securities law in 2014: fraud-on-the-market theory demystified live webcast

Speaker Firms and Organization:

Kramer Levin Naftalis & Frankel LLP Stephen M. Sinaiko

Partner

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Presented By:

July 01, 2014

1

Partner Firms:

Lane Powell PCMilo Petranovich

Shareholder

Paul Hastings LLP Howard Privette

Partner

Willkie Farr & Gallagher LLPTodd G. Cosenza

Partner

Latham & Watkins LLP Jeff G. Hammel

Partner

Lieff Cabraser Heimann & Bernstein, LLP Michael J. Miarmi

Partner

July 01, 2014

2

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Partner Firms:

July 01, 2014

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Paul Hastings LLP is a leading international law firm that provides innovative legal solutions to many of the world's top financial institutions and Fortune Global 500 companies. With a strong presence throughout Asia, Europe, Latin America, and the U.S., the firm has the global reach and extensive capabilities to provide personalized service wherever its clients’ needs take it. Paul Hastings' commitment to superior client service begins with its legal professionals, who form customized service teams, such as the Securities Litigation and Enforcement practice group, that integrate with the legal needs, business objectives and strategies of the firm’s clients. Among the firm’s recent accolades, it continues to ascend the ranks of the Financial Times’ U.S. Innovative Lawyers report, placing second among the top 40 most innovative law firms that “have brought original thinking and practices to business issues in the U.S.”

Latham & Watkins LLP is a leading global law firm dedicated to working with clients to help them achieve their business goals and overcome legal challenges anywhere in the world. The firm has earned considerable market recognition based on a record of landmark matters and a unified culture of innovation and collaboration. From a global platform of offices covering the world’s major financial, business and regulatory centers, the firm’s lawyers help clients succeed. For more information, visit www.lw.com.

http://theknowledgegroup.org/%22http:/www.lw.com/%22

Partner Firms:

July 01, 2014

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High-stakes, high-profile litigation is a major focus of Kramer Levin Naftalis & Frankel. Our lawyers defend issuers and their officers and directors in securities class action and derivative litigation; public auditing firms accused of securities law violations and accounting malpractice; professionals charged with securities and RICO violations; corporations, their officers and directors, and investment banking firms in litigation arising out of corporate control and affiliated transactions; broker-dealers, mutual funds and investment advisors accused of trading and regulatory improprieties; and securities firms and professionals in customer disputes and employment arbitrations. Additionally, our cases involve every substantive aspect of white collar criminal and regulatory work affecting U.S. and foreign business entities and individuals. Our Litigation department has received the highest rankings, awards and honors for its work including from Best Lawyers, Chambers USA/ Global, Legal 500, Lawdragon 500, American College of Trial Lawyers, The National Law Journal and Benchmark Litigation.

A multi-specialty law firm, Lane Powell has helped emerging and established businesses navigate the Pacific Northwest and beyond for more than 135 years. Respected clients — from individuals to small businesses to Fortune 500 companies — turn to us for trusted legal counsel. In fact, Fortune 500 companies including Home Depot, Nike, Tesoro, Eli Lilly, Wells Fargo, Aetna and Nordstrom have named Lane Powell as one of the prestigious "Go-To Law Firms of Top U.S. Companies®" by Corporate Counsel magazine. The Firm was also named “Washington Firm of the Year” for the second consecutive year by Benchmark Litigation in 2014. In addition, Lane Powell has been described as “an excellent, full-service firm with bright people and lots of depth” by Chambers USA: America’s Leading Lawyers for Business. Furthermore, Lane Powell was recently named one of "Washington's Best Workplaces” by Puget Sound Business Journal and one of the “100 Best Companies to Work For in Oregon” byOregon Business magazine.With approximately 200 attorneys in offices located throughout Washington, Oregon, Alaska and London, England, we're thoroughly versed in the industries of the Pacific Northwest as well as the legal issues that face our clients on a regional, national and international level.

Partner Firms:

July 01, 2014

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Described as “one of the nation’s premier plaintiffs’ firms” by The American Lawyer, Lieff Cabraser Heimann & Bernstein, LLP has participated in many of the most important individual and class action lawsuits in the U.S. over the past four decades, helping recover over $91 billion in verdicts and settlements for our clients. We are committed to advancing the rights of investors and promoting corporate responsibility. With over 60 attorneys in offices in San Francisco, New York, and Nashville, we represent investors across America in class, direct (opt-out), derivative, and other actions. Our clients include public pension funds, union funds, and non-public institutional investors such as mutual funds, as well as high-wealth and individual investors.

Willkie Farr & Gallagher LLP is a leading international law firm that provides strategic legal representation and counsel to market-leading public and private companies worldwide. Founded in 1888, the firm has approximately 600 lawyers based in key financial centers: New York, Washington, Paris, London, Milan, Rome, Frankfurt and Brussels. Willkie’s top-tier Securities Litigation and Enforcement Practice is particularly renowned for its strength in the area of financial reporting and related proceedings. The firm has handled some of the highest-profile audit committee investigations into fraudulent financial reporting, and most recently is defending numerous SEC, Department of Justice, and congressional proceedings arising out of the financial crisis.

Brief Speaker Bios:

July 01, 2014

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Howard Privette

Howard Privette is a partner in the global Securities Litigation and Enforcement practice of Paul Hastings LLP. Mr. Privette represents U.S. and international clients in a wide range of complex business disputes in courts across the United States, and focuses his practice in securities and corporate governance litigation. In particular, Mr. Privette defends shareholder class actions and derivative suits for clients in the financial, life sciences, and technology industries. A trial lawyer who has tried cases in federal and state courts, and in arbitration, Mr. Privette was lead counsel for the defense in one of the very few securities class actions to ever go to trial in the United States, achieving a judgment that the plaintiff class could “take nothing” from his client.

Mr. Privette was simultaneously awarded his B.A. and M.A. in Economics from Yale University, and graduated with honors from Stanford Law School.

Jeff G. Hammel

Jeff Hammel is a partner in the New York office of Latham & Watkins. He is a member of the Litigation Department and global Co-chair of Latham’s Securities Litigation and Professional Liability Practice. He was named “one of the nation’s leading securities litigation attorneys” by The Legal 500 US. Mr. Hammel regularly represents major financial institutions, accounting firms and Fortune 500 companies, boards of directors, board committees and individuals. He has defended more dozens of shareholder class actions and derivative actions, winning many of them at the motion to dismiss stage.. Additionally, he has significant experience handling regulatory investigations and internal investigations regarding their financial reporting, disclosures and internal control procedures.

Mr. Hammel is a member of the American Bar Association’s Securities Litigation Committee and Subcommittee on Broker-Dealer Litigation. He is co-author of the treatise Federal Securities Litigation: Commentary and Forms, A Deskbook for the Practitioner (2nd edition).

Brief Speaker Bios:

Milo Petranovich

Milo Petranovich has extensive experience in complex civil and corporate litigation, including substantial trial experience in cases involving securities fraud, antitrust violations, franchise, health care and corporate governance, as well as white collar criminal defense in state and federal courts. Milo has acted as lead counsel in a number of securities actions, both before and after passage of the Private Securities Litigation Reform Act of 1995. He has represented public and private corporations, and individual o cers and ffidirectors in class actions, derivative actions and other corporate governance disputes. Chambers USA’s Guide to America’s Leading Lawyers for Business said of Milo, “He is held in high regard for his complex civil and corporate litigation practice, with sources declaring him ‘a very fi ne litigator.’ He has deep experience of cases involving corporate governance, white-collar criminal defense and securities fraud.” Milo is also recognized as one of the Northwest’s leading antitrust and trade regulation advice and litigation attorneys. He is routinely called upon to provide antitrust counsel to entities ranging from Fortune 500 companies to start ups, providing solutions that establish compliance with the law without the loss of a competitive edge.

July 01, 2014

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Stephen M. Sinaiko

Mr. Sinaiko is a partner in the litigation department at Kramer Levin Naftalis & Frankel LLP in New York City. His practice focuses on complex commercial and business litigation, including both civil and white collar securities matters. He has represented institutions and individual clients in complex, securities-related civil and criminal litigation before state and federal courts, and in arbitrations before various tribunals. In addition, Mr. Sinaiko has represented clients in connection with grand jury investigations and inquiries by governmental agencies and self-regulatory organizations, including the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority. Mr. Sinaiko also has experience in trial court and appellate litigation relating to corporate control transactions, insurance coverage and employment-related disputes.

Mr. Sinaiko received his J.D., magna cum laude, from New York University School of Law and his A.B. from Cornell University

Brief Speaker Bios:

July 01, 2014

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Todd G. Cosenza

Todd G. Cosenza is a partner in the Litigation Department of Willkie Farr & Gallagher LLP in New York specializing in complex financial litigation, with a focus on securities class actions. He has obtained victories for his clients in a number of landmark shareholder class actions. Mr. Cosenza also regularly serves as counsel to independent audit and special committees in the context of internal corporate investigations and advises senior executives and boards of directors on corporate governance matters, particularly those involving mergers and acquisitions.

In 2013, the New York Law Journal selected Mr. Cosenza as a "Rising Star." He was the recipient of Fordham Law School's 2012 "Rising Star Award" recognizing the extraordinary achievements of a distinguished alumnus. Mr. Cosenza also was recognized in New York Super Lawyers 2013 in the area of Securities Litigation.

Michael J. Miarmi

Michael Miarmi is a partner at Lieff, Cabraser, Heimann & Bernstein, LLP, residing in the firm’s New York office. He devotes his practice almost entirely to representing individual and institutional investors in direct or class cases asserting claims under the federal securities laws or state law. Among his current responsibilities, Michael is a member of the team serving as co-lead counsel for the proposed customer class in In re Bank of New York Mellon Corp. Foreign Exchange Transactions Litigation, seeking to recover losses arising from The Bank of New York Mellon’s alleged misconduct in connection with executing foreign exchange (FX) transactions on behalf of its custodial clients, as well as the team serving as co-lead counsel for the proposed class in Arkansas Teacher Retirement System v. State Street Corp., arising from State Street’s alleged FX-related misconduct. Michael is also a member of the team serving as co-lead counsel for a proposed class of shareholders asserting claims under the federal securities laws against LINN Energy, LLC and others, based on defendants’ alleged misconduct in overstating key financial metrics, which artificially inflated the price of the subject securities and resulted in significant losses to investors.

► For more information about the speakers, you can visit: http://theknowledgegroup.org/event_name/securities-law-in-2014-fraud-on-the-market-theory-demystified-live-webcast/

http://theknowledgegroup.org/event_name/securities-law-in-2014-fraud-on-the-market-theory-demystified-live-webcast/

http://theknowledgegroup.org/event_name/securities-law-in-2014-fraud-on-the-market-theory-demystified-live-webcast/

This course offers companies and organizations, an overview of the latest trends; critical issues and best practices with respect to Fraud-on-the-Market Theory in 2014.

In a two-hour live webcast, the speakers will discuss:

• 2014 Fraud-on-the-market theory: an overview• Recent related cases and lessons learned• Significant trends, issues and impacts• Compliance and best practices• Up-to-minute regulatory updates

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Featured Speakers:

July 01, 2014

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Howard PrivettePartnerPaul Hastings LLP

Event Moderator:

Milo PetranovichShareholderLane Powell PC

Segment 2:

Stephen M. SinaikoPartnerKramer Levin Naftalis & Frankel LLP

Segment 3:

Todd G. CosenzaPartnerWillkie Farr & Gallagher LLP

Segment 4:

Jeff G. HammelPartnerLatham & Watkins LLP

Segment 1:

Michael J. MiarmiPartnerLieff Cabraser Heimann & Bernstein, LLP

Segment 5:

Introduction

Howard Privette is a partner in the global Securities Litigation and Enforcement practice of Paul Hastings

LLP. Mr. Privette represents U.S. and international clients in a wide range of complex business disputes

in courts across the United States, and focuses his practice in securities and corporate governance

litigation. A trial lawyer who has tried cases in federal and state courts, and in arbitration, Mr. Privette was

lead counsel for the defense in one of the very few securities class actions to ever go to trial in the United

States, achieving a judgment that the plaintiff class could “take nothing” from his client. Mr. Privette was

also part of the defense team that obtained a jury verdict for the defendant in one of the largest insider

trading cases brought by the SEC.

Mr. Privette was simultaneously awarded his B.A. and M.A. in Economics from Yale University, and

graduated with honors from Stanford Law School.

July 01, 2014

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Event Moderator

Brief Introduction

What is the fraud-on-the-market doctrine?

Why is it important in securities class actions?

Halliburton II – Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. ___, 2014 WL 2807181 (June 23, 2014).

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Event Moderator

Discussion Outline

A Brief History of the Fraud-on-the-Market Doctrine (Jeff G. Hammel, Latham & Watkins LLP)

Reliance, Fraud-on-the-Market and Economic Theory (Milo Petranovich, Lane Powell PC) (Stephen Sinaiko, Kramer Levin Naftalis & Frankel LLP)

The Fraud-on-the-Market Doctrine in Practice (Todd G. Cosenza, Willkie Farr & Gallagher LLP)

Halliburton II and the Supreme Court’s Decision (Michael J. Miarmi, Lieff Cabraser Heimann & Bernstein LLP)

What Does the Future Hold After Halliburton II? (Panel)

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Event Moderator

Introduction

Jeff Hammel is a partner in the New York office of Latham & Watkins. He is a member of the Litigation

Department and global Co-chair of Latham’s Securities Litigation and Professional Liability Practice. He

was named “one of the nation’s leading securities litigation attorneys” by The Legal 500 US. Mr. Hammel

regularly represents major financial institutions, accounting firms and Fortune 500 companies, boards of

directors, board committees and individuals. He has defended more dozens of shareholder class actions

and derivative actions, winning many of them at the motion to dismiss stage.. Additionally, he has

significant experience handling regulatory investigations and internal investigations regarding their

financial reporting, disclosures and internal control procedures.

Mr. Hammel is a member of the American Bar Association’s Securities Litigation Committee and

Subcommittee on Broker-Dealer Litigation. He is co-author of the treatise Federal Securities Litigation:

Commentary and Forms, A Deskbook for the Practitioner (2nd edition).

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Segment 1:

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Brief History of Fraud on the Market Doctrine


Segment 1:

Brief History of FOTM

• Before Basic v. Levinson: Discounting Reliance– Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975):– “Here we eliminate the requirement that plaintiffs prove reliance directly . . . because the

requirement imposes an unreasonable and irrelevant evidentiary burden.”– “A purchaser on the stock exchanges . . . relies generally on the supposition that that the market

price is validly set . . . and thus indirectly on the truth of the misrepresentations underlying the stock price.”

July 01, 2014

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Segment 1:


• Before Basic (continued): – Panzirer v. Wolf, 663 F.2d 365 (2d Cir. 1981)– Plaintiff “never saw the annual report” but “relied on The Wall Street Journal”– “Where plaintiff acts upon those working in or reporting on the securities markets, and where

that information is circulated after a material misrepresentation or omission, plaintiff has stated a sufficient claim of reliance . . .”

– “Our holding is no more than an extension of Blackie.”

July 01, 2014

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Segment 1:


• Basic v. Levinson, 485 U.S. 224 (1987): – Rule 23’s class certification requirements are a “problem” because “[r]equiring proof of

individualized reliance from each member of the proposed class effectively would have prevented . . . proceeding as a class action.”

– The fraud on the market presumption “provided a practical resolution to the problem” of Rule 23.

July 01, 2014

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Segment 1:


• Basic v. Levinson (continued):– “The fraud on the market theory is based on the premise that, in an open and developed

securities market, the price of the company’s stock is determined by the available information regarding the company and its business . . . Misleading statements will therefore defraud investors of stock even if the purchasers do not rely on the misstatements.”

– A 4-2 decision (Rehnquist, Scalia, White abstaining)

July 01, 2014

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Segment 1:


• After Basic: Reliance Makes a Comeback– Central Bank of Denver, 511 U.S. 164 (1994)

• Reliance a “critical” element that plaintiff “must” show– Stoneridge, 552 U.S. 148 (2008)

• “Reliance . . . is an essential element”– Janus, 131 S.Ct. 180 (2011)

• “[T]he public could not have relied on . . . undisclosed deceptive acts.”

July 01, 2014

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Segment 1:

Introduction

Milo Petranovich has extensive experience in complex civil and corporate litigation, including substantial

trial experience in cases involving securities fraud, antitrust violations, franchise, health care and

corporate governance, as well as white collar criminal defense in state and federal courts. Milo has acted

as lead counsel in a number of securities actions, both before and after passage of the Private Securities

Litigation Reform Act of 1995. He has represented public and private corporations, and individual o cers ffi

and directors in class actions, derivative actions and other corporate governance disputes. Chambers

USA’s Guide to America’s Leading Lawyers for Business said of Milo, “He is held in high regard for his

complex civil and corporate litigation practice, with sources declaring him ‘a very fi ne litigator.’ He has

deep experience of cases involving corporate governance, white-collar criminal defense and securities

fraud.” Milo is also recognized as one of the Northwest’s leading antitrust and trade regulation advice and

litigation attorneys. He is routinely called upon to provide antitrust counsel to entities ranging from

Fortune 500 companies to start ups, providing solutions that establish compliance with the law without the

loss of a competitive edge. July 01, 2014

24


Segment 2:

Fraud on the Market and The Efficient Capital Market Hypothesis

What is the ECMH?

What are the critiques of the ECMH?

July 01, 2014

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Segment 2:

“For the rational study of the law, the black-letter

man may be the man of the present, but the man

of the future is the man of statistics and the

master of economics.”

Oliver Wendell Holmes, Jr.

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Segment 2:

[The efficient capital market hypothesis] “is an

‘engine’ to analyze the world, not a

photographic

reproduction of it.”

Milton Friedman

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Segment 2:

“A market is efficient when pricesalways fully reflect

available information.”

Eugene Fama, “Efficient CapitalMarkets, A Review of Theory andEmpirical Work.”-1970 Journal of Finance

• Informational Efficiency: Price immediately reflects available information.

• Fundamental Value Efficiency: Price immediately reflects the best estimate of value, in terms of risk and

return.

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Segment 2:

Empirical Support for ECMH

• Countless studies by graduate students

• “No easy pickings”

Robert Samuelson

July 01, 2014

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Segment 2:

Critiques of ECMH By The Statisticians

• The market is not homogeneous

• Information is not homogeneous

July 01, 2014

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Segment 2:

Critiques of ECMH By The Economists

• Information Costs

• Arbitrage Costs

• Hedges, Programs, and Mistakes

July 01, 2014

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Segment 2:

Critiques of ECMH By Behavioral Economists

• Risk analysis bias

• Adaptive expectations bias, or trust and tulips

July 01, 2014

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Segment 2:

Introduction

Mr. Sinaiko is a partner in the litigation department at Kramer Levin Naftalis & Frankel LLP in New York

City. His practice focuses on complex commercial and business litigation, including both civil and white

collar securities matters. He has represented institutions and individual clients in complex, securities-

related civil and criminal litigation before state and federal courts, and in arbitrations before various

tribunals. In addition, Mr. Sinaiko has represented clients in connection with grand jury investigations and

inquiries by governmental agencies and self-regulatory organizations, including the Securities and

Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry

Regulatory Authority. Mr. Sinaiko also has experience in trial court and appellate litigation relating to

corporate control transactions, insurance coverage and employment-related disputes.

Mr. Sinaiko received his J.D., magna cum laude, from New York University School of Law and his A.B.

from Cornell University

July 01, 2014

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Segment 3:

Fraud-on-the-Market Theory Demystified: Alternative Means of Establishing Reliance

July 01, 2014

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Segment 3:

Securities Claims Where Reliance Is Not Required

Claims Under the Securities Act of 1933 Section 11

Investors who purchase securities issued pursuant to a registration statement containing a material misstatement or omission can recover damages from the issuer and any underwriters, as well as any experts (with respect to portions of the registration statement they “expertise”)

Generally, plaintiffs asserting Section 11 claims need not prove reliance on the alleged misstatements or omissions in the registration statement.

Section 12(a)(2) Investors who purchase securities may rescind, or recover damages from the seller, if the

seller used a prospectus containing a material false statement or omission or misleading oral statements.

Generally, plaintiffs need not prove reliance on the alleged misstatement or omission in order to recover under Section 12(a)(2).

SEC enforcement actions

July 01, 2014

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Segment 3:

Establishing Reliance Where the Fraud on the Market Presumption Is Unavailable

Arises in cases where the claims is based on alleged fraud in connection with a security that is not publicly traded, or where the plaintiff fails to establish market efficiency or some other element of the fraud on the market doctrine

In these situations, there are two principal means of establishing reliance

“Eyeball reliance”

The investor actually saw the false or misleading statement that he/she relied on.

Not practical in class action cases, because this sort of reliance is inherently individual in nature

Claims Based on Omissions

Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972)

Authorizes presumption of reliance in securities fraud cases “involving primarily a failure to disclose”

Can apply in either individual actions or class actions

July 01, 2014

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Segment 3:

Affiliated Ute is a Limited Doctrine

Courts have noted that the distinction between misstatements and omissions is difficult to discern and “is often illusory.” E.g., In re Smith Barney Transfer Agent Litig., 290 F.R.D. 42, 47 (S.D.N.Y. 2013).

The Affiliated Ute presumption does not apply where the claims are not “primarily” omission claims.

If the “alleged omissions are merely the inverse of the alleged misrepresentations … [t]hat is not enough to trigger the Affiliated Ute presumption of reliance.” Goodman v. Genworth Fin. Wealth Mgmt., Inc., 09-CV-5603 JFB GRB, 2014 WL 1452048 at *1 (E.D.N.Y. Apr. 15, 2014).

Where there is a material omission and a duty to disclose, reliance is presumed under Affiliated Ute when:

reliance would be impossible to prove

the alleged omissions played an independent, or at least interdependent, role in the alleged fraud

July 01, 2014

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Segment 3:

Rebutting the Affiliated Ute Presumption

The Affiliated Ute presumption is not conclusive.

Defendant can rebut the presumption by demonstrating by a preponderance of the evidence that the plaintiffs did not in fact rely upon the omission when they made their investment decisions. duPont v. Brady, 828 F.2d 75, 78 (2d Cir.1987).

July 01, 2014

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Segment 3:

Introduction

Todd G. Cosenza is a partner in the Litigation Department of Willkie Farr & Gallagher LLP in New York

specializing in complex financial litigation, with a focus on securities class actions. He has obtained

victories for his clients in a number of landmark shareholder class actions. Mr. Cosenza also regularly

serves as counsel to independent audit and special committees in the context of internal corporate

investigations and advises senior executives and boards of directors on corporate governance matters,

particularly those involving mergers and acquisitions.

In 2013, the New York Law Journal selected Mr. Cosenza as a "Rising Star." He was the recipient of

Fordham Law School's 2012 "Rising Star Award" recognizing the extraordinary achievements of a

distinguished alumnus. Mr. Cosenza also was recognized in New York Super Lawyers 2013 in the area of

Securities Litigation.

July 01, 2014

39


Segment 4:

Fraud-on-the-Market Elements

As discussed earlier, according to Halliburton I, in order to invoke the fraud-on-the-market presumption the plaintiff must prove:

the misrepresentations were material. the security at issue traded in an efficient market. the alleged misrepresentations were publicly known. The transaction took place after the misrepresentation but before the truth was revealed.

July 01, 2014

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Segment 4:

Factors for Determining if an Efficient Market Exists

There is no single test for the factors, and none are determinative.

Cammer v. Bloom, 711 F. Supp. 1264, 1286-87 (D.N.J. 1989), widely-cited factors

Other courts have considered factors such as the amount of stock held by institutional investors, or the exchange on which the stocks were traded.

July 01, 2014

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Segment 4:

Criticism of Efficient Market Factors

Critics have attacked the factors courts used from theoretical and practical perspectives.

Critics have questioned both the validity of the factors courts use and the ability of courts to apply those factors.

July 01, 2014

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Segment 4:

Burden of Proof at Various Stages

Motion to Dismiss:

Summary Judgment and Trial:

July 01, 2014

43


Segment 4:

Class Certification Implications

Class Certification: Rule 23 requires a plaintiff prove “questions of law or fact common to class members

predominate.”

July 01, 2014

44


Segment 4:

Recent Rule 23 Decision in Wal-Mart

Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011): The Supreme Court overturned class certification for a class of 1.5 million women alleging pay and promotion discrimination in violation of Title VII.

July 01, 2014

45


Segment 4:

Introduction

Michael Miarmi is a partner at Lieff, Cabraser, Heimann & Bernstein, LLP, residing in the firm’s New York

office. He devotes his practice almost entirely to representing individual and institutional investors in

direct or class cases asserting claims under the federal securities laws or state law. Among his current

responsibilities, Michael is a member of the team serving as co-lead counsel for the proposed customer

class in In re Bank of New York Mellon Corp. Foreign Exchange Transactions Litigation, seeking to

recover losses arising from The Bank of New York Mellon’s alleged misconduct in connection with

executing foreign exchange (FX) transactions on behalf of its custodial clients, as well as the team

serving as co-lead counsel for the proposed class in Arkansas Teacher Retirement System v. State Street

Corp., arising from State Street’s alleged FX-related misconduct. Michael is also a member of the team

serving as co-lead counsel for a proposed class of shareholders asserting claims under the federal

securities laws against LINN Energy, LLC and others, based on defendants’ alleged misconduct in

overstating key financial metrics, which artificially inflated the price of the subject securities and resulted

in significant losses to investors.July 01, 2014

46


Segment 5:

Fraud-on-the-Market Trilogy: Halliburton I, Amgen, Halliburton II

• Halliburton I (2011) – Proving “loss causation” is not a prerequisite to the FOM presumption.• Amgen (2013) – Ps need not prove materiality to invoke the FOM presumption at the class-

cert. stage.• Halliburton II (2014) – Ps need not prove “price impact” to invoke the FOM presumption,

though Ds can attempt to rebut the presumption by proving lack of price impact.• Those three issues are related, but distinct.

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Segment 5:

Halliburton II: Back to Basics

• In Halliburton II, the Supreme Court reaffirmed the fundamental principles underlying the Basic presumption.

• Key points:

(1) Market efficiency is not a binary concept.

(2) Basic rested on the “fairly modest” premise that market professionals generally consider most publicly announced material statements about companies, thereby affecting securities prices.

• (3) Even “value investors” attempting to “beat the market” by buying undervalued stocks and selling overvalued ones (e.g., short sellers) “implicitly rel[y] on the fact that a stock’s market price will eventually reflect material information.”

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Segment 5:

A Middle Ground on “Price Impact”

• Ps need not prove price impact to invoke the FOM presumption.• Defendants, however, can attempt to rebut the presumption—whether for class-cert. or merits

purposes–by proving the absence of price impact.• The Court reasoned that because Ds undisputedly are permitted to introduce price-impact evidence

at the class-cert. stage to attempt to show lack of market efficiency, it would “make[] no sense” to preclude them from proffering such evidence to rebut the presumption altogether.

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Segment 5:

How Does Halliburton II Square with Amgen and Halliburton I?

• EPJ Fund argued that Amgen’s reasoning with respect to materiality foreclosed allowing Ds to use price-impact evidence to rebut the presumption at class cert.

• The Court concluded, however, that price impact “is different” from materiality for Rule 23 purposes.• Because price impact—i.e., that a misrepresentation was reflected in the market price at the time of

the transaction—“is Basic’s fundamental premise,” it “has everything to do with” whether common issues “predominate” over individual ones.

• And because price impact is not coterminous with loss causation (though the two concepts are related), the Court’s ruling accords with Halliburton I.

July 01, 2014

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Segment 5:

“FOM 2.0”: A New Regime or Much the Same?

• Permitting Ds to offer price-impact evidence for more than just challenging market efficiency likely will not affect most cases.

• The Second Circuit, where many 10b-5 cases are brought, already permits Ds to offer price-impact evidence to rebut the presumption at class cert.

• This ruling could, as Justice Ginsburg indicated in her concurrence, lead to greater expenses in connection with the class-cert. process.

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Segment 5:

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Event Moderator:


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