidence.  In so holding, the Second Circuit recognized that the Basic presumption would be of little value if defendants could overcome it easily.  Specifically, the Court—pointing to language in Halliburton II stating that defendants could only rebut the Basic presumption by making a showing that “sever[ed] the link” between the misrepresentation and the price a plaintiff paid and that any such evidence must be “direct, more salient evidence” —held that it would be inconsistent with Halliburton II to “allow[] defendants to rebut the Basic presumption by simply producing some evidence of market inefficiency, but not demonstrating its inefficiency to the district court.”  The Court rejected defendants’ contention that Federal Rule of Evidence 301 applies and made clear that the Basic presumption is a judicially created doctrine and thus the burden of persuasion properly shifts to defendants to rebut the Basic presumption by a preponderance of the evidence. The Court placed the burden of showing there is no price impact upon defendants and confirmed that plaintiffs have no burden to show price impact at the class certification stage. 

Jeremy Lieberman, Managing Partner of Pomerantz, commented: “We are very gratified by the Second Circuit’s decision.  In reaching it now, and the Petrobras decision this past summer, the Second Circuit has unambiguously reaffirmed Halliburton II and Basic’s guidance that class certification for widely traded securities such as Barclays and Petrobras was a ‘common sense’ proposition.  For too long, defendants have tried to obscure this guidance by attempting to require arcane event studies at the class certification stage, which had little to do with the merits of the case or the damages suffered by investors.  This decision debunks that effort, providing a far easier and more predictable path for securities class actions plaintiffs going forward.”

The Pomerantz Firm, with offices in New York, Chicago, Los Angeles, and Paris, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, the Pomerantz Firm pioneered the field of securities class actions. Today, more than 80 years later, the Pomerantz Firm continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomerantzlaw.com.

CONTACT:
Robert S. Willoughby
Pomerantz LLP
rswilloughby@pomlaw.com