Murphy III v. JBS S.A. et al
MEMRANDUM AND ORDER granting the motion 7 of plaintiff GWI Enterprise LTD for an order appointing it lead plaintiff for the class, and its counsel, Levi & Korsinsky LLP, as lead counsel, and denying the motion 5 of Mac Phail Revocable Living Trust and Philipp Kreuser for an order appointing them co-lead plaintiffs for the class and The Rosen Law Firm, P.A. and Bronstein, Gewirtz & Grossman, LLC as co-lead counsel. Ordered by Judge I. Leo Glasser on 10/6/2017. (Kessler, Stanley)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
EDMUND MURPHY III, Individually and
On Behalf of All Others Similarly Situated,
MEMORANDUM AND ORDER
- against –
JBS S.A., WESLEY MENDONÇA BATISTA,
GILBERTO TOMAZONI, and JOESLEY
GLASSER, Senior United States District Judge:
Plaintiffs bring this consolidated putative class action against JBS S.A. (“JBS”) and three
of its executives—Wesley Mendonça Batista, Gilberto Tomazoni, and Joesley Mendonça Batista
(the “Individual Defendants” and, together with JBS, the “Defendants”)—alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC
Rule 10b-5. Before the Court are competing motions for appointment as lead plaintiff and approval
of counsel. Jack Mac Phail Revocable Living Trust and Philipp Kreuser (“Mac Phail Trust and
Kreuser”) have moved to be appointed co-lead plaintiffs and for the Court to approve their
selection of The Rosen Law Firm, P.A. (“The Rosen Law Firm”) and Bronstein, Gewirtz &
Grossman, LLC (“BG&G”) as co-lead counsel. GWI Enterprise Ltd. (“GWI Enterprise”) has
moved to be appointed sole lead plaintiff and for the Court to approve its selection of Levi &
Korsinsky, LLP (“Levi & Korsinsky”) as sole lead counsel. The Court heard oral argument on
these motions on September 19, 2017. For the reasons that follow, GWI Enterprise’s motion is
granted, and Mac Phail Trust and Kreuser’s motion is denied.
This case is a putative securities class action that arises from allegations of false and
misleading statements by JBS and three of its executives, the Individual Defendants, in violation
of federal securities laws. Two such securities class actions were filed in this district. GWI
Enterprise Ltd. v. JBS S.A. et al., No. 1:17-cv-4019 (E.D.N.Y. July 6, 2017); Murphy III v. J.B.S.
S.A. et al., No. 1:17-cv-3402 (E.D.N.Y. May 22, 2017). By order of this Court, the two actions
were consolidated on August 14, 2017. ECF 12.
JBS is a Brazilian company that processes and sells beef, lamb, pork, and chicken products
within Brazil and internationally. ECF 1 (“Compl.”) ¶ 7. The Complaint proposes a class
consisting of all persons other than Defendants who acquired American Depository Receipts
(“ADRs”) from JBS from June 2, 2015 through May 19, 2017 (the “Class Period”). Id. ¶ 1.
Plaintiffs allege that, throughout the Class Period, JBS and the Individual Defendants made false
or misleading statements and/or failed to disclose that (1) JBS executives bribed regulators and
politicians to subvert food inspections of its plants and overlook unsanitary practices, such as
processing rotten meat and running plants with traces of salmonella; (2) Defendant Joesley
Mendonça Batista was providing monthly bribery payments to a former Brazilian government
official and a lobbyist; (3) there were irregularities in the loans JBS received from Brazilian stateowned development bank BNDES; (4) JBS and other entities controlled by Defendants Wesley
Mendonça Batista and Joesley Mendonça Batista made suspicious trades that exhibit signs of
possible insider trading prior to the revelation of a plea deal by JBS’s top executives; and (5) as a
result, Defendants’ statements about JBS’s business, operations, and prospects were materially
false and misleading and lacked a reasonable basis at all relevant times. Id. ¶ 28. According to
the Complaint, when the truth emerged, the market value of JBS ADRs precipitously declined,
causing class members to suffer losses. Id. ¶ 40. The Complaint alleges that the foregoing conduct
by the Defendants violated Section 10(b) of the Exchange Act and SEC Rule 10b-5 and that the
Individual Defendants are also liable as control persons under Section 20(a) of the Exchange Act.
See Compl. ¶¶ 50-65. The Complaint also specifically alleges that, to prove the reliance element
of their claims, plaintiffs will rely on the presumption of reliance established by the fraud-on-themarket doctrine. Id. ¶¶ 47-48.
Lead Plaintiff and Lead Counsel Applications
This action was commenced on May 22, 2017. On that day, The Rosen Law Firm—counsel
for the original filer, Edmund Murphy III—issued an early notice pursuant to the Private Securities
Litigation Reform Act of 1995 (“PSLRA”) advising class members, among other things, of the
allegations and claims in the Complaint and of the deadline for lead-plaintiff applications, July 21,
2017. ECF 6-1. On July 21, 2017, two motions to be appointed lead plaintiff were filed. Mac
Phail Trust and Kreuser moved to be appointed co-lead plaintiffs and for the Court to approve their
selection of The Rosen Law Firm and BG&G as co-lead counsel. ECF 5. GWI Enterprise moved
to be appointed sole lead plaintiff and for the Court to approve its selection of Levi & Korsinsky
as sole lead counsel. ECF 7. The movants also simultaneously moved for consolidation of GWI
Enterprise Ltd. v. JBS S.A. et al., No. 1:17-cv-4019 (E.D.N.Y. July 6, 2017), with this action, ECF
5, 7. The Court granted the motions for consolidation on August 14, 2017. ECF 12.
Mac Phail Trust and Kreuser have no ostensible affiliation with one another beyond their
joint lead-plaintiff application. Neither Mac Phail Trust nor Kreuser purports to be an institutional
investor. GWI Enterprise, by contrast, presents itself as “a sophisticated, institutional investor.”
ECF 10 at 1. Based on the firm profiles submitted by the movants, all three law firms proposed as
lead (or co-lead) counsel have experience with securities class action litigation. See ECF 6-4, 65, 7-6. The firm profiles for The Rosen Law Firm and Levi & Korsinsky indicate that each firm
has experience serving as lead or co-lead counsel in a class action. See ECF 6-4, 7-6. The firm
profile for BG&G is less clear as to whether BG&G itself has ever served as lead or co-lead counsel
in a class action, as opposed to merely assisting lead counsel. See ECF 6-5 at 2 n.1 (“Co-counsel,
as used in this document, means that BG&G works together with or assists lead counsel in a matter.
This often occurs when a BG&G client is appointed as lead plaintiff.”).
The movants do not dispute each other’s submissions regarding their trading activity and
losses during the Class Period. According to those submissions, GWI Enterprise suffered a loss
of $385,918.25 due to its purchases of JBS ADRs, ECF 7-4, whereas Mac Phail Trust and Kreuser
had combined losses of $1,416.03, ECF 6-3. GWI Enterprise also submitted the below chart
summarizing the movants’ respective trading activity in JBS ADRs during the Class Period, which
Mac Phail Trust and Kreuser have not disputed:
Jack Mac Phail
Trust and Philipp
Number of Shares
Net Shares Purchased
During Class Period
Net Funds Expended
During Class Period
ECF 9 at 2-3.
In their opposition to GWI Enterprise’s lead plaintiff motion, Mac Phail Trust and Kreuser
make a number of allegations concerning GWI Asset Management SA (“GWI Asset”) and Mu
Hak You (“You”), the CEO, sole director, and owner of GWI Asset. See ECF 8, Exs. 1-5. You is
also the controlling shareholder/owner of GWI Holdings, which is the sole shareholder/owner of
GWI Enterprise. ECF 7-3. Mac Phail Trust and Kreuser’s allegations, which they support with
news articles from the internet, are, in brief, as follows:
In May of 2017, You and GWI Asset were found by the Securities and Exchange
Commission of Brazil (“CVM”) to have violated a regulation prohibiting certain investors
from investing more than seventy percent of their assets in a single issuer. See ECF 8-2 at
1-5. According to the CVM, You and GWI Asset’s investment strategy “not only
demonstrated lack of care and diligence, but also contributed to [f]urther depreciate the
share price, maximizing the [f]und’s losses.” Id. at 4. The CVM imposed a fine on GWI
Asset and suspended, for five years, You’s authorization for professional management of
a securities portfolio. Id. at 5. The conduct for which GWI Asset and You were sanctioned
and suspended occurred in 2011. See id. at 3-4.
A 2016 news article indicates that, in a statement, “GWI [Asset] said all its trades are within
limits set by the Sao Paolo exchange and Brazil’s securities regulator.” ECF 8-1 at 3. Mac
Phail Trust and Kreuser claim that the May 2017 decision by the CVM, described above,
proves this statement to have been false. ECF 8 at 4.
In 2016, You and GWI Asset were accused of breaching fiduciary duties, abusing
shareholders’ rights, engaging in insider trading, and violating Brazilian securities laws.
See ECF 8-4 at 3. These accusations were not leveled by the CVM, however, but by a
private litigant, Saraiva, which is a Brazilian online shopping company in which GWI
Asset owns (or owned) a substantial stake. See ECF 8-4. A news article detailing the
allegations indicates that “the Securities and Exchange Commission of Brazil [CVM] has
not yet analyzed the allegations” from Saraiva against GWI Asset. ECF 8-5 at 5. The same
article states that “CVM Management has hinted that the case is delicate” and quotes
someone anonymously, ostensibly a CVM official, as saying that GWI’s board structure
“reinforces suspicions of more serious practices, such as the use of privileged information,
in line with Saraiva’s claims.” Id.
GWI Enterprise was flagged by the International Consortium of Investigative Journalists
for having a connection to a Bahamas intermediary entity that may be used as a tax haven.
ECF 8 at 5; ECF 8-6.
GWI Asset is “an entity separate and apart from GWI Enterprise.” ECF 10. According to GWI
Enterprise, it is not related to GWI Asset. Id. at 5. As represented during oral argument by counsel
for GWI Enterprise, GWI Enterprise is a family investment trust that invests on behalf of the You
family and contains only You family money, whereas GWI Asset is a public fund with outside
investors; You is the principal of both GWI Enterprise and GWI Asset. GWI Enterprise also notes
that (i) GWI Asset is appealing the May 2017 CVM decision and, pending the outcome of the
appeal, all of the CVM’s findings and sanctions, including You’s suspension, have been
suspended, ECF 10 at 6, and (ii) GWI Asset disputes all of Saraiva’s allegations, id. The purported
basis for GWI Asset’s appeal of the CVM decision, as described by GWI Enterprise’s counsel
during oral argument, is that GWI Asset and You qualify for a safe harbor because they selfreported the regulatory violation to the CVM and cured it within two weeks.
Appointment of Lead Plaintiff
The Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires courts to
“appoint as lead plaintiff the member or members of the purported plaintiff class that the court
determines to be the most capable of adequately representing the interests of class members.” 15
U.S.C. § 78u-4(a)(3)(B)(i). In determining who among competing applicants is the “most adequate
plaintiff,” a court is guided by the PSLRA’s “rebuttable presumption” that “the most adequate
plaintiff in any private action . . . is the person or group of persons that—
(aa) has either filed the complaint or made a motion in response to a notice . . . ;
(bb) in the determination of the court, has the largest financial interest in the relief
sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil
Id. § 78u-4(a)(3)(B)(iii)(I).
This presumption may be rebutted “only upon proof” that the
presumptively most adequate plaintiff (i) “will not fairly and adequately protect the interests of the
class” or (ii) “is subject to unique defenses that render such plaintiff incapable of adequately
representing the class.” Id. §§ 78u-4(a)(3)(B)(iii)(II)(aa)-(bb).
A. Largest Financial Interest
The PSLRA does not provide a specific method for calculating which plaintiff or plaintiff
group has the “largest financial interest” in the relief sought, but courts in the Second Circuit
consider four factors:
(1) the total number of shares purchased during the class period;
(2) the net shares purchased during the class period (in other words, the difference between the
number of shares purchased and the number of shares sold during the class period);
(3) the net funds expended during the class period (in other words, the difference between the
amount spent to purchase shares and the amount received for the sale of shares during the
class period); and
(4) the approximate losses suffered.
In re Gentiva Sec. Litig., 281 F.R.D. 108, 112 (E.D.N.Y. 2012) (quoting City of Monroe
Employees’ Ret. Sys. v. Hartford Fin. Servs. Grp., 269 F.R.D. 291, 293 (S.D.N.Y.2010)). Courts
generally “‘place the most emphasis on the last of the four factors: the approximate loss suffered
by the movant.’” Id. (quoting Baughman v. Pall Corp., 250 F.R.D. 121, 125 (E.D.N.Y. 2008)).
Here, all four factors indicate that GWI Enterprise has the largest financial interest in the
action. GWI Enterprise suffered significantly greater losses than Mac Phail Trust and Kreuser, the
only other movants. Compare ECF 7-4 (showing a $385,918.25 loss for GWI Enterprise), with
ECF 6-3 (showing a combined loss of $1,416.03 for Mac Phail Trust and Kreuser). 1 Moreover,
Under the PSLRA, damages are calculated based on (i) “the difference between the purchase or
sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean
trading price of that security during the 90-day period beginning on the date on which the
information correcting the misstatement or omission that is the basis for the action is
disseminated to the market”; or, if the plaintiff sells or repurchases the subject security before the
end of the 90-day period, (ii) “the difference between the purchase or sale price paid or received,
as appropriate, by the plaintiff for the security and the mean trading price of the security during
compared with Mac Phail Trust and Kreuser, GWI Enterprise also (i) purchased a higher total
number of shares during the Class Period, (ii) purchased more net shares during the Class Period,
and (iii) expended greater net funds during the Class Period. See ECF 9 at 2-3. Mac Phail Trust
and Kreuser do not dispute that GWI Enterprise has the largest financial interest in the action, nor
B. Rule 23 Requirements
In addition to possessing the largest financial interest in the outcome of the litigation, a
prospective lead plaintiff must, to qualify for the rebuttable presumption, “otherwise satisf[y] the
requirements of Rule 23.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(cc). Rule 23 provides that a party
(or parties) may serve as a class representative only if the following four requirements are satisfied:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses
of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). At the lead plaintiff stage, however, “[t]he moving plaintiff must make only
a preliminary showing that the adequacy and typicality requirements under Rule 23 have been
met.” Weinberg v. Atlas Air Worldwide Holdings, Inc., 216 F.R.D. 248, 252 (S.D.N.Y. 2003); see
also, e.g., In re Fuwei Films Sec. Litig., 247 F.R.D. 432, 436-39 (S.D.N.Y. 2008) (same).
the period beginning immediately after dissemination of information correcting the misstatement
or omission and ending on the date on which the plaintiff sells or repurchases the security.” 15
U.S.C. § 78u-4(e).
The Rule 23(a) typicality requirement provides that a lead plaintiff’s claims must be
“typical of the claims . . . of the class.” Fed. R. Civ. P. 23(a)(3). The requirement is satisfied
“‘where . . . the claims of the representative [p]laintiffs arise from the same course of conduct that
gives rise to the claims of the other [c]lass members, where the claims are based on the same legal
theory, and where the class members have allegedly been injured by the same course of conduct
as that which allegedly injured the proposed representatives.’” In re Livent, Inc. Noteholders Sec.
Litig., 210 F.R.D. 512, 516 (S.D.N.Y. 2002) (quoting In re NASDAQ Market-Makers Antitrust
Litig., 169 F.R.D. 493, 511 (S.D.N.Y. 1996)). The lead plaintiff need not be identically situated
with all class members, however. See id.
Here, GWI Enterprise has made a prima facie showing that it satisfies the typicality
requirement, as it brings the same legal claims, premised on the same alleged facts, as other class
Under Rule 23(a)(4), the adequacy requirement is satisfied if (i) “class counsel [is]
‘qualified, experienced and generally able’ to conduct the litigation” and (ii) “class members [do]
not have interests that are ‘antagonistic’ to one another.” In re Drexel Burnham Lambert Grp.,
Inc., 960 F.2d 285, 291 (2d Cir. 1992) (quoting Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562
(2d Cir. 1968)); see also In re Cendant Corp. Litig., 264 F.3d 201, 265 (3d Cir. 2001) (“In assessing
whether the movant satisfies Rule 23’s adequacy requirement, courts should consider whether it
has the ability and incentive to represent the claims of the class vigorously, [whether it] has
obtained adequate counsel, and [whether] there is [a] conflict between [the movant's] claims and
those asserted on behalf of the class.” (quotation marks and citation omitted)).
Here, GWI Enterprise has selected qualified and experienced counsel, as indicated by Levi
& Korsinsky’s firm profile. See ECF 7-6. Moreover, GWI Enterprise, as the movant with by far
the largest financial loss, appears to have interests that are aligned with the other members of the
class as well as the motivation to vigorously pursue its claims. GWI Enterprise has thus made a
preliminary showing that it satisfies the adequacy requirement.
C. Mac Phail Trust and Kreuser’s Attempts to Rebut the Presumption
Since it is the movant with the largest financial interest and has made a preliminary
showing of typicality and adequacy, GWI Enterprise is presumptively the most adequate plaintiff.
As noted above, this presumption may be rebutted “only upon proof” that the presumptively most
adequate plaintiff (i) “will not fairly and adequately protect the interests of the class” or (ii) “is
subject to unique defenses that render such plaintiff incapable of adequately representing the
class.” 15 U.S.C. §§ 78u-4(a)(3)(B)(iii)(II)(aa)-(bb). “[E]xacting proof” is needed to rebut the
presumption. In re Facebook, Inc., 288 F.R.D. 26, 40 (S.D.N.Y. 2012). Conclusory assertions
and mere speculation will not suffice. See OFI Risk Arbitrages v. Cooper Tire & Rubber Co., 63
F. Supp. 3d 394, 403 (D. Del. 2014) (“The [competing movant] must produce more than
speculation to rebut the presumption. . . . Mere speculation about a unique defense does not meet
this standard.”); Constance Sczesny Trust v. KPMG LLP, 223 F.R.D. 319, 324-25 (S.D.N.Y. 2004)
(“[C]onclusory assertions of inadequacy are . . . insufficient to rebut the statutory presumption
under the PSLRA without specific support in evidence of the existence of an actual or potential
conflict of interest or a defense to which [the presumptively most adequate plaintiff] would be
Here, Mac Phail Trust and Kreuser attempt to rebut the presumption that GWI Enterprise
is the most adequate plaintiff in two ways. First, Mac Phail Trust and Kreuser argue that GWI
Enterprise will not fairly and adequately protect the interests of the class because GWI Enterprise
and its controlling shareholder/owner, You, are inadequate fiduciaries and lack credibility.
Second, for essentially the same reasons, Mac Phail Trust and Kreuser argue that GWI Enterprise
will be subject to unique defenses that threaten to become the focus of the litigation.
1. GWI Enterprise’s Ability to Fairly and Adequately Protect the Interests of the
Mac Phail Trust and Kreuser argue that GWI Enterprise is unable to fairly and adequately
represent the class because the Saraiva accusations and CVM decision detailed above
“demonstrate [You’s] blatant disregard for the interests of investors who have entrusted him with
their investments over the years.” ECF 8 at 6. According to Mac Phail Trust and Kreuser, this
disregard shows that GWI Enterprise is incapable of serving as a fiduciary to the class. See id. at
6-7. Moreover, they argue that GWI Asset’s statement, in a 2016 news article, that “all its trades
are within limits set by the Sao Paulo exchange and Brazil’s securities regulator,” ECF 8-1 at 3,
calls You’s credibility into question because the May 2017 CVM decision—which found GWI
Asset’s trading to have violated a CVM regulation—shows the statement to have been false. See
ECF 8 at 6.
As GWI Enterprise argues, however, the PSLRA requires that the presumption that the
plaintiff with the largest financial interest is the most adequate plaintiff be rebutted with “exacting
proof.” Facebook, 288 F.R.D. at 40. The handful of news articles cobbled together by Mac Phail
Trust and Kreuser fall short of that standard. More significantly, even taken at face value, the
news articles do not paint the damning portrait of GWI Enterprise that Mac Phail Trust and Kreuser
suggest. First, as a general matter, neither Saraiva’s accusations nor the regulatory violation relates
to the actual entity applying to be a lead plaintiff, GWI Enterprise, except insofar as You is the
controlling shareholder/owner of GWI Enterprise’s parent company. Second, the 2017 CVM
decision found a violation only of a technical rule regarding investment concentrations, and it is
currently being appealed by GWI Asset. See ECF 10 at 6-7. Courts have appointed lead plaintiffs
guilty of committing similarly minor infractions. See, e.g., Levie v. Sears, Roebuck & Co., 496.
F. Supp. 2d 944, 951 (N.D. Ill. 2007) (appointing as lead plaintiff in a securities fraud class action
a day trader who had been sanctioned by the National Association of Securities Dealers for
engaging in deceptive stock transactions and who had failed to disclose that fact in discovery).
Third, the accusations from third-party Saraiva, regarding insider trading and market manipulation,
among other things, are just that—accusations—and moreover accusations that come from
company management in the midst of a dispute with GWI Asset and You over Saraiva’s direction.
See ECF 8-1 at 2. Courts have declined to disqualify lead plaintiffs over similar allegations. See,
e.g., Miller v. Dyadic Int’l, Inc., No. 07-80948-CIV, 2008 WL 2465286, at *7 (S.D. Fla. Apr. 18,
2008) (declining to disqualify movant as lead plaintiff over “accusations of insider trading”).
Finally, the notion that You and GWI Enterprise’s credibility is called into question—and that
GWI Enterprise should therefore be disqualified as lead plaintiff—because of a statement, by GWI
Asset, in a 2016 news article on a subject unrelated to this litigation is naked hyperbole. Courts
have disqualified lead plaintiffs on credibility grounds, but in cases where the lead-plaintiff
applicant’s credibility was called into question as to issues central to the litigation. See, e.g.,
Savino v. Computer Credit, Inc., 164 F.3d 81, 87 (2d Cir. 1998) (disqualifying lead plaintiff where
he had “repeatedly changed his position” regarding “the letters that form the very basis for his
lawsuit”). That is not the situation we are faced with here.
In sum, Mac Phail Trust and Kreuser have not presented persuasive proof that GWI
Enterprise will not be able to fairly and adequately protect the interests of the class.
2. GWI Enterprise’s Susceptibility to Unique Defenses
Based on the same Saraiva accusations and CVM decision discussed above, Mac Phail
Trust and Kreuser argue that GWI Enterprise is subject to unique defenses because “Defendants
will undoubtedly challenge You and GWI’s general credibility and honesty on cross-examination
and at trial, their adequacy as proposed class representatives, and will embroil the class with
unnecessary and vulnerable questions concerning You’s alleged securities violations, which are
similar to the ones alleged in this action.” ECF 8 at 8. Even accepting the somewhat questionable
assertion that You’s alleged violations are similar to the ones alleged in this action, this argument
is unconvincing for the same reasons the Saraiva accusations and challenged CVM decision do
not constitute sufficient proof that GWI Enterprise will not be able to fairly and adequately protect
the interests of the class. Moreover, even if You’s credibility were in question, the Court struggles
to envision a scenario in which his testimony would be relevant, let alone critical, at trial. This
action is a securities fraud case; GWI Enterprise’s trades and losses can be definitively
substantiated via trading records, receipts, and the like, and GWI Enterprise will be relying on the
fraud-on-the-market doctrine to prove reliance. Mac Phail Trust and Kreuser have presented no
credible proof suggesting GWI Enterprise will be uniquely unable to rely on the fraud-on-themarket doctrine or otherwise indicating that You’s testimony will be especially important. 2
During oral argument, counsel for Mac Phail Trust and Kreuser claimed that, according to the
articles they submitted as exhibits, You is a “risky investor” who places heavy bets “on a handful
of companies,” as well as “a very active investor” who “likes to get in front of management” and
“likes to get information that otherwise would not be publicly available.” But even assuming the
allegations in those articles are accurate, none speak specifically to (i) the investment strategy
employed by GWI Enterprise, You’s family investment trust and the entity actually applying to
be lead plaintiff, or to (ii) any GWI entity’s investment in JBS. The investment strategy that
You employs on behalf of GWI Asset (and other such funds with outside investors) and his
alleged access to non-public information about companies other than JBS are entirely irrelevant
to whether GWI Enterprise can rely on the fraud-on-the-market doctrine to prove reliance in this
In their reply brief, Mac Phail Trust and Kreuser raise one additional argument. They argue
that “[t]here is no logical economic reason for a Brazilian fund to purchase the U.S. listed
American Depository Receipts (‘ADRs’) on the OTCQX market, as the transaction costs to
purchase the ADRs are higher.” ECF 11 at 2. According to Mac Phail Trust and Kreuser, “[t]his
raises a number of unique concerns, particularly because there are reports tying You and/or GWI
to improper offshore tax havens.” Id. They also suggest that GWI Enterprise “may have engaged
in a unique hedging strategy by taking different positions in JBS’ Brazilian listed securities while
simultaneously transacting in JBS stock in the United States.
Such trading strategies and
methodologies would be another reason that You and GWI would not be adequate.” Id. Courts
indeed have denied lead plaintiff applications in situations where an applicant’s hedging strategy
might leave it vulnerable to unique defenses. See, e.g., In re Bank One Shareholders Class Actions,
96 F. Supp. 2d 780, 783-84 (N.D. Ill. 2000). But Mac Phail Trust and Kreuser have hardly
provided adequate proof that GWI Enterprise was engaged in such a hedging strategy. Their
allegations concerning the potential use of tax havens and the supposed economic illogic of
investing in ADRs are mere speculation and innuendo, 3 which are insufficient to rebut the
presumption that GWI Enterprise is the most adequate plaintiff. See OFI Risk Arbitrages, 63 F.
Supp. at 403 (“The [competing movant] must produce more than speculation to rebut the
presumption. . . . Mere speculation about a unique defense does not meet this standard.”).
Regarding their tax haven allegations, Mac Phail Trust and Kreuser’s own exhibit includes the
following disclaimer: “There are legitimate uses for offshore companies and trusts. We do not
intend to suggest or imply that any persons, companies or other entities included in the ICIJ
Offshore Leaks Database have broken the law or otherwise acted improperly.” ECF 8-6 at 4.
Mac Phail Trust and Kreuser do suggest that GWI Enterprise has acted improperly, yet they
supply no additional proof in support of that accusation. Even assuming GWI Enterprise made
use of offshore tax havens, Mac Phail Trust and Kreuser make no attempt to explain why that
conduct would render GWI Enterprise inadequate to serve as lead plaintiff.
The parties presented their respective arguments in support of their claims for appointment
at oral argument, and the Court concludes that the presumption favoring GWI Enterprise remains
Appointment of Lead Counsel
Under the PSLRA, “[t]he most adequate plaintiff shall, subject to the approval of the court,
select and retain counsel to represent the class.” 15 U.S.C. § 78u-4(a)(3)(B)(v). But while “the
Court maintains discretion in appointing lead counsel to protect the interests of the class, the statute
evidences a strong presumption in favor of approving a properly-selected lead plaintiff’s decisions
as to counsel selection and counsel retention.” Hom v. Vale, S.A., Nos. 1:15-cv-9539, 1:16-cv658, 2016 WL 880201, at *7 (S.D.N.Y. Mar. 7, 2016) (quotation marks omitted).
Here, GWI Enterprise has moved for approval of its selected counsel, Levi & Korsinsky,
as lead counsel. ECF 7. In support of that request, GWI Enterprise has submitted a detailed firm
resume for Levi & Korsinsky, which indicates that the firm has experience serving as lead counsel
in complex securities class actions like the one here. ECF 7-6. Mac Phail Trust and Kreuser do
not dispute Levi & Korsinsky’s qualifications, nor did their counsel do so at oral argument.
In view of the foregoing, the Court sees no reason to disturb GWI Enterprise’s choice of
Levi & Korsinsky to serve as lead counsel.
For the foregoing reasons, GWI Enterprise’s motion is granted: The Court appoints GWI
Enterprise as lead plaintiff and approves the selection of Levi & Korsinsky as lead counsel. Mac
Phail Trust and Kreuser’s motion is accordingly denied.
Brooklyn, New York
October 6, 2017
I. Leo Glasser
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