Gusinsky v. Barclays PLC et al

Filing 192

OPINION AND ORDER re: 135 MOTION to Certify Class , Appointment of Class Representatives and Appointment of Class Counsel. filed by Carpenters Pension Trust Fund of St. Louis, St. Clair Shores Police & Fire Retirement System, Pom pano Beach Police & Firefighter's Retirement System, 157 MOTION to Preclude the Expert Opinions of John D. Finnerty. filed by Marcus A. P. Agius, Barclays Capital Inc, John Varley, Barclays Bank PLC, Barclays PLC. For the fo regoing reasons, plaintiffs' motion for class certification is GRANTED and defendants' motion to preclude plaintiffs' expert is DENIED. The Clerk of Court is directed to close these motions [Docket Nos. 135 and 157]. SO ORDERED. (As further set forth within this Opinion.) (Signed by Judge Shira A. Scheindlin on 8/20/2015) (ajs)

As a result of prior rulings, only two sets of alleged misstatements
remain in this case: Barclays’ London Interbank Offered Rate (“LIBOR”)
submissions from August 2007 through January 2009, which understated Barclays’
true borrowing costs, and Diamond’s remarks during a conference call with market
analysts on October 31, 2008.1 Diamond’s statements were that: (1) “we’re
categorically not paying higher rates in any currency” and (2) “we benefit in times
of turmoil, so we post where we’re transacting, and it’s clearly not at high levels.”2
Plaintiffs now move to certify a class consisting of all persons who
purchased Barclays PLC American Depositary Shares (“ADS”) between July 10,
2007 and June 27, 2012, inclusive (the “Class Period”), and who were damaged
thereby (the “Class”). They also request that the Court appoint Lead Plaintiffs
Carpenters Pension Trust Fund of St. Louis and St. Clair Shores Police & Fire
Retirement System as Class Representatives and Robbins Geller Rudman & Dowd
LLP (“Robbins Geller”) as Class Counsel.

1

See Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 750
F.3d 227 (2d Cir. 2014), affirming in part and reversing in part Gusinsky v.
Barclays PLC, 944 F. Supp. 2d 279 (S.D.N.Y. 2013); Carpenters Pension Tr.
Fund of St. Louis, St. Clair Shores Police & Fire Ret. Sys. v. Barclays PLC, 56 F.
Supp. 3d 549 (S.D.N.Y. 2014) (“Carpenters II”). For purposes of this Opinion and
Order, familiarity with these prior rulings — including the general background and
facts alleged in the Second Amended Complaint (“Complaint”) — is assumed.
2

Complaint ¶ 108.
2

To be certified, a putative class must demonstrate that it satisfies all
four of the requirements of Rule 23(a)3 and one of the categories of Rule 23(b) of
the Federal Rules of Civil Procedure. In this case, plaintiffs seek certification
based on Rule 23(b)(3). For the following reasons, plaintiffs’ motion for class
certification is GRANTED, and defendants’ motion to preclude plaintiffs’ expert is
DENIED.
II.

LEGAL STANDARDS
A.

Rule 23(b)(3)
Under Rule 23(b)(3), certification is appropriate where “questions of

law or fact common to the members of the class predominate over any questions
affecting only individual members,” and class litigation “is superior to other
available methods for the fair and efficient adjudication of the controversy.”
The matters pertinent to these findings include the class members’
interests in individually controlling the prosecution or defense of
separate actions; the extent and nature of any litigation concerning
the controversy already begun by or against class members; the
desirability or undesirability of concentrating the litigation of the
claims in the particular forum; and the likely difficulties in
3

Rule 23(a) requires that the class be so numerous that joinder of all
members is impracticable, there are questions of law or fact common to the class,
the claims or defenses of the representative parties are typical of the claims or
defenses of the class, and the representative parties will fairly and adequately
protect the interests of the class. There is no dispute that plaintiffs have satisfied
these requirements, and after careful review of the record I hereby find that each
has been satisfied.
3

managing a class action.4
The predominance inquiry focuses on whether “a proposed class is
‘sufficiently cohesive to warrant adjudication by representation.’”5 It is akin to,
but ultimately “a more demanding criterion than,” the “commonality inquiry under
Rule 23(a).”6 Class-wide issues predominate “if resolution of some of the legal or
factual questions that qualify each class member’s case as a genuine controversy
can be achieved through generalized proof, and if these particular issues are more
substantial than the issues subject only to individualized proof.”7 The Second
Circuit has emphasized that “Rule 23(b)(3) requires that common questions
predominate, not that the action include only common questions.”8 In carrying out
this inquiry, the court may “consider the ‘. . . improbability that large numbers of

4

Fed. R. Civ. P. 23(b)(3)(A)-(D).

5

Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 133 S. Ct. 1184,
1196 (2013) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997)).
6

In re Nassau County Strip Search Cases, 461 F.3d 219, 225 (2d Cir.
2006) (citing Amchem, 521 U.S. at 623-24).
7

Catholic Healthcare W. v. U.S. Foodservice Inc. (In re U.S.
Foodservice Inc. Pricing Litig.), 729 F.3d 108, 118 (2d Cir. 2013) (internal
citations omitted).
8

Brown v. Kelly, 609 F.3d 467, 484 (2d Cir. 2010).
4

class members would possess the initiative to litigate individually.’”9
“Considering whether ‘questions of law or fact common to class
members predominate’ begins, of course, with the elements of the underlying
cause of action.”10 To sustain a claim for securities fraud under section 10(b), “a
plaintiff must prove (1) a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation or omission and the
purchase or sale of a security; (4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation.”11
Defendants opposing class certification often challenge plaintiffs’
claim of reliance.12 By the same token, it is well settled that if proof of individual
reliance were required, it would be impossible to meet the predominance

9

D’Alauro v. GC Servs. L.P., 168 F.R.D. 451, 458 (E.D.N.Y. 1996)
(quoting Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1165 (7th Cir.
1974)).
10

Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2184
(2011) (“Halliburton I”).
11

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S.
148, 157 (2008).
12

Reliance is typically the only ground on which to challenge
predominance because section 10(b) claims will almost always arise from a
common nucleus of facts surrounding the fraudulent misrepresentation of material
facts and the causal relationship between the correction of that misrepresentation
and the price of the security.
5

requirement.13 The predominance requirement is typically met in securities fraud
class actions by plaintiffs’ invocation of one of two presumptions developed by the
Supreme Court that obviate the need to prove reliance on an individual basis.14
These are the “Basic presumption” of reliance in fraudulent misstatement cases,
and the “Affiliated Ute presumption” of reliance in fraudulent omission cases.
Issues and facts surrounding damages have rarely been an obstacle to
establishing predominance in section 10(b) cases.15 In Comcast Corp. v.
Behrend,16 the Supreme Court held, in the context of an antitrust claim, that class
certification is appropriate only when class-wide damages may be measured based

13

See Halliburton I, 131 S. Ct. at 2185 (“Requiring proof of
individualized reliance from each member of the proposed plaintiff class
effectively would prevent such plaintiffs from proceeding with a class action, since
individual issues would overwhelm the common ones.”) (internal quotation marks
and alterations omitted).
14

See Basic Inc. v. Levinson, 485 U.S. 224, 241 (1988) (establishing
rebuttable presumption of reliance in fraudulent misstatement cases); Affiliated Ute
Citizens of the State of Utah v. United States, 406 U.S. 128, 154 (1972)
(establishing presumption of reliance in fraudulent omission cases).
15

See, e.g., In re Fogarazzo v. Lehman Bros., Inc., 263 F.R.D. 90, 109
(S.D.N.Y. 2009) (“‘[T]he fact that damages must be calculated on an individual
basis is no impediment to class certification.’”) (quoting Klay v. Humana, 382 F.3d
1241, 1260-61 (11th Cir. 2004)) (citing Gunnells v. Healthplan Servs., Inc., 348
F.3d 417, 429 (4th Cir. 2003)) (“The possibility that individualized inquiry into
Plaintiffs’ damages claims will be required does not defeat the class action because
common issues nevertheless predominate.”)).
16

133 S. Ct. 1426 (2013).
6

on the theory of injury asserted by the plaintiffs. The Second Circuit has rejected a
broad reading of Comcast:
Comcast [ ] did not hold that a class cannot be certified under
Rule 23(b)(3) simply because damages cannot be measured on a
classwide basis. Comcast’s holding was narrower. Comcast held
that a model for determining classwide damages relied upon to
certify a class under Rule 23(b)(3) must actually measure damages
that result from the class’s asserted theory of injury; but the Court
did not hold that proponents of class certification must rely upon
a classwide damages model to demonstrate predominance. . . . .
To be sure, Comcast reiterated that damages
questions should be considered at the certification stage when
weighing predominance issues, but this requirement is entirely
consistent with our prior holding that “the fact that damages may
have to be ascertained on an individual basis is . . . a factor that we
must consider in deciding whether issues susceptible to
generalized proof ‘outweigh’ individual issues.” McLaughlin [v.
American Tobacco Co.], 522 F.3d [215,] 231 [2d Cir. 2008]. The
Supreme Court did not foreclose the possibility of class
certification under Rule 23(b)(3) in cases involving individualized
damages calculations.17
17

Roach v. T.L. Cannon Corp., 778 F.3d 401, 407-08 (2d Cir. 2015)
(internal citations omitted) (citing In re Deepwater Horizon, 739 F.3d 790, 817
(5th Cir. 2014) (construing the “principal holding of Comcast [as being] that a
‘model purporting to serve as evidence of damages . . . must measure only those
damages attributable to th[e] theory’ of liability on which the class action is
premised” (ellipsis and second alteration in original) (quoting Comcast, 133 S. Ct.
at 1433)); Butler v. Sears, Roebuck & Co., 727 F.3d 796, 799 (7th Cir. 2013)
(construing Comcast as holding only “that a damages suit cannot be certified to
proceed as a class action unless the damages sought are the result of the class-wide
injury that the suit alleges” (emphasis in original)); Leyva v. Medline Indus. Inc.,
716 F.3d 510, 514 (9th Cir. 2013) (interpreting Comcast to hold that class-action
plaintiffs “must be able to show that their damages stemmed from the defendant’s
actions that created the legal liability”); In re U.S. Foodservice Inc. Pricing Litig.,
729 F.3d at 123 n.8 (stating that “[p]laintiffs’ proposed measure for damages is
7

Thus, “[p]redominance is satisfied if resolution of some of the legal or factual
questions that qualify each class member’s case as a genuine controversy can be
achieved through generalized proof, and if these particular issues are more
substantial than the issues subject only to individualized proof.”18 And “the fact
that damages may have to be ascertained on an individual basis is not sufficient to
defeat class certification.”19
B.

Admissibility of Expert Testimony
The proponent of expert evidence bears the initial burden of

establishing admissibility by a “preponderance of the evidence.”20 For expert
testimony to be admissible under Federal Rule of Evidence (“FRE”) 702, the
witness must be “qualified as an expert by knowledge, skill, experience, training,
or education[.]”21 The court must then “compare the area in which the witness has
superior knowledge, education, experience or skill with the subject matter of the

thus directly linked with their underlying theory of classwide liability . . . and is
therefore in accord with the Supreme Court’s recent decision in Comcast”)).
18

Id. at 405 (internal quotation marks omitted).

19

Id. (internal quotation marks omitted).

20

United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007).

21

Fed. R. Evid. 702.
8

proffered testimony.”22
To be admissible, the proposed expert testimony must be based “on a
reliable foundation.”23 In assessing reliability, the trial judge should consider
whether:
(1) the testimony is based upon sufficient facts or data, (2) the
testimony is the product of reliable principles and methods, and
(3) the witness has reliably applied the principles and methods to
the facts of the case.24
Although the Supreme Court has instructed district courts to focus “on [the]
principles and methodology” employed by the expert and “not on the conclusions
that they generate,”25 “nothing in either Daubert v. Merrell Dow Pharmaceuticals
or the Federal Rules of Evidence requires a district court to admit opinion evidence
that is connected to existing data only by the ipse dixit of the expert.”26 Indeed,
“[a] court may conclude that there is simply too great an analytical gap between the

22

United States v. Tin Yat Chin, 371 F.3d 31, 40 (2d Cir. 2004).

23

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993).
Accord Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147-49 (1999).
24

Fed. R. Evid. 702.

25

Daubert, 509 U.S. at 595.

26

Kumho Tire, 526 U.S. at 157 (internal quotation marks and citations

omitted).
9

data and the opinion proffered.”27
District courts are charged with acting as “‘gatekeeper[s] to exclude
invalid and unreliable expert testimony,’”28 and are given “broad discretion” to
make such determinations.29 However, trial courts must consider only the
admissibility of expert evidence rather than its weight or credibility. “As the
Supreme Court has explained, ‘[v]igorous cross-examination, presentation of
contrary evidence, and careful instruction on the burden of proof are the traditional
and appropriate means of attacking shaky but admissible evidence.’”30 Thus, the
Second Circuit favors an inclusive approach to the admission of expert testimony,
noting that Daubert contemplates “liberal admissibility standards”31 and
“reinforces the idea that there should be a presumption of admissibility of
evidence.”32

27

General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).

28

Baldwin v. EMI Feist Catalog, Inc., 989 F. Supp. 2d 344, 349
(S.D.N.Y. 2013) (quoting Bickerstaff v. Vassar Coll., 196 F.3d 435, 449 (2d Cir.
1999)).
29

Davis v. Carroll, 937 F. Supp. 2d 390, 413 (S.D.N.Y. 2013). Accord
Amorgianos v. National R.R. Passenger Corp., 303 F.3d 256, 265 (2d Cir. 2002).
30

Amorgianos, 303 F.3d 256 at 267 (quoting Daubert, 509 U.S. at 596).

31

Id.

32

Borawick v. Shay, 68 F.3d 597, 610 (2d Cir. 1995).
10

Finally, it is often the case that some, but not all, of an expert’s
opinions will meet the criteria of FRE 702. Indeed, it is routine for a party to retain
a single expert to opine on a variety of issues that, while related, can be analyzed
independently under the Daubert standard. In such cases, the court, as gatekeeper,
has discretion to decide which opinions are reliable and which are not, from which
it follows that a court may exclude portions of an expert report while admitting
other portions.33
III.

APPLICABLE LAW
A.

The Presumption of Reliance for Omissions
The Supreme Court has held that a presumption of reliance may apply

in section 10(b) cases in which plaintiffs have alleged that defendants failed to
disclose information. In Affiliated Ute Citizens of the State of Utah v. United
States, the Court held that where a plaintiffs’ fraud claims are based on omissions,
reliance may be satisfied so long as the plaintiff shows that defendants had an
obligation to disclose the information and the information withheld is material.34
This presumption may be rebutted by evidence that even if the material facts had
33

See Laumann v. National Hockey League, --- F. Supp. 3d ----, No. 12
Civ. 1817, 2015 WL 3542322, at *22 (S.D.N.Y. May 29, 2015) (holding in
consumer antitrust case that expert’s consumer demand model was not admissible
but that his supply side analysis satisfied FRE 702).
34

See 406 U.S. at 154.
11

been disclosed, plaintiffs’ decision to enter into the transaction would have been
the same.35
B.

The Presumption of Reliance for Misstatements
1.

The Basic Presumption

The Supreme Court has also held that a presumption of reliance may
apply in section 10(b) cases in which plaintiffs have alleged that defendants made
fraudulent misstatements. In Basic v. Levinson, the Supreme Court recognized that
plaintiffs are typically entitled to a rebuttable presumption based on the “fraud-onthe-market” theory.36 Under this theory, “‘the market price of shares traded on
well-developed markets reflect all publicly available information, and, hence, any
material misrepresentations.’”37 To invoke the Basic presumption, a plaintiff must
prove that: (1) the alleged misrepresentations were publicly known, (2) they were
material, (3) the stock traded in an efficient market, and (4) the plaintiff traded the
stock between when the misrepresentations were made and when the truth was

35

See, e.g., In re Initial Pub. Offering Sec. Litig., 260 F.R.D. 81, 93
(S.D.N.Y. 2009).
36

See 485 U.S. at 241.

37

Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2413
(2014) (“Halliburton II”) (quoting Basic, 485 U.S. at 246).
12

revealed.38
2.

The Basic Presumption at Class Certification

The Basic presumption does not relieve plaintiffs of the burden of
proving predominance under Rule 23(b)(3).39 Plaintiffs can establish
predominance at the class certification stage by satisfying the prerequisites of the
Basic presumption.40 The first three prerequisites — publicity, materiality, and
market efficiency — are directed at “price impact” — “whether the alleged
misrepresentation affected the market price in the first place.”41 “In the absence of
price impact, Basic’s fraud-on-the-market theory and presumption of reliance
collapse.”42 Significantly, however, the Supreme Court made clear in Halliburton
II that plaintiffs are not required to prove price impact directly to invoke the Basic
presumption. Rather, market efficiency and the other prerequisites for invoking

38

See id. (citing Basic, 485 U.S. at 248, n.27).

39

See id. at 2412.

40

See id. However, in Amgen Inc. v. Connecticut Retirement Plans and
Trust Funds, the Supreme Court held that materiality does not need to be proven
before a class can be certified, but is instead left to be addressed at the merits stage.
See 133 S. Ct. at 1195-96.
41

Halliburton II, 134 S. Ct. at 2414 (internal quotation marks omitted).

42

Id. (quotation marks, alterations, and citations omitted).
13

the presumption serve as a proxy for price impact.43 Furthermore, in Halliburton I
the Supreme Court held that a securities fraud plaintiff need not establish loss
causation — i.e., that plaintiffs’ damages were caused by the fraud and nothing
else — in order to certify a class.44 In so holding, the Supreme Court explained
that loss causation was not an element of reliance.45
Halliburton II held that defendants may submit price impact evidence
prior to class certification for the purpose of rebutting the Basic presumption. This
is because “an indirect proxy should not preclude direct evidence when such
evidence is available.”46 Thus, “any showing that severs the link between the
alleged misrepresentation and the price received (or paid) by the plaintiff will be
sufficient to rebut the presumption of reliance because the basis for finding that the
43

See id. at 2414-15.

44

In order to establish loss causation, a plaintiff must prove that the
decline in the stock was “because of the correction to a prior misleading statement
and that the subsequent loss could not otherwise be explained by some additional
factors revealed then to the market.” Halliburton I, 131 S. Ct. at 2185 (internal
quotation marks omitted) (citing Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 342
(2005)). However, “[t]he fact that a subsequent loss may have been caused by
factors other than the revelation of a misrepresentation has nothing to do with
whether an investor relied on the misrepresentation in the first place, either directly
or presumptively through the fraud-on-the-market theory. Loss causation has no
logical connection to the facts necessary to establish the efficient market predicate
to the fraud-on-the-market theory.” Id. at 2186.
45

See id.

46

Halliburton II, 134 S. Ct. at 2415.
14

fraud had been transmitted through market price would be gone.”47
3.

Degree of Efficiency After Halliburton II

There are three general forms of the efficient capital markets
hypothesis:
First is the weak form, which asserts simply that the current share
price in an efficient market reflects all information about past
share prices. If the weak form of the hypothesis accurately
describes a market, it is impossible to predict future prices using
only past prices. Second, the semi-strong form, which asserts that
a share price in an efficient market reflects all public information
concerning the security (including but not limited to past share
prices). Third, the strong form, which asserts that all relevant
information, public and private, is reflected in the price of
securities in an efficient market. The strong form has been widely
discredited.48
Although Basic did not explicitly endorse any of these forms of an efficient
market, many courts had presumed that plaintiffs must establish the semi-strong
form.49

47

Id. at 2415-16 (internal quotation marks and alterations omitted).

48

In re Initial Pub. Offering Sec. Litig., 260 F.R.D. at 98 n.148 (citing
Daniel R. Fischel, Efficient Capital Markets, The Crash, and the Fraud on the
Market Theory, 74 Cornell L. Rev. 907, 910-11 (1989)).
49

See, e.g., id. (“The semi-strong form is the form that generally
concerns courts, and is the form to which I refer in this Opinion.”) (citing ATSI
Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 100 n.4 (2d Cir. 2007) (“The
efficient capital market hypothesis, as adopted by the Supreme Court, posits that
‘the market price of shares traded on well-developed markets reflects all publicly
available information.’”) (quoting Basic, 485 U.S. at 246)).
15

In Halliburton II, however, the Supreme Court clarified that in
recognizing the presumption of reliance, the Basic court did not adopt any
particular theory of market efficiency.50 Instead, the Basic presumption is based
“on the fairly modest premise that ‘market professionals generally consider most
publicly announced material statements about companies, thereby affecting stock
market prices.’”51 “[I]n making the presumption rebuttable, Basic recognized that
market efficiency is a matter of degree and accordingly made it a matter of
proof.”52 Debates about the “precise degree to which stock prices accurately
reflect public information are [ ] largely beside the point.”53 Furthermore, “[t]hat
the price of a stock may be inaccurate does not detract from the fact that false
statements affect it, and cause loss, which is all that Basic requires.”54 The fact that

50

See Halliburton II, 134 S. Ct. at 2410. Halliburton had argued that the
Supreme Court should overrule Basic in part because “overwhelming empirical
evidence now suggests that capital markets are not fundamentally efficient”
because “public information is often not incorporated immediately (much less
rationally) into market prices.” Id. at 2409 (internal quotation marks omitted).
While Halliburton did not argue that capital markets are always inefficient, “in its
view, Basic’s fundamental error was to ignore the fact that efficiency is not a
binary, yes or no question.” Id. (internal quotation marks omitted).
51

Id. at 2410 (quoting Basic, 485 U.S. at 247, n.24).

52

Id.

53

Id. (emphasis in original).

54

Id. (internal quotation marks and alterations omitted).
16

Basic does not require that stocks reflect all public information within any specific
time-frame or to any specific degree, necessarily affects the required proof of the
relationship between stock movement and unexpected news.
4.

Proving Market Efficiency55

In an efficient market there are “[l]arge numbers of rational and
intelligent investors,” and “[i]mportant current information” that is “almost freely
available to all participants . . . .”56 Because it is difficult to test for these
requirements directly, courts use a variety of factors to evaluate whether a market
for securities is efficient.
In Cammer v. Bloom, the court enumerated five factors that are
frequently used to determine whether a market is efficient.57 These factors are (1)
the average weekly trading volume; (2) the number of analysts who follow the
stock; (3) the existence of market makers and arbitrageurs; (4) the ability of the

55

In this section, I incorporate without citation large portions of my
opinion in In re Initial Public Offering Securities Litigation, 260 F.R.D. 81.
56

Paolo Cioppa, The Efficient Capital Market Hypothesis Revisited:
Implications of the Economic Model for the United States Regulator, 5 Global
Jurist Advances 1, 5-6 (2005). The first component does not require that all
investors be rational and intelligent, merely that there be enough rational,
intelligent investors to outweigh any irrational actions. See id. at 5.
57

See 711 F. Supp. 1264, 1283-87 (D.N.J. 1989).
17

company to file Securities Exchange Commission (“SEC”) Form S-3;58 and (5)
evidence of share price response to unexpected news. The court in Krogman v.
Sterritt added three factors. First, the court noted that investors tend to be more
interested in companies with higher market capitalizations, thus leading to more
efficiency.59 Second, the court determined that a small bid-ask spread indicated
that trading in the stock was inexpensive, suggesting efficiency.60 Third, the court
looked to the percentage of shares that were available to the public. Because
insiders are more likely to have private information, if substantial portions of
shares are held by insiders, the price is less likely to reflect only the total of all
public information.61
a.

Average Weekly Trading Volume

High volume suggests efficiency “because it implies significant
investor interest in the company. Such interest, in turn, implies a likelihood that

58

See generally Cioppa, 5 Global Jurist Advances at 28 (“The SEC’s
three tiered system recognized that markets for different securities in the United
States are efficient to different degrees. Essentially, moving from the S1 filers to
the S3 filers, the more widely traded and followed the issuing company and the
longer it has traded, the more efficient the market for it and the less information it
must disclose in its registration statements.”).
59

See 202 F.R.D. 467, 478 (N.D. Tex. 2001).

60

See id.

61

See id.
18

many investors are executing trades on the basis of newly available or
disseminated corporate information.”62 Cammer supposes that turnover of two
percent or more of outstanding shares would justify a strong presumption of
efficiency, while turnover of one percent would justify a substantial presumption.63
b.

Number of Securities Analysts

Cammer recognizes that a stock covered by a “significant number of
analysts” is more likely to be efficient because such coverage implies that
investment professionals are following the company and making buy/sell
recommendations to investors.64
c.

Existence of Market Makers and Arbitrageurs

Cammer explains that “[t]he existence of market makers and
arbitrageurs would ensure completion of the market mechanism; these individuals
would react swiftly to company news and reported financial results by buying or
selling stock and driving it to a changed price level.”65 Krogman responded that
the mere number of market makers, without more, is essentially meaningless;

62

Cammer, 711 F.Supp. at 1286.

63

See id. (citing Bromberg & Lowenfels, 4 Securities Fraud and
Commodities Fraud § 8.6 (Aug. 1988)).
64

Id.

65

Id. at 1286-87.
19

“what is important is ‘the volume of shares that they committed to trade, the
volume of shares they actually traded, and the prices at which they did so.’”66 One
study has found that the number of market makers is not correlated with the
efficiency of the market.67 Nevertheless, this factor can provide reasonable
guidance in determining whether the Basic presumption applies.
d.

Eligibility to File Form S-3

The SEC permits a company to file Form S-3 when, in the SEC’s
judgment, the market for shares in the company is reasonably efficient at
processing information.68 Cammer emphasized the SEC’s statement that the Form
S-3 is “‘predicated on the Commission’s belief that the market operates efficiently
for these companies [that file Form S-3s], i.e., that the disclosure in Exchange Act
reports and other communications by the registrant, such as press releases, has

66

Krogman, 202 F.R.D. at 476 (quoting O’Neil v. Appel, 165 F.R.D.
479, 501-02 (W.D. Mich. 1996)).
67

See Dr. Allen Michel et al., 24 Am. Bankr. Inst. J. 58, 60 (2005)
(citing Brad Barber et al., The Fraud–on–the–Market Theory and the Indicators of
Common Stocks’ Efficiency, 19 J. Corp. L. 285, 286 (1994)).
68

See Cammer, 711 F. Supp. at 1284 (observing that the SEC permits
seasoned issuers to incorporate by reference because “‘[t]o the extent that the
market accordingly acts efficiently, and this information is adequately reflected in
the price of a registrant’s outstanding securities, there seems little need to reiterate
this information in a prospectus in the context of a distribution’”) (quoting SEC
Securities Act Release No. 6235, 45 Fed. Reg. 63,693 (1980)).
20

already been disseminated and accounted for by the market place.’”69 Deferring to
the SEC’s expertise in this area, I agree that this factor provides a strong indication
of efficiency.
e.

Cammer 5

Cammer 5 — empirical evidence of price changes in response to
unexpected information — is often highly probative of efficiency.70 However,
there is no consensus as to how quickly share prices must change to justify a
finding of efficiency.
Cammer 5 is often proven with an event study. An event study is “a
statistical regression analysis that examines the effect of an event . . . on a
dependent variable, such as a company’s stock price.”71 An event study has four
parts: defining the event (e.g., an earnings announcement), establishing the
announcement window (i.e., the period over which stock price changes are

69

Id. (quoting SEC Securities Act Release No. 6331, 46 Fed. Reg.
41,902 (1981) (emphasis in original).
70

See id. at 1287 (stating that “it would be helpful to a plaintiff seeking
to allege an efficient market to allege empirical facts showing a cause and effect
relationship between unexpected corporate events or financial releases and an
immediate response in the stock price” and noting that this factor is “the essence of
an efficient market and the foundation for the fraud on the market theory”).
71

Michael J. Kaufman & John M. Wunderlich, Regressing: The
Troubling Dispositive Role of Event Studies in Securities Fraud Litigation, 15
Stan. J. L. Bus. & Fin. 183, 190 (2009) (internal quotation marks omitted).
21

calculated), measuring the expected return of the stock, and computing the
abnormal return (which is the actual return minus the expected return).
Performing the third step, “requires the expert to isolate the effect of
the event from other market, industry, or company-specific factors simultaneously
affecting the company’s stock price.”72 “A large abnormal stock price movement
occurring at the same time the market receives news about an event suggests that
the event caused the abnormal price movement.”73
In sum:
[A]n event study is similar to a medical experiment in which there
is a control group and a treatment group. The control group
provides the benchmark against which the treatment group is
compared to determine if the event being studied had any effect.
In a securities setting, the control group is established by
modeling the normal relationship of a stock’s price movements to
movements of a market and/or industry index. The difference
between the stock price movement we actually observe and the
movement we expected to observe (i.e. the difference between the
treatment and the control group) that occurs upon the release of a
particular piece of information is called the excess price
movement of the stock at the time of the event. This excess price
movement is tested for statistical significance to see whether the
result is unusual or unlikely to be explained by the normal random
variations of the stock price.74
72

Id. at 192.

73

Id. at 193 (internal quotation marks omitted).

74

Id. at 193-94 (internal quotation marks omitted). Accord In re
Federal Home Mortg. Corp. (Freddie Mac) Sec. Litig., 281 F.R.D. 174, 178
(S.D.N.Y. 2012) (explaining, in a case that pre-dates Halliburton II, that in an
22

In most scientific work, the level needed to obtain a statistically significant result is
set at a five percent level of significance, which means that there is no more than a
five percent chance that the observed relationship is purely random.
f.

Other Factors

The markets for companies with higher market capitalizations and
shares with a smaller bid-ask spread are more likely to be efficient.75 The
percentage of shares available to the public generally bears a direct relationship to
efficiency.76 A put-call parity relationship between the share price and the prices
of the put and call options written on the share indicates that the market for the
stock and the options written on the stock are efficient.77 In an efficient market,
stock returns follow what is known as a “random walk,” meaning that investors
event study “[t]he actual price of the security during the event is compared against
the expected price, which is calculated based on the security’s historical
relationship to a market index. This historical relationship is measured over a
‘control period.’ The difference between the stock’s actual price and the expected
price is defined as an ‘abnormal return.’ A. Craig MacKinlay, Event Studies in
Economics and Finance, 35 J. Econ. Lit. 13, 14-16 (1997). In an efficient market,
stock prices should show statistically significant abnormal returns on days in which
unexpected, material information is released into the market.”).
75

See Krogman, 202 F.R.D. at 478.

76

See id.

77

Arbitrageurs correct put-call disparities by engaging in short-sales.
When short-selling bans restrict an arbitrageur’s ability to exploit put-call
disparities, these constraints may cause the stock to be overpriced. Thus, put-call
parity violations and short-selling constraints may result in inefficiency.
23

cannot use past stock price movements to predict the next day’s stock price
movement.78
In addition, some courts have held that if “‘a security is listed on the
NYSE . . . or a similar national market, the market for that security is [often]
presumed to be efficient.’”79 While other courts have been reluctant to conclude
that a stock was traded efficiently solely because it was traded on the NYSE or
NASDAQ, most courts agree that such listing is a good indicator of efficiency.80
78

See generally Eugene F. Fama and Kenneth R. French, Permanent
and Temporary Components of Stock Prices, 96 Journal of Political Economy 2
(1988).
79

Wagner v. Barrick Gold Corp., 251 F.R.D. 112, 119 (S.D.N.Y. 2008)
(quoting Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., No.
05 Civ. 1898, 2006 WL 2161887, at *5 (S.D.N.Y. Aug. 1, 2006)). Accord
Stevelman v. Alias Research, No. 91 Civ. 682, 2000 WL 888385, at *4 (D. Conn.
June 22, 2000) (“For stocks . . . that trade on a listed exchange such as NASDAQ,
[the] reliance element of a 10b-5 cause of action is presumed.”).
80

See In re DVI, Inc. Sec. Litig., 639 F.3d 623, 634 (3d Cir. 2011)
(“[T]he listing of a security on a major exchange such as the NYSE or the
NASDAQ weighs in favor of a finding of market efficiency.”); Lapin v. Goldman
Sachs & Co., 254 F.R.D. 168, 183 (S.D.N.Y. 2008) (“[N]o argument can be made
that the [NYSE] is not an efficient market.”); In re Initial Pub. Offering Sec. Litig.,
544 F. Supp. 2d 277, 296 n.133 (S.D.N.Y. 2008) (“[T]he federal courts are
unanimous in their agreement that a listing on the NASDAQ or a similar national
market is a good indicator of efficiency”); RMED Int’l v. Sloan’s Supermarkets,
185 F. Supp. 2d 389, 404-05 (S.D.N.Y. 2002) (“Indeed, research has failed to
reveal any case where a stock traded on the AMEX was found not to have been
traded in an open and efficient market. . . . Rather, to the contrary, numerous
courts have held that stocks trading on the AMEX are almost always entitled to the
presumption.”) (citations omitted); In re Diamond Foods, Inc., Sec. Litig., 295
F.R.D. 240, 250 (N.D. Cal. 2013) (“[D]efendant [has not] identified any authority,
24

In unusual circumstances, courts have found that stocks traded on
major exchanges are not traded on an efficient market. Defendants rely on IBEW
Local 90 Pension Fund v. Deutsche Bank AG and In re Federal Home Mortgage
Corporation (Freddie Mac) Securities Litigation.81 However, in neither of these
cases were the stocks at issue common stock or ADS. In Deutsche Bank, the stock
at issue was a global registered share, which unlike common stock or ADS, trade
globally on various markets, and only a small percentage of those shares traded on
the NYSE.82 And in Freddie Mac, the securities were “a limited series of preferred
shares, which are traded in patterns significantly different from the trading patterns

binding or otherwise, that has held that common shares traded on the NASDAQ are
not traded in an efficient market.”); Lumen v. Anderson, 280 F.R.D. 451, 459
(W.D. Mo. 2012) (noting that Basic itself recognized the NYSE was an efficient
market”); Cheney v. Cyberguard Corp., 213 F.R.D. 484, 498 (S.D. Fla. 2003)
(“NASDAQ . . . is more likely than not to be considered an efficiently traded
market”); Levine v. SkyMall, Inc., No. 99 Civ. 166, 2002 WL 31056919, at *5 (D.
Ariz. May 24, 2002) (“Although not dispositive, the fact that SkyMall stock is
traded on the NASDAQ stock market’s National Market System also contributes to
finding that the market is efficient.”); Appel, 165 F.R.D. at 504 (stating that “[t]he
market system upon which a particular stock trades provides some insight as to the
likelihood that the market for that stock is efficient”).
81

See generally IBEW Local 90 Pension Fund v. Deutsche Bank AG,
No. 11 Civ. 4209, 2013 WL 5815472 (S.D.N.Y. Oct. 29, 2013) (holding that
market efficiency had not been established in a case in which the security at issue
traded on the NYSE); Freddie Mac, 281 F.R.D. 174 (same).
82

See 2013 WL 5815472, at *3-4 (noting that only two percent of the
global registered shares traded on the NYSE).
25

typical of common shares.”83
IV.

THE OPINION OF PLAINTIFFS’ EXPERT
Plaintiffs’ expert, Dr. John D. Finnerty, opines that the market for

Barclays ADS was open, developed, and efficient during the Class Period based on
two reports which contain two event studies, although plaintiffs now rely only on
the second event study.84 Despite Halliburton II, Dr. Finnerty employed the semistrong definition of market efficiency when conducting his analysis.85 In reaching
his conclusion, Dr. Finnerty analyzed numerous factors courts have considered
when assessing whether the market for a security is efficient. One of those factors
was an event study. In performing this event study, Dr. Finnerty selected every
earnings release date during the Class Period which contained surprise information.
83

In re Computer Sci. Corp. Sec. Litig., 288 F.R.D. 112, 120 (E.D. Va.
2012). In addition, the Freddie Mac court explicitly required proof of efficiency at
the semi-strong level. See 281 F.R.D. at 177 (“The fraud on the market theory is
based on the semi-strong form of market efficiency.”).
84

See generally 2/9/15 Declaration of John D. Finnerty, Ph.D., in
Support of Lead Plaintiffs’ Motion for Class Certification (“Finnerty I”) and
4/17/15 Declaration of John D. Finnerty, Ph.D. in Support of Lead Plaintiffs’
Motion for Class Certification (“Finnerty II”). Plaintiffs stated on the record of the
hearing on class certification that they were not relying on the first event study.
See 7/15/15 Hearing Transcript (“Tr. I”), at 16:1-17; 7/16/15 Hearing Transcript
(“Tr. II”), at 229:16-17 (“As plaintiffs, we’re not relying on [the event study in]
Finnerty I.”).
85

See Tr. I at 29:9-12 (“I employ the semi-strong form definition, which
is customary in 10b-5 cases.”).
26

He then determined earnings surprise predictions by reviewing the mix of
information released into the market for Barclays ADS using a method that
corresponds to a method advocated by defendants’ expert, Dr. Paul Gompers.86
His event study found statistically significant price reactions at the five percent
level or better on five of the fifteen event days, and all fifteen event days exhibited
the expected directional movements.
V.

DISCUSSION
The primary focus of defendants’ objection to class certification is

that plaintiffs cannot satisfy predominance under Rule 23(b). According to
defendants, plaintiffs cannot satisfy class-wide reliance based on either Basic or
Affiliated Ute and that under Comcast individual damages issues will predominate.
Defendants’ arguments directed to the Basic presumption and Comcast are
supported by a motion pursuant to FRE 702 and Daubert.
I begin with a discussion of Cammer 5, because defendants’
arguments as to the application of the Basic presumption rest on the notions that
this factor is the sine quo non of market efficiency and that the factor can only be
satisfied with an event study. I then consider defendants’ challenge under Daubert.

86

Dr. Gompers submitted declarations in response to both Finnerty I and
Finnerty II. See 3/3/15 Declaration of Paul A. Gompers, PH.D. (“Gompers I”);
5/29/15 Supplemental Declaration of Paul A. Gompers, PH.D. (“Gompers II”).
27

Next, I analyze the factors relevant to a determination of market efficiency.
Finally, I address the Affiliated Ute presumption, defendants’ claim that Comcast
compels denial of class certification, and the appointment of both Class
Representatives and Class Counsel.
A.

Cammer 5 Is Not Dispositive of Market Efficiency
Defendants chide plaintiffs for “plod[ding] through each of the factors

identified in Cammer [and Krogman], as supposedly indicative of market
efficiency.”87 For defendants, this exercise is pointless under Teamsters Local 445
Fright Division Pension Fund v. Bombardier which, in defendants’ view, makes
Cammer 5 “not only the ‘most important test’ of efficiency, but a test that has to be
passed” to establish efficiency for the predominance requirement.88 Defendants
contend that plaintiffs cannot satisfy Cammer 5 because Dr. Finnerty’s event
studies “yield irreconcilable results and suffer from numerous methodological
errors that render his opinions irrelevant, unreliable and thus inadmissable” under
FRE 702 and Daubert.89 This, defendants argue, “should end the inquiry.”90
87

Defendants’ Memorandum of Law in Opposition to Plaintiffs’ Motion
for Class Certification (“Def. Mem.”), at 6.
88

Id. (internal quotation marks, citations, and alterations omitted)
(quoting Bombardier, 546 F.3d at 207).
89

Id.

90

Id.
28

Defendants arguments are unpersuasive. The Second Circuit has not
adopted a specific test for market efficiency and explicitly declined to do so in
Bombardier.91 While the Second Circuit endorsed the use of the Cammer factors
in Bombardier, it has not required their use or held that any one of them is
dispositive. A substantially similar approach has been taken by the Courts of
Appeals for the First, Third, Fourth, Fifth, and Eleventh Circuits.92 The vast
majority of courts have used the Cammer factors as “an analytical tool rather than
as a checklist.”93 Indeed, not even the Cammer court considered the fifth factor
necessary, stating only that “it would be helpful to a plaintiff seeking to allege an
91

See Bombardier, 546 F.3d at 205, n.11 (“This Court has not adopted a
test for the market efficiency of stocks or bonds, and we do not do so here.”).
92

See In re PolyMedica Corp. Sec. Litig., 432 F.3d 1, 18 (1st Cir. 2005)
(“While we agree . . . that the [Cammer] factors considered by the district court
were relevant to the issue of market efficiency, these factors are not exhaustive.”);
In re DVI, 639 F.3d at 634 n.16 (“We have noted the Cammer factors may be
instructive depending on the circumstances.”); Gariety v. Grant Thornton, LLP,
368 F.3d 356, 368 (4th Cir. 2004) (citing Cammer for the proposition that, “to
determine whether a security trades on an efficient market, a court should consider
factors such as, among others, whether the security is actively traded, the volume
of trades, and the extent to which it is followed by market professionals”); Unger v.
Amedisys Inc., 401 F.3d 316, 323 (5th Cir. 2005) (“[T]his list [of eight factors,
including the five Cammer factors,] does not represent an exhaustive list, and in
some cases one of the above factors may be unnecessary.”); Local 703 v. Regions
Fin. Corp., 762 F.3d 1248, 1257 (11th Cir. 2014) (same).
93

Billhofer v. Flamel Techs., S.A., 281 F.R.D. 150, 159 (S.D.N.Y. 2012)
(citing Unger, 401 F.3d at 325). Accord Bombardier, 546 F.3d at 210 (“We
conclude [ ] that the district court properly used the Cammer factors as an
‘analytical tool[.]’”) (quoting Unger, 401 F.3d at 325).
29

efficient market . . . .”94
In most cases, evidence that a stock trades at high volumes on a large
national market, such as the NYSE or NASDAQ, and is followed by a large
number of analysts will be sufficient to satisfy the Basic presumption on class
certification.95 While defendants have managed to find one case that states that
94

Cammer, 711 F. Supp. at 1287 (emphasis added).

95

See, e.g., Regions Fin. Corp., 762 F.3d at 1255 (“[T]he market for a
stock is generally efficient when millions of shares change hands daily and [when
there is] a critical mass of investors and/or analysts who study the available
information and influence the stock price through trades and recommendations.”)
(internal quotation marks omitted); Fogarazzo v. Lehman Bros., Inc., 232 F.R.D.
176, 185 n.75 (S.D.N.Y. 2005) (“Defendants do not dispute that RSL was traded
on an efficient market. Moreover, RSL shares were traded on the NASDAQ
National Market . . . were traded at high volumes during the class period . . . [and
were] extensively followed by analysts and received extensive media attention.”)
(internal quotation marks omitted, alterations in original); In re Initial Pub.
Offering Sec. Litig., 227 F.R.D. 65, 107 (S.D.N.Y. 2004) (holding that “the record
in this case contains several strong indications that the market in which the focus
stocks traded was efficient. Three facts stand out as particularly probative: first, all
the focus stocks were traded on the NASDAQ National Market; second, the focus
stocks were traded actively at high volumes throughout the class period; and third,
the focus stocks were the subjects of numerous analyst reports and extensive media
coverage. Under any conceivable test for market efficiency, these three facts are
sufficient to meet plaintiffs’ Rule 23 burden.”). See also Smilovits v. First Solar,
Inc., 295 F.R.D. 423, 431 (D. Ariz. 2013) (“In keeping with Basic and the other
cases cited in the first paragraph of this section, the Court concludes that the
trading of First Solar stock on NASDAQ—a major, well-developed stock
exchange—weighs in favor of finding market efficiency. Defendants have not
identified any authority, binding or otherwise, that has held that common shares
traded on the NASDAQ are not traded in an efficient market. Moreover,
Defendants’ expert, Dr. Gompers, agrees that ‘[m]ost of the time, . . . stocks traded
on large national exchanges are likely to be efficient.’”) (internal quotation marks
30

Cammer 5 is dispositive — the Freddie Mac case involving preferred shares — the
court’s reasoning for adopting such a rule is tethered to its factual context.96
Different contexts require courts to place greater importance on some factors than
on others. No other court has adopted a per se rule that any one factor is
dispositive. At the same time, courts have found market efficiency in the absence
of an event study or where the event study was not definitive.97
and citations omitted); In re Computer Sci. Corp. Sec. Litig., 288 F.R.D. at 120 (“It
is not surprising that no other federal courts have concluded that common shares
traded on the NYSE are not traded in an efficient market.”); In re PolyMedica
Corp. Sec. Litig., 453 F. Supp. 2d 260, 278-79 (D. Mass. 2006) (stating “that
listing on such an exchange undisputably improves the market structure for trading
in a particular stock” and “that one would be hard-pressed to deny the relevance of
this fact in an efficiency analysis”).
96

See Freddie Mac, 281 F.R.D. at 183 (“Although the less important
Cammer and Krogman factors support an inference of efficiency, these factors
cannot substitute for evidence of a cause-and-effect relationship between
unexpected news and market price. This is the critical factor—the sine qua non of
efficiency. It speaks to the ‘essence’ of the efficient market hypothesis, and it is
the foundation of the fraud on the market theory. [Bombardier], 546 F.3d at 207.
The other Cammer and Krogman factors do not directly address the question of
efficiency. Without evidence of the prompt effect of unexpected news on market
price, the market cannot be called efficient.”).
97

See Winstar Commc’ns Sec. Litig., 290 F.R.D. 437, 448 (S.D.N.Y.
2013) (holding that although plaintiff’s expert “was unable to complete a formal
event study” due to lack of data, the expert had demonstrated efficiency by
“select[ing] five days on which news was released that she thought might be
material, and qualitatively analyz[ing] the change in the price of Winstar bonds
relative to the price change of the Lehman U.S. Bond Composite Index (a
market-wide bond index composed of investment grade government, agency,
corporate and mortgage-backed bonds)” and finding that on two of those days the
price changed in response to news); Aranaz v. Catalyst Pharm. Partners Inc., 302
31

Requiring a plaintiff to submit proof of market reactions — and to do
so with an event study — ignores Supreme Court precedent as well as practical
considerations. Event studies test for a degree of efficiency that may not be
required. Halliburton II makes clear that no specific degree of efficiency is
mandated to invoke the Basic presumption.98 Yet, event studies are designed to
F.R.D. 657, 669 (S.D. Fla. 2014) (finding market efficient for common stock even
though expert had not performed an event study and implicitly finding that
empirical evidence of the stock price change on the corrective disclosure date
satisfied Cammer 5); Computer Sci. Corp. Sec. Litig., 288 F.R.D. at 120 (rejecting
the argument that plaintiffs had failed to establish market efficiency because they
had not submitted an event study); Smilovits, 295 F.R.D. at 437 (holding that
where Cammer 1, 2, and 4 weighed in plaintiffs’ favor, Cammer 3 was partially
unsatisfied, and Cammer 5 did not favor either the plaintiffs or the defendants,
plaintiffs’ evidence was sufficient to establish market efficiency by a
preponderance of the evidence).
98

See Halliburton II, 134 S. Ct. at 2410. Despite this, defendants
wrongly contend that the semi-strong form of market efficiency is required under
Basic. See Tr. II at 253:24-25 (“I can tell you that Basic accepted the semistrong
form of the efficient market hypothesis.”). In fact, the Basic presumption is based
“on the fairly modest premise that ‘market professionals generally consider most
publicly announced material statements about companies, thereby affecting stock
market prices.’” Halliburton II, 134 S. Ct. at 2410 (quoting Basic, 485 U.S. at 247,
n.24). Defendants further argue that the semi-strong form is what matters because
the experts in this case have analyzed efficiency under the presumption that the
standard is the semi-strong form. However, an expert’s misconceptions about what
the law requires does not bind this Court. Defendants also stress that Dr. Finnerty
testified that an event study is necessary to demonstrate market efficiency. See
Def. Mem. at 6. However, Dr. Finnerty clarified during the class certification
hearing that an event study was not necessary to establish market efficiency if
other factors have been met. See Tr. I at 83:10-19. He then discussed a study that
demonstrated that Cammer 1 and 2 “were statistically significant in distinguishing
efficient markets from inefficient markets.” Id. at 83:21-84:14. And he explained
32

test the hypothesis “that publicly available information is impounded immediately
into stock prices such that an investor cannot earn abnormal profits by trading on
the information after its release.”99 The failure of an event study to show
immediate impoundment does not necessarily indicate whether the market is
efficient for purposes of the Basic presumption.
In academic research, event studies are almost exclusively conducted
with large samples of securities from a number of different firms.100 When the
event study is used in a litigation to examine a single firm, the chances of finding
that he relied on Cammer 5 because it was a direct test and the “most consistent
with the semi-strong form of market efficiency.” Id. at 84:18-20. Dr. Gompers —
who also applies the semi-strong form of market efficiency — disagrees, arguing
that from a “financial economics perspective,” one could not find market efficiency
without Cammer 5. Id. at 163:24-164:15. He also believes the inverse, that all one
needs is Cammer 5 in order to find market efficiency. See id. at 164:16-165:15.
99

Sanjai Bhagat & Roberta Romano, Event Studies and the Law: Part I:
Technique and Corporate Litigation, 4 Am. L. & Econ. Rev. 141, 142 (2002).
100

See Alon Brav and J.B. Heaton, Event Studies in Securities Litigation:
Low Power, Confounding Effects, and Bias at 3 (“Importing a methodology that
economists developed for use with multiple firms into a single firm context creates
three substantial difficulties: low statistical power, confounding effects, and
bias.”). Dr. Finnerty discussed the difference between event studies as conducted
in the academic literature and those used in section 10(b) cases. See Tr. I at 30:1432:13; 39:20-41:18; 114:15-115:14. In so doing, he noted that “the academic
literature is really talking about the portfolio [i.e., multi-firm approach], and it’s
the litigation or legal literature that is really the only place I’ve seen extended
discussions of this single-company approach.” Id. at 32:10-13. The notion that
event studies are the paramount tool for testing market efficiency comes from these
multi-firm event studies. However, courts have generally not distinguished
between the power of multi-firm and single firm event studies.
33

statistically significant results decrease dramatically.101 “[T]he event study
technique improves as the number of firms in the sample increase, as the number
of days in the announcement window decrease, and as the alternative of a larger
abnormal return is considered against the null hypothesis of zero abnormal
return.”102 As to the latter point, neither the Supreme Court nor the Second Circuit
has indicated whether the abnormal return must meet a particular threshold level,
yet the success of an event study will depend on the size of the return it attempts to
measure. The following example from the literature highlights the problems

101

See Bhagat & Romano, 4 Am. L. & Econ. Rev. at 149 (“An important
question is can an event study be conducted with just one firm, that is, is a sample
size of one acceptable? This question is especially relevant in court cases or
regulatory injunctions involving only one firm. Conceptually, a sample of one is a
rather small sample but this by itself does not invalidate the event study
methodology. However, the statistical power with a sample of one is likely to be
quite low. First, the variability of (abnormal) returns of a portfolio with just one
stock in it is significantly higher than a portfolio with even a few, say five, stocks
in it. Any standard finance or investment textbook will have a graph depicting the
sharp drop in variance of portfolio returns as the number of stocks in the portfolio
increases from one, to five, to ten; after about fifty stocks in the
portfolio the decrease in variance is quite small. Second, it is plausible that the
announcement period return of an announcing firm will be affected by other
information unrelated to the event under study. If a sample of one is considered, it
is quite difficult to determine the separate effects on firm value of the
announcement and of the unrelated information item(s). If the sample has several
firms, then the effect on firm value of such unrelated information is likely to cancel
out. As the sample size increases the effect on firm value of such unrelated
information (goes to zero) becomes less and less significant.”).
102

Id. at 148.
34

inherent in placing too much emphasis on event studies to measure market
efficiency:
[i]n a sample size of twenty-five companies, the probabilities of
detecting an abnormal return (or an effect on the stock price) of
0.5%, 1% and 2% is 24%, 71% and 100% respectively. But if the
sample size is increased to 100 companies, the probabilities of
detecting an abnormal return of 0.5%, 1%, and 2% is 71%, 94%,
and 100% respectively. Thus, there is significant difference in
detecting an abnormal return, or effect on the stock price,
depending on the size of the event study.103
A further problem is that in any particular case it may not be possible
to conduct an event study that looks at the relationship between the stock price and
unexpected news. For example, there may only be a few — or perhaps no —
unexpected events in a given class period that can be tested.104 This could be
because of the short length of the class period, a long period of uninteresting news,
or because the company has withheld the unexpected information.105 As just
discussed, the corollary of this is that event studies become increasingly unreliable

103

Kaufman & Wunderlich, 15 Stan. J. L. Bus. & Fin. at 232-33.

104

See Regions Fin. Corp., 762 F.3d at 1257 (“In any given case there
may be no unexpected disclosures during the period at all, because the company is
withholding that information.”).
105

It is true that different event study methodologies may be used in the
absence of unexpected news. In Freddie Mac the methodology was simply to look
at news days versus non-news days and to determine whether there were
substantially more statistically significant returns on news days than non-news
days. See 281 F.R.D. at 179-80.
35

when the period they covers increases.106
Likewise, the net result of Halliburton I and Halliburton II is that at
class certification, a plaintiff is not required to prove either price impact — stock
price movement based on the fraud — or loss causation — that the
misrepresentation caused a subsequent economic loss. Thus, it would be
inconsistent with this precedent to require a plaintiff to submit proof analyzing
stock price movement on days in which the alleged misrepresentations or
corrective disclosure are made.
For all these reasons, I conclude that in the ordinary case of a high
volume stock followed by a large number of analysts and traded on a national
exchange, whether a plaintiff can satisfy Cammer 5 is not dispositive. Nor is an
event study always necessary. Not even the Cammer court said that an event study
was required to satisfy the fifth factor,107 and defendants have not cited to any
controlling authority that holds that an event study is the only means to satisfy

106

See Bhagat & Romano, 4 Am. L. & Econ. Rev. at 148.

107

See 711 F. Supp. at 1287 (“Finally, it would be helpful to a plaintiff
seeking to allege an efficient market to allege empirical facts showing a cause and
effect relationship between unexpected corporate events or financial releases and
an immediate response in the stock price. This, after all, is the essence of an
efficient market and the foundation for the fraud on the market theory.”).
36

Cammer 5.108 In the usual case of common or other highly traded and analyzed
stock, there is no reason to burden the court with review of an event study and the
opposing expert’s attack of it. The exception, and this was also made clear in
Halliburton II, is when defendants present evidence of lack of price impact or that
the market was inefficient. In those cases, an event study or other rebuttal
evidence is required and class certification becomes a battle of competing expert
studies. Defendants here chose not to submit their own event study.
B.

Defendants’ Daubert Motion Is Denied109
Defendants’ Daubert challenge focuses almost exclusively on Dr.

Finnerty’s event studies. These attacks provide an insufficient basis to exclude Dr.
Finnerty’s testimony.
1.

Dr. Finnerty’s Testimony Is Relevant

108

In George v. China Automotive Sys., Inc., No. 11 Civ. 7533, 2013 WL
3357170, at *10 (S.D.N.Y. July 3, 2013), the court stated that “courts have noted,
event studies are the most reliable way of demonstrating market efficiency.”
However, the cases cited do not stand for that proposition. See In re Omnicom
Grp., Inc. Sec. Litig., 597 F.3d 501, 511-12 (2d Cir. 2010) (discussing event
studies in the context of loss causation); Wagner, 251 F.R.D. at 120 n.7 (quoting In
re Flag Telecom Holdings, Ltd. Sec. Litig., 245 F.R.D. 147, 161 (S.D.N.Y. 2007)
for the proposition that “‘numerous courts have held that an event study is a
reliable method for determining market efficiency and the market’s responsiveness
to certain events or information.’”) (emphasis added).
109

Defendants do not contest Dr. Finnerty’s qualifications, and I find that
he is well qualified to offer opinions on market efficiency.
37

Ignoring Halliburton II, defendants contend that Dr. “Finnerty’s
opinions are not relevant because they do not address the liability theory of the
case” in that Dr. “Finnerty found no ADS price movement in response to any
Barclays LIBOR submission.”110 However, the Supreme Court has made clear that
plaintiffs are not required to prove price impact on class certification, and Dr.
Finnerty has not been offered as an expert for this purpose.
Furthermore, a “material misstatement can impact a stock’s value
either by improperly causing the value to increase or by improperly maintaining
the existing stock price.”111 Dr. Finnerty testified that Barclays’ LIBOR

110

Memorandum of Law in Support of Defendants’ Motion to Exclude
the Expert Opinions of John D. Finnerty (“Def. Daubert”) at 10, 11 (emphasis in
original).
111

McIntire v. China MediaExpress Holdings, Inc., 38 F. Supp. 3d 415,
434 (S.D.N.Y. 2014). Accord Regions Fin. Corp., 762 F.3d at 1256 (“Regions’s
disclosures were designed to prevent a more precipitous decline in the stock’s
price, not bring about any change to it. When a company releases expected
information, truthful or otherwise, the efficient market hypothesis underlying Basic
predicts that the disclosure will cause no significant change in the price.”); Alaska
Elec. Pension Fund v. Pharmacia Corp., 554 F.3d 342, 349 (3d Cir. 2009)
(observing that misrepresentations that confirm prior market expectations are
unlikely to move stock prices); In re Vivendi Universal, S.A. Sec. Litig., 765 F.
Supp. 2d 512, 561 (S.D.N.Y. 2011) (“[C]ourts have suggested that a misstatement
may cause inflation simply by maintaining existing market expectations, even if it
does not actually cause the inflation in the stock price to increase on the day the
statement is made.”) (emphasis in original).
38

submissions were material omissions that maintained inflation in Barclays ADS.112
Price maintenance fits the theory of plaintiffs’ case, which is that “Barclays
submitted rates ‘nearer to the expected rates of other Contributor Panel banks’ to
‘deceive the market about the rate at which Barclays truly believed it could borrow
funds’” to counter perceptions about its well-documented liquidity problems.113
Where, as here, “a misrepresentation or omission merely confirms market
expectations, there will be no reactionary price impact.”114
2.

Dr. Finnerty’s Testimony Is Reliable

“In assessing reliability, the trial judge should consider whether: ‘(1)
the testimony is based upon sufficient facts or data, (2) the testimony is the product
of reliable principles and methods, and (3) the witness has reliably applied the
principles and methods to the facts of the case.’”115 Dr. Finnerty’s analyses readily
satisfy these considerations.

112

See 2/25/15 Transcript of Deposition of Dr. John D. Finnerty at 128:918; 193:22-194:2; 487:14-488:3.
113

Carpenters II, 56 F. Supp. 3d at 555 (quoting Complaint ¶¶ 171, 173)
(internal quotation marks omitted).
114

Martis Alex & Michael W. Stocker, Role of the Event Study in Loss
Causation Analysis, Corporate Counsel, (Aug. 20, 2009),
www.newyorklawjournal.com/PubArticleNY.jsp?id=1202433177190.
115

In re Longtop Fin. Techs. Ltd. Sec. Litig., 32 F. Supp. 3d 453, 460-61
(S.D.N.Y. 2014) (quoting Fed. R. Evid. 702).
39

As a threshold matter, defendants’ attack on Dr. Finnerty’s opinion
focuses almost exclusively on the event studies he performed in connection with
Cammer 5. This challenge is too narrow. It is widely accepted that analysis of the
Cammer and Krogman factors is a reliable and accepted methodology for
establishing market efficiency.116 Because there is no serious disagreement
concerning Dr. Finnerty’s methodology with respect to the majority of these
factors — and because I conclude that Cammer 5 is not required in this case —
there is no basis to reject Dr. Finnerty’s opinion that the market is efficient. This
conclusion is supported by his testimony concerning Cammer 1 through 4, the
additional analyses he performed, such as random walk tests and consideration of
the Krogman factors, and the general efficiency of the NYSE.
Furthermore, while an event study is not the only way to gather
empirical evidence in support of Cammer 5, Dr. Finnerty conducted such a study,
which is a generally accepted methodology for establishing market efficiency.
Finally, while one may question the probative value of the results of the Finnerty II
event study, Dr. Finnerty employed standard event study methodology. He first
selected news dates based on objective criteria. Next, he “compared consensus
116

See, e.g., In re Groupon Inc. Sec. Litig., Master File No. 12 C 2450,
2015 WL 1043321, at *3 (N.D. Ill. Mar. 5, 2015) (noting that Dr. Gompers,
defendants’ expert here, agrees that “experts employ a Cammer factor analysis to
assess market efficiency for purposes of securities litigation”).
40

pre-announcement estimates to the reported earnings” to locate earnings surprise
dates.117 He then reviewed the mix of information released into the market for
Barclays ADS to assess news items and evaluate the overall direction of sentiment
based on the collective body of news about Barclays released on the day of the
event.118
a.

Dr. Finnerty’s Opinion Relies on Sufficient Data

Defendants argue that Dr. Finnerty’s sample size is “far too small to
reliably extrapolate any of his purported findings across the entire five-year Class
Period” and cite to a case that stands for the proposition that the “probative value
of event studies” depends on “whether the study is based on a sufficiently large
number of observations.”119 As I have already noted, limitations on the number of
testable events are an accident of whether there are a sufficient number of suitable
events to be studied. When a court accepts the use of event studies to show market
efficiency, there must be awareness of both the limitations of what the tests can
show and what they are required to show. Finnerty II chooses every available date
on which there was an earnings surprise. Courts have endorsed this approach even

117

Finnerty II at ¶¶ 20-21.

118

See id.

119

Def. Daubert at 13 (citing In re Diamond Foods, Inc., Sec. Litig., 295
F.R.D. at 249) (quotation marks omitted).
41

when the sample is limited.120 While these cases are not controlling, neither are the
cases cited by defendants.121 The better approach is not to place arbitrary limits on
the number of sample days tested.
Defendants argue that a finding of five statistically significant days
out of fifteen is insufficient. Defendants are able to reduce this success rate even
further by noting that “of the four ‘earnings surprise’ dates in Finnerty II that fall
within Finnerty’s first two sub-periods between July 2007 and February 2009 —
the period during which all of the alleged misstatements were made — Finnerty
finds just one day with a [statistically] significant return.”122 And defendants
120

See Smilovits, 295 F.R.D. at 435-36 (adopting event study which used
as news days all sixteen earnings release dates in the almost four year class period);
Wilkof v. Caraco Pharm. Labs., Ltd., 280 F.R.D. 332, 345 (E.D. Mich. 2012) (five
event days); Schleicher v. Wendt, 2009 WL 761157 (S.D. Ind. 2009) (eleven event
days); In re HealthSouth Corp. Sec. Litig., 257 F.R.D. 260, 282 n.22 (N.D. Ala.
2009) (two event days).
121

Defendants’ cases are also distinguishable. See George, 2013 WL
3357170, at *11 (event days were days with analyst rating changes or earnings
guidance releases, not earnings surprises); Deutsche Bank, 2013 WL 5815472, at
*2-3 (study defective because stock traded on multiple exchanges and expert only
looked at one exchange and failed to consider the German market in which the vast
majority of the stock traded); Freddie Mac, 281 F.R.D. at 179 (determining
whether there were substantially more statistically significant returns on news days
than on non-news days for comparatively low-volume preferred stock).
122

Def. Daubert at 14. Dr. Finnerty testified that although the one
earnings release in the second sub-period in the study did not show a statistically
significant price reaction for the entire day, the result would have been different if
he had tested the morning and the afternoon separately. This is because the stock
had “plummeted” in the morning and then rose in the afternoon. Tr. I at 129:2-6.
42

contend that Dr. Finnerty’s analysis of the price movement on days in which he did
not find statistically significant results represents an abandonment of statistical
significance in favor of a subjective and unreliable economic significance
standard.123
However, the failure of Finnerty II to identify a certain percentage of
statistically significant days124 does not demonstrate that the methodology
employed was improper125 or that the results are irrelevant. For example, as
defendants’ expert agrees, for any unexpected news day there might not be a

In addition, there was a statistically significant price reaction on June 28, 2012, the
day after the disclosure of the fraud. See infra Part V.C.
123

See Def. Daubert at 9-15.

124

Defendants believe this figure should be fifty percent based on preHalliburton II, non-controlling law. See id. at 15 (citing George, 2013 WL
3357170, at *12 (showing that “only seven out of sixteen days resulted in a market
reaction is . . . insufficient”); Freddie Mac, 281 F.R.D. at 180-81 (“[S]howing that
the market reacted to news 28% of the time is insufficient.”). However, as
explained by another court, “[t]o require a stock to change on at least 50 percent of
potentially material news days ignores that, in many circumstances, the absence of
a price change on a potentially material news day is not inconsistent with an
efficient market.” McIntire, 38 F. Supp. 3d at 430. Accord Winstar Commc’ns
Sec. Litig., 290 F.R.D. at 448 (finding that two out of five days in an informal
analysis of price reactions to news events was sufficient).
125

See, e.g., Bhagat & Romano, 4 Am. L. & Econ. Rev. at 149
(observing that single-firm event studies may lack power and fail to separate the
effects of the event under study from confounding effects).
43

statistically significant result if the magnitude of the surprise is not that great126 or
if confounding news limits the impact of the surprise.127 Moreover, Dr. Finnerty
has not abandoned the role of statistical significance in favor of economic
significance. At the class certification hearing, Dr. Finnerty stated:
[A] number of articles and econometric books will point out that
one should not apply a strict mechanical test in deciding on
whether something is meaningful or economically significant.
Statistical significance is very useful and very helpful. So
if there’s a market response that is significant at the 1 percent
level or the 5 percent level, in all likelihood that’s pretty
significant. So I’m not going to say that’s not significant, but it’s
not determinative. So there could be situations where you have
information that doesn’t rise to the level of statistical significance
126

See 6/18/15 Transcript of Deposition of Dr. Paul Gompers (“Gompers
Dep.”), at 226:15-21 (stating that “the size of the surprise should affect the size of
the stock price movement”).
127

See Tr. I at 154:9-155:1 (Dr. Finnerty provided an example of when
confounding information on an earnings surprise news day may lead to a price
reaction that is not statistically significant: “Suppose that Barclays reports a
negative earnings surprise but on the same day indicates that it plans to increase the
dividend. It’s well-established in the literature that negative earnings surprises are
bad news and dividend increases are good news. That would be particularly
important for Barclays because during the class period, there was a lot of concern
about Barclays’ capital ratio, its regulatory capital ratios and the significance of the
dividend — if Barclays could pay a dividend, that would mean its capital ratios
were acceptable to the regulators. So when Barclays announced information
regarding its dividend actions that was always, always highlighted by the analysts.
So, in my example, negative earnings news, positive dividend news, and one could
actually outweigh — little unclear, unless you look at how the analysts react,
which one would outweigh the other. But what we normally expect is they would
pretty much offset, and I would expect that the reaction would not be statistically
significant.”).
44

at the 5 percent level, but the event is significant enough that a
reasonable investor would say that would affect his or her
investment decision.
....
So the accusation, if you will, that I’ve abandoned
statistical significance is not true. But I’m using statistical
significance, I believe, properly and putting it in its place. If one
were simply using statistical significance as the sole determinative
of economic significance, you wouldn’t need Professor Gompers
or me; you’d just hire a statistician, and the statistician would just
run a bunch of models and make a bunch of mechanical
judgments, identify those dates where there’s significance at the
5 percent level or better, and you’d be done.128
Dr. Finnerty explains that “I’m testing for a cause-and-effect relationship. I’m not
basing my test entirely on statistical significance. . . . [W]hether there’s a
significant reaction statistically could be helpful in making that determination, but
it’s not the be all and the end all.”129 Furthermore, plaintiffs cite to a case in which
a court found a substantially similar method to be sufficiently reliable to withstand
a Daubert challenge.130 While defendants fault Dr. Finnerty for not employing the
128

Id. at 48:15-49:21.

129

Id. at 120:8-16. Accord Michael J. Kaufman, The PLSRA’s Damages
Formula and Experts, 26 Securities Litig. Damages § 25:B (Thomson/West 2008)
(“An event study combines principles of finance (e.g. what factors influence a
company’s stock price or the extent to which a company’s stock price incorporates
all publicly available information) with principles of statistics (e.g., collecting and
analyzing data and identifying, isolating, and quantifying numerous variables that
may account for the resulting pattern of data).”).
130

See Dean v. China Agritech, No. CV 11-01331, 2012 WL 1835708, at
*3 (C.D. Cal. May 3, 2012) (“Agritech also attacks the way in which Dr. Werner
conducted his event study. Specifically, Agritech takes issue with Dr. Werner’s
45

same level of intellectual rigor in the courtroom as he would in his academic work,
this argument fails to take into consideration that single firm event studies are
rarely done in an academic environment.
b.

Dr. Finnerty’s Methods Are Sufficiently Objective

Defendants contend that Dr. Finnerty’s methods are “entirely
subjective” in that he examined “‘earnings surprises,’ and then proceeded to
conduct a haphazard review of roughly contemporaneous analyst reports to
‘predict’ the expected stock price reaction on that day, three to eight years after the
fact.”131 Furthermore, “the analyst ‘sentiments’ often already were informed by
that day’s stock movements . . . and in many instances simply reported the day’s
events.”132 “[T]his exercise is circular, because the analyst commentary reflect the
very market reactions that Finnerty purports to predict.”133 Moreover, defendants

use of subjective criteria in selecting events to study, as well as his use of stock
price movement at a statistically insignificant level. Dr. Feinstein, however,
confirms that the method used by Dr. Werner to do his event study is the method
set forth in the literature. Additionally, other academics and experts recognize that
the selection of events is a subjective task and that stock price movement is
important and a valid way of assessing the existence of a cause-effect relationship,
even if the movement is not statistically significant at that level. Even Defendants’
expert, Dr. Roper, uses this method in his academic work.”) (citations omitted).
131

Def. Daubert at 8.

132

Id. (citing Gompers II ¶¶ 69-72).

133

Id. (citing Gompers II ¶¶ 72-79).
46

argue, Dr. Finnerty and his staff “knew each actual price movement before
embarking upon a subjective effort to ‘predict’ that historical fact.”134
While Dr. Finnerty’s analysis is necessarily subjective, that does not
mean his opinion is speculative or without any methodological constraints. As a
practical matter, researchers conducting event studies will often have to rely on
subjective assessments.135 While this methodology may detract from the weight
one might place on the results, it does not affect admissibility. I conclude that this
study is “sufficiently reliable, objective, and consistent with scientific principles”
to withstand a Daubert attack.136
134

Id. Defendants also argue that “‘a subjective analysis without any
methodological constraints does not satisfy the requirements of Daubert.’” Id. at 9
(quoting Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Sec.
(USA) LLC, 752 F.3d 82, 95 (1st Cir. 2014)).
135

See, e.g., McIntire, 38 F. Supp. 3d at 429 (“The Court notes that an
expert who is conducting an event study necessarily must use his or her discretion
to define selection criteria that are conducive to the execution of a meaningful
multivariate regression analysis. Billhofer, 281 F.R.D. at 163 (determining
selection criteria “necessarily requires a researcher to make an independent
determination”). Put differently, “identifying news, categorizing which news is
‘material,’ and determining whether news should have a certain (albeit rough)
magnitude of positive or negative influence on price are all subjective
determinations.” In re Countrywide Fin. Corp. Sec. Litig., 273 F.R.D. 586, 618
(C.D. Cal. 2009). Taking into account the necessity of expert discretion that
accompanies the classification of trading days in an event study analysis and the
law’s aversion to rigid standards of expert opinion admissibility, see Daubert, 509
U.S. at 588-89”).
136

Id. Accord Fener v. Operating Engineers Const. Indus. and Misc.
Pension Fund (LOCAL 66), 579 F.3d 401, 408 (5th Cir. 2009) (“[Defendant]
47

Finnerty II identified statistically significant price reactions at the five
percent level or better on five event days. In addition, Dr. Finnerty analyzed the
results and concluded that on each of the fifteen days studied, the price moved in
the direction he would have expected. While Finnerty II is not conclusive proof of
anything, it is a product of reliable principles and methods which have been
reliably applied to the facts of this case. I have considered the remainder of
defendants’ arguments and find them to be without merit. By and large,
defendants’ objections go to the weight, not the sufficiency of the evidence, and
are therefore not a basis to exclude Dr. Finnerty’s report.137
C.

The Market for Barclays ADS Was Efficient During the Class
Period

presented Gompers’s testimony and an event study that he had conducted.
Gompers argued that the press release contained not one piece of information but
three separate items of news: DMN’s circulation decrease resulted from (1)
fraudulent overstatements; (2) changes in DMN’s methodology; and (3)
industry-wide decline in newspaper circulation. Gompers’s event study examined
132 analyst reports and found that the stock price decline was primarily related to
the non-fraudulent disclosures instead of the fraudulent one.”).
137

For example, defendants argue that Dr. Finnerty’s second event study
should be excluded because he does not believe that he had to run the event study
— i.e., that he was content with his first event study but only conducted the second
one to address Dr. Gompers’s concerns. But the expert’s motivation is irrelevant
to an evaluation of whether his methodology satisfies the requirements of Daubert.
In any event, Dr. Finnerty has adequately explained the scientific basis for
adopting the changes suggested by Dr. Gompers. See Tr. I at 58:20-61:16; 62:610; 62:13-64:20; 105:4-106:14; 108:2-110:15; 111:6-113:7.
48

The four elements of the Basic presumption are that (1) the alleged
misrepresentations were publicly known, (2) they were material, (3) the stock
traded in an efficient market, and (4) the plaintiff traded the stock between when
the misrepresentations were made and when the truth was revealed. The only
disputed element for purposes of this motion is whether Barclays ADS traded in an
efficient market. Based on the following considerations, I conclude that plaintiffs
have proven by a preponderance of the evidence that the market for Barclays ADS
was efficient.
1.

Barclays ADS Traded on the NYSE

It is undisputed that Barclays ADS traded on the NYSE during the
Class Period. As Dr. Finnerty explains:
The NYSE is the world’s largest and most liquid stock exchange.
Its infrastructure and participants allow it to provide a reliable,
liquid, and efficient market place. Its stringent listing standards
ensure that issuers are large enough to facilitate a liquid market,
and its regulations ensure that material company information is
disclosed promptly to investors. In general, to be listed on the
NYSE, the market value of a publicly-held equity must exceed
$75 million.138
Dr. Gompers notes that efficiency can vary with respect to stocks traded on the
same exchange, stocks that trade efficiently at certain times may not trade
efficiently at other times, and there was increased trading volatility during the
138

Finnerty I ¶ 67.
49

financial crises, which spanned a significant portion of the Class Period.139 While
the significance of trading on the NYSE or other large markets can be undermined
by direct evidence of inefficiency, defendants have not presented such evidence.
The issues raised by Dr. Gompers mainly relate to the degree of
efficiency, but “[d]ebates about the precise degree to which stock prices accurately
reflect public information are [ ] largely beside the point.”140 The increased
volatility of the markets during the financial crisis raises concerns, but it is not
outcome determinative, and I and other courts have certified classes of purchasers
of stocks during the financial crisis.141 Accordingly, the fact that Barclays ADS
traded on the NYSE weighs in favor of finding market efficiency.
2.

Cammer 1: Barclays ADS Traded at a Large Average
Weekly Volume142

The average weekly trading volume for Barclays ADS shares over the

139

See Gompers I ¶¶ 37, 58.

140

Halliburton II, 134 S. Ct. at 2410.

141

See generally In re Sadia, S.A. Sec. Litig., 269 F.R.D. 298 (S.D.N.Y.
2010) (certifying a class with a class period from April 30, 2008 to September 26,
2008); Local 703, I.B. of T. Grocery and Food Emps. Welfare Fund v. Regions Fin.
Corp., No. Civ. 10-J-2847, 2014 WL 6661918 (N.D. Ala. Nov. 19, 2014);
Smilovitz, 295 F.R.D. 423 (certifying a class with a class period from April 30,
2008 to February 28, 2012).
142

Defendants do not challenge plaintiffs’ showing with respect to
Cammer 1 through 4 or Krogman 1 through 3. See Tr. I at 35:3-7.
50

Class Period was roughly fifteen million, which is equal to 18.83 percent of the
outstanding ADS during this timeframe.143 This far exceeds the two percent
threshold “justify[ing] a strong presumption that the market for the security is an
efficient one . . . .”144 Thus, Cammer 1 weighs in favor of market efficiency.
3.

Cammer 2: A Significant Number of Analysts
Followed and Reported on Barclays ADS

During the Class Period, at least eighty securities firms contributed
analyst reports that covered Barclays.145 The presence of a substantial number of
analysts indicates that Barclays ADS was closely reviewed by investment
professionals, who made recommendations to client investors based on publicly
available information.146 Barclays also issued regular press releases, made regular
securities filings with the SEC, and held regular analyst conference calls. In
addition, “Barclays received regular press coverage throughout the Class Period,
and information concerning Barclays was widely disseminated throughout the
Class Period through Bloomberg and other news services.”147 Thus, Cammer 2

143

See Finnerty I ¶ 22.

144

Cammer, 711 F. Supp. at 1286.

145

See Finnerty I ¶ 25.

146

See Cammer, 711 F. Supp. at 1286.

147

Finnerty I ¶ 26.
51

weighs in favor of finding market efficiency.
4.

Cammer 3: Existence of Market Makers, Institutional
Investors, and Arbitrageurs

As disclosed in Schedule 13-F filings, Barclays ADS representing
between 55 and 97 percent of Barclays ADS outstanding were held by institutional
investors during the Class period. “According to Bloomberg, there were 51 active
market makers for Barclays ADS between July 2007 and June 2012 with trading
volumes in excess of one million shares.”148 Courts in this Circuit have found that
anywhere between six and twenty market makers is sufficient to support a finding
of market efficiency.149
As described previously, the economic rationale for efficient markets
is that under normal circumstances, profit seeking arbitrageurs will act to remove
inefficiencies from the market. However, various market constraints may cause
“limits to arbitrage” which may in turn undermine efficiency. Cammer 3 is an
indirect test of the extent to which limits to arbitrage exist. Accordingly, Cammer
3 weighs in favor of finding market efficiency.

148

Id. ¶ 29.

149

See McIntire, 38 F. Supp. 3d at 432 (finding that twenty market
makers supported market efficiency); Winstar Commc’ns Sec. Litig., 290 F.R.D. at
447 (finding that six large banks acting as market makers was sufficient evidence
of market efficiency).
52

5.

Cammer 4: Barclays Eligibility to File SEC Form S-3

Dr. Finnerty notes that, “Barclays was eligible to file on Form S-3
throughout the Class Period because the Barclays ADS were listed on the NYSE
during the entire Class Period.”150 Accordingly, Cammer 4 weighs in favor of
finding market efficiency.
6.

Cammer 5: The Relationship Between News Events and
Security Price Changes

Dr. Finnerty’s statistically significant findings of price movement on
five of the fifteen event days, together with his analysis of the other ten event days,
provides some evidence of market efficiency. Moreover, the change in price
following the disclosure of the fraud in June 2012 is further empirical evidence of
a cause-and-effect relationship between unexpected corporate events and an
immediate response in the stock price. Accordingly, Cammer 5 weighs in favor of
finding market efficiency.
7.

Krogman 1: Market Capitalization

During the Class Period, the quarterly market capitalization of
Barclays ADS ranged from $0.5 to $3.2 billion, and was “on average [ ]
approximately 20 times as large as the $75 million minimum [market value of

150

Id. ¶ 32.
53

publicly held equity] for NYSE listing.”151 As Dr. Finnerty explains, “[t]he large
market capitalization of Barclays ADS in relation to the average market
capitalization of NYSE stocks is consistent with the market for Barclays ADS
being efficient during the Class Period.” Accordingly, Krogman 1 weighs in favor
of finding market efficiency.
8.

Krogman 2: Barclays ADS Bid-Ask Spread

Dr. Finnerty opined that the bid-ask spreads for Barclays ADS were
consistent with an efficient market.152 However, Dr. Gompers noted that the bidask spreads were wider during the financial crisis and found that Dr. Finnerty had
no basis to conclude that this financial crisis period result was consistent with
market efficiency.153 Dr. Finnerty agreed that the average bid-ask spread for
Barclays ADS widened during the financial crisis, but concluded that overall the
“the average bid-ask spread is nonetheless nominal throughout the entire Class
Period.”154 Accordingly, I find that Krogman 2 is neutral — weighing neither for
nor against a finding of market efficiency.
151

Id. ¶¶ 66, 69 (“The median market capitalization for all stocks traded
on the NYSE ranged from $714.3 million to $1.715 billion, during the Class
Period.”).
152

See id. ¶ 70.

153

Gompers I ¶ 63.

154

Finnerty II ¶ 103.
54

9.

Krogman 3: Barclays ADS Public Float

Dr. Finnerty calculated the public float to be approximately one
hundred percent, meaning that Barclays ADS was almost exclusively held by
outside investors during the Class Period.155 Dr. Finnerty concludes that “[t]he
large size of the public float for Barclays ADS suggests a liquid market for the
ADS, which is consistent with the hypothesis that the market for Barclays ADS
was efficient during the Class Period.”156 Accordingly, Krogman 3 weighs in favor
of finding market efficiency.
10.

Random Walk Tests

In addition to the Cammer and Krogman factors, Dr. Finnerty
examined put-call parity and conducted random walk tests.157 Of these, the random
walk tests are more persuasive. I further note that Dr. Gompers has stated that “Dr.
Finnerty’s ‘random walk tests’ are only sufficient to establish weak-form
efficiency, not semi-strong form efficiency, which I understand is the relevant
standard of efficiency in this litigation.”158
As Dr. Finnerty explains, “[s]tock prices in an efficient market move
155

See Finnerty I ¶ 71.

156

Id. ¶ 72.

157

See id. ¶¶ 73-100.

158

Gompers I ¶ 55.
55

from moment to moment much like bubbles in a glass of soft-drink; that is, when
stock returns follow a random walk, stock price movements are independent from
moment to moment.”159 When stocks follow this random walk, investors cannot
use past stock price movements to predict the next day’s price movement. Based
on a series of tests he ran, Dr. Finnerty concluded that there was no significant
serial correlation, and that Barclays ADS returns followed a random walk during
the Class Period.160 Dr. Finnerty also repeated certain tests to exclude the height of
the financial crisis when there was high volatility and short selling was banned for
many stocks, and the results were not substantially different and did not support
serial correlation. Dr. Gompers, by contrast, chose not to analyze the impact of the
short selling ban on Barclays ADS during the Class Period.161 Accordingly, Dr.
Finnerty’s random walk tests provide some support for the conclusion that the
market for Barclays ADS was efficient during the Class Period.
11.

Evidence of Inefficiency

Defendants note that there were several indicators of inefficiency
during the Class Period:
Finnerty’s own analyses show significant impediments to
159

Finnerty I ¶ 87.

160

See id. ¶¶ 100, 102.

161

See Tr. I at 198:1-199:5.
56

efficiency during the height of the financial crisis, including a ban
on short selling (and higher borrowing costs impeding short
selling even where not banned), as well as objective evidence of
a breakdown in market efficiency over this critical period, such as
put-call parity violations, widening spreads, and pricing
anomalies. (Gompers I ¶¶ 57-78.) Finnerty does not dispute that
this evidence signals potential inefficiencies, he simply dismisses
it because it coincided with the financial crisis. This is
backwards. An expert must address the conflicting evidence, and
Finnerty has no explanation for the apparent inefficiencies in the
market for Barclays’ ADS during the height of the financial
crisis.162
There is no doubt the issues raised by Dr. Gompers are relevant to an
assessment of efficiency, but Dr. Finnerty has responded to these criticisms,163 and
Dr. Gompers has not “offer[ed] an affirmative opinion that the market was
inefficient” during the Class Period.164 Defendants also rely on Deutsche Bank —
in which the court denied class certification for a number of reasons including that
the expert “fail[ed] to tackle plainly important considerations,” including the fact
that “the financial crisis was ongoing” and that “there were short sale bans in both
the U.S. and in Germany.”165 However, Deutsche Bank involved globally
registered shares not ADS, and therefore the relevance of the foreign market was of

162

Def. Daubert at 15.

163

See, e.g., Finnerty II ¶¶ 98-105.

164

Tr. I at 186:15-187:5.

165

2013 WL 5815472, at *14.
57

far greater significance than it is here.166
While the global financial crisis created market volatility and limited
arbitrage opportunities which thereby decreased efficiency, defendants are holding
plaintiffs to far too high a standard of proof.167 Plaintiffs’ evidence is sufficient to
prove market efficiency by a preponderance of the evidence, notwithstanding
defendants’ evidence that the market may have been inefficient.168 Based on my
166

In any event, unlike the proposed expert in Deutsche Bank, Dr.
Finnerty addressed the relationship between Barclays ADS and shares traded on
the London Stock Exchange. See, e.g., Finnerty II ¶¶ 98-102, 104 (concluding that
“the daily returns for the Barclays ordinary shares and the daily returns for the
Barclays ADS during the approximately four-month U.K. short sale ban period
(September 18, 2008 through January 16, 2009) were highly correlated.”).
167

See Halliburton II, 134 S. Ct. at 2410 (explaining that the Basic
presumption is based “on the fairly modest premise that market professionals
generally consider most publicly announced material statements about companies,
thereby affecting stock market prices. Basic’s presumption of reliance thus does
not rest on a ‘binary’ view of market efficiency. Indeed, in making the
presumption rebuttable, Basic recognized that market efficiency is a matter of
degree and accordingly made it a matter of proof”) (internal quotation marks and
citations omitted).
168

For example, Dr. Gompers suggests a short sale ban is indicative of
inefficiency, but he admits that it is possible for a stock to be efficient during a
short sale ban and that he did not analyze the impact of the short selling ban on
Barclays ADS during the Class Period. See Tr. I at 198:1-199:5. Cf. In re
Diamond Foods, Inc., Sec. Litig., 295 F.R.D. at 250 (“To summarize, defendant
does not provide a study or other evidence concluding that the market for Diamond
stock was not efficient during the class period. Defendant’s expert, while
purportedly identifying fundamental flaws in plaintiff’s event study, has not
provided sufficient rebuttal of the study’s conclusion regarding efficiency. Nor has
defendant identified any authority, binding or otherwise, that has held that common
shares traded on the NASDAQ are not traded in an efficient market. For purposes
58

analysis of all these factors, I find that the plaintiffs are entitled to the Basic
presumption. Although Cammer 5 supports efficiency, I would have found
efficiency on this record even without it.
C.

Defendants Have Failed to Rebut the Presumption of Reliance by
Showing Lack of Price Impact
Halliburton II held that a defendant can rebut the Basic presumption

at the class certification stage by, inter alia, proving that the “asserted
misrepresentation (or its correction) did not affect the market price” of the
security.169 While defendants challenge price impact, they ignore the Supreme
Court’s invitation to offer their own evidence to prove lack of price impact. Dr.
Gompers did not perform an event study and he does not otherwise directly address
price impact.
Instead, defendants contend that Dr. Finnerty’s event studies and
testimony establish lack of price impact.170 As explained in Halliburton II,
“market efficiency and the other prerequisites for invoking the presumption
constitute an indirect way of showing price impact,” and a plaintiff is not required

of this order, plaintiff has sufficiently demonstrated market efficiency and is
therefore entitled to the Basic presumption of reliance.”).
169

Halliburton II, 134 S. Ct. at 2414.

170

See Def. Mem. at 15-20.
59

to show price impact directly.171 At the same time, a properly conducted event
study offered into evidence by either the defendant or the plaintiff that definitively
demonstrated lack of price impact would “‘sever[] the link between the alleged
misrepresentation and . . . the price received (or paid) by the plaintiff . . . [which
would] be sufficient to rebut the presumption of reliance’ because ‘the basis for
finding that the fraud had been transmitted through the market price would be
gone.’”172
Defendants argue that Dr. Finnerty’s failure to show price impact on
six dates identified in the Complaint in which Barclays made artificially low
LIBOR submissions is sufficient evidence to show lack of price impact.173 This
argument fails for two reasons. First, the failure of an event study to disprove the
null hypothesis with respect to an event does not prove that the event had no
impact on the stock price.174 In Dr. Finnerty’s study, the null hypothesis was that
171

Halliburton II, 134 S. Ct. at 2415.

172

Id. at 2415-16 (quoting Basic, 485 U.S. at 248); see id. at 2416 (“[A]n
indirect proxy should not preclude direct evidence when such evidence is
available.”).
173

See Def. Mem. at 16 (citing Complaint ¶ 172).

174

Defendants exhibit some confusion about how event studies work,
and, perhaps, the example given in Halliburton II. In Halliburton II, the Court
provided an example to show why defendants should not be precluded from
demonstrating lack of price impact at the certification stage. In that example,
plaintiffs’ evidence was sufficient to show an efficient market while defendants’
60

the market was inefficient and he sought to reject it at various confidence levels.
The failure of an event study to find price movement does not prove lack of price
impact with scientific certainty. Dr. Finnerty’s findings do not rule out either Type
I or Type II errors.175
Second, as already discussed, plaintiffs’ theory is that the false LIBOR
submissions artificially maintained the stock price, not that they artificially inflated
the price of the stock. For these reasons, a regression analysis seeking to prove
market efficiency that fails to show statistically significant price movements on the
days identified in the Complaint in which false LIBOR statements were made does
not necessarily sever the link between “the price received (or paid) by the
plaintiff[s.]”176 Accordingly, defendants have failed to offer “salient evidence
showing that the alleged misrepresentation did not actually affect the stock’s
market price and, consequently, that the Basic presumption does not apply.”177
Defendants also argue that Dr. Finnerty’s analyses show that the price
of Barclays ADS did not change significantly as a result of the disclosure of the
event study showed that there was “no price impact with respect to the specific
misrepresentation challenged in the suit.” 134 S. Ct. at 2415.
175

Type I errors are when a study incorrectly rejects a null hypothesis.
Type II errors are when a study incorrectly fails to reject a null hypothesis.
176

Halliburton II, 134 S. Ct. at 2415 (quoting Basic, 485 U.S. at 248).

177

Id. at 2416.
61

fraud on June 27, 2012. While Dr. Finnerty contends that he has demonstrated
efficiency by showing that the price declined dramatically the following day,
defendants argue that plaintiffs “cannot salvage their failed motion by pointing to
the post-Class Period price declines on June 28, 2012.”178 Defendants argue that
there is “no dispute that the June 28 price decline was not caused by the revelation
that LIBOR-related statements were false; rather, Plaintiffs contend that the decline
related to future collateral consequences of the LIBOR settlements themselves.”179
And defendants assert that “[a] stock drop is actionable only when it is in reaction
to information released into the market rather than in reaction to the fraudulent
statements themselves.”180
Defendants’ arguments are flawed for several reasons. First,
assuming that Dr. Finnerty’s second event study failed to show an abnormal return,
this would not prove that the market was inefficient. Second, defendants’
contentions about what can or cannot cause a price drop are arguments about loss
causation, which under Halliburton I is not an element of market efficiency.
Plaintiffs are not required to prove loss causation on class certification and this

178

Def. Mem. at 18 (emphasis in original).

179

Id. at 19.

180

Id. (internal quotation marks omitted).
62

evidence is not being offered for that purpose.181
Finally, the fact that the stock price changed dramatically due to
collateral consequences shows that the stock quickly assimilates new information.
In other words, even if this type of price reaction is not sufficient to establish loss
causation, it is sufficient to show market efficiency.182 Thus, far from supporting
defendants, this price reaction supports market efficiency.
Defendants’ insistence that it is impermissible for Dr. Finnerty to rely
on empirical evidence from the day following the Class Period has no support. A
two- to three-day window is common in event studies.183 Because it is standard for
experts to utilize an event window including both the day of the event and the day
following an event, this event window was proper.
Although the event window used by plaintiffs’ expert was appropriate,
the question remains as to whether evidence from outside the Class Period may be
admitted to show market efficiency. While defendants cite to several cases within
181

See Plaintiffs’ Memorandum of Law in Opposition to Defendants’
Motion to Exclude the Expert Opinions of John D. Finnerty at 4.
182

While I have always been skeptical that loss causation can be shown
in this case, the Second Circuit has deemed otherwise, and I cannot revisit that
issue on a motion for class certification.
183

See, e.g., Fogarazzo, 232 F.R.D. at 189 n.106; Kaufman &
Wunderlich, 15 Stan. J. L. Bus. & Fin. at 192 (noting that experts typically use a
two- to three-day window); Gompers Dep. at 254:8-17 (agreeing that event studies
often use a two-day window, the date of the announcement and the day after).
63

this circuit, these cases are either distinguishable or unpersuasive.184 Plaintiffs cite
to only one case within this circuit, In re Bank of America Corp. Securities,
Derivative, and Employee Retirement Income Securities Act (ERISA) Litigation.185
The court allowed plaintiffs to introduce evidence of the decline in share values,
finding that “[t]he market’s reaction to the alleged corrective disclosures provides
some evidence of the alleged misstatements’ materiality.”186 Although the case
discussed the evidence of declining share values in terms of materiality rather than
price impact or market efficiency, the purpose of introducing the evidence is

184

Defendants cite to Bombardier, in which the Second Circuit did not
consider testimony from Teamsters’ bond trader that he had “obtain[ed] an actual
bid or quote after the close of the class period.” 546 F.3d at 207 n.13. Without
further evidence, the court found that Teamsters “failed to show that firms engaged
in . . . activities identified . . . as defining a market maker.” Id. at 207. While the
court found that the market makers evidence outside the class period was
inadmissible, it did not extend its holding to how the stock reacted to material
information.
185

281 F.R.D. 134 (S.D.N.Y. 2012).

186

Id. at 143 (citing In re SLM Corp. Sec. Litig., No. 08 Civ. 1029, 2012
WL 209095, at *6 (S.D.N.Y. Jan. 24, 2012) (“While not required at the class
certification stage, evidence of a stock price movement following corrective
disclosures may be a relevant factor in the legal assessment of materiality.”). Price
movement following the class period is also relevant when assessing damages. See
15 U.S.C. § 78u-4(e)(1) (providing that “the award of damages to the plaintiff shall
not exceed the difference between the purchase or the sale price paid . . . 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”).
64

similar.187
While there is no Second Circuit case on point, a review of the
relevant case law in this circuit and the arguments set forth by plaintiffs compels
the finding that the class period is first and foremost “delimited in order to identify
the individuals who claim membership in the class”188 and the activity that can give
rise to liability.189 In the case of a securities fraud class action, courts are required
to “cut off the class period” on the date of a statement or event that “cure[s] [] the
market.”190 In other words, a class period ends when the truth has been
disseminated to the market. In this case, because the event window was proper,
and the event date fell on the last day of the Class Period, I conclude that the
evidence of price movement from June 28, 2012 is admissible and supports a
187

Defendants also cite to Freddie Mac. The court excluded the day
following the class period as a news date, with the only justification being that it
was not “within the class period.” 281 F.R.D. at 179. Moreover, in this case the
event date is June 27, and the reaction occurred on June 28, whereas in Freddie
Mac the expert presumptively chose the day after the class period as the event date.
188

In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 643 n.27 (S.D.N.Y.
2007) (stating that while “pre-class period statements can be relevant” in
determinations of scienter, defendants are only liable for “statements made during
the class period”) (internal citations omitted).
189

See id. at 643 (citing In re IBM Sec. Litig., 163 F.3d 102, 107 (2d Cir.

1998)).
190

In re Interpublic Sec. Litig., No. 02 Civ. 6527, 2003 WL 22509414, at
*5 (S.D.N.Y. Nov. 6, 2003) (citing Sirota v. Solitron Devices, Inc., 673 F.2d 566,
572 (2d Cir. 1982)).
65

finding of efficiency.191
Because defendants have not presented compelling evidence of lack of
price impact, plaintiffs do not have to present evidence of price impact to satisfy
Rule 23(b)(3). Accordingly, I find that plaintiffs are entitled to rely on the Basic
presumption of reliance for misstatements and have satisfied the requirements of
Rule 23(b)(3).
D.

The Affiliated Ute Presumption Does Not Apply
Unlike Basic, the circumstances in Affiliated Ute “involv[ed]

primarily a failure to disclose.”192 The Supreme Court held that in claims
revolving around omissions, “positive proof of reliance is not a prerequisite to
recovery.”193 “‘[W]here plaintiffs’ claims are based on a combination of omissions
and misstatements, courts in this Circuit have acknowledged the applicability of
the Affiliated Ute presumption.’”194 Thus, the existence of “affirmative
191

Dr. Finnerty explained that because the reaction was “in the market by
the opening on the 28th [ ] it [came] roughly 25 hours after the original press
release . . . .” Tr. I at 78:6-9. Furthermore, he found that the price decline on June
28 was statistically significant at the 1% level. See, e.g., Gompers Dep. at 257:915 (agreeing that under both the Finnerty I and Finnerty II event studies, the price
decline on June 28 was statistically significant at the 1% level).
192

Affiliated Ute, 406 U.S. at 153.

193

Id.

194

Dodona I, LLC v. Goldman, Sachs & Co., 296 F.R.D. 261, 269
(S.D.N.Y. 2014) (quoting Fogarazzo, 232 F.R.D. at 186).
66

misrepresentations” does not necessarily “preclude [plaintiffs] from relying on the
Affiliated Ute presumption.”195 However, in cases where the omissions only
“exacerbate[] the misleading nature of the affirmative statements,” courts have held
that Affiliated Ute does not apply.196 Even so, the distinction between a
misstatement and an omission is often difficult to articulate.197
Defendants argue that because plaintiffs’ claims are based on
affirmative misstatements, and not omissions, the Affiliated Ute presumption does
not apply.198 Plaintiffs argue that their claims involve both misrepresentations and
omissions “with respect to Barclays’ false LIBOR submissions and Diamond’s
conference call statements.”199 Plaintiffs contend that defendants failed to disclose
the “fact that the company was engaged in LIBOR manipulation.”200 This gives
195

Id. at 270.

196

Starr v. Georgeson S’holder, Inc., 412 F.3d 103, 109 n.5 (2d Cir.
2005). Accord Goodman v. Genworth Fin. Wealth Mgmt., Inc., 300 F.R.D. 90
(E.D.N.Y. 2014).
197

See In re Smith Barney Transfer Agent Litig., 290 F.R.D. 42, 48
(S.D.N.Y. 2013).
198

See Def. Mem. at 20-21. Defendants cite to Goodman v. Genworth
Financial Wealth Management, Inc., which explains that even in cases where there
are both misstatements and omissions, if the “positive statements are central to the
alleged fraud . . . the Affiliated Ute presumption does not apply.” 300 F.R.D. at
104.
199

Pl. Mem. at 23.

200

Tr. II at 239:8-11.
67

rise to two arguments. The first is that these statements constitute omissions
because what makes them false is not what was said, but what was not said:
Each LIBOR submission was truthful, as far as they go. But what
makes them misleading is what they do not say that in an effort to
enhance the market’s perception of Barclays’ financial health,
Defendants purposefully submitted false LIBOR rates but never
informed investors of this fact. Similarly, Diamond’s conference
call remarks were also omissions because the “heart” of their
falsity was that “specific information was withheld” — namely,
that Diamond had issued a directive to his subordinates to
artificially lower LIBOR submissions. Because Plaintiffs have
primarily pled omissions claims and Defendants cannot establish
that Plaintiffs did not rely on these omissions, reliance is also
presumed under Affiliated Ute.201
The second, somewhat related argument, is that Diamond’s statements gave rise to
a duty to disclose the manipulation.202 For these reasons, plaintiffs argue that they
are entitled to a presumption of reliance under both Basic and Affiliated Ute.203
Plaintiffs’ first argument fails. After careful review, I conclude that
this is not a case where any “alleged failure to disclose ‘made the [statements]

201

Memorandum of Law in Further Support of Plaintiffs’ Motion for
Class Certification (“Reply Mem.”) at 13 (internal quotation marks and citations
omitted).
202

See Tr. II at 243:1-4. Diamond’s statements on the conference call
were that “we’re categorically not paying higher rates in any currency” and (2) “we
benefit in times of turmoil, so we post where we’re transacting, and it’s clearly not
at high levels.” Complaint ¶ 108.
203

See Reply Mem. at 13.
68

themselves misleading.’”204 A comparison with Fogarazzo helps illustrate the
difference between a case in which there are both affirmative statements (that may
be entitled to the Basic presumption) and omissions (which are entitled to the
Affilated Ute presumption) and the present case. In Fogarazzo there were false
analyst ratings, which were misstatements. However, there was also an
undisclosed relationship between the analysts and the companies they were
analyzing. That relationship was a potential conflict of interest that should have
been disclosed but was not. Thus, Fogarazzo involves (1) clear misstatements and
(2) the omission of a material fact: the conflict of interest. By contrast, in the
present case, there is just the false LIBOR reports and Diamond’s false statement
about the bank’s borrowing costs, and no separate undisclosed matter such as a
conflict of interest. The “omissions” in this case are simply the truth — the correct
LIBOR rate or that defendants had been falsifying that rate. At most, defendants’
failure to disclose that they were manipulating the LIBOR submissions only
“exacerbated the misleading nature of the affirmative statements.”205
Plaintiffs’ second argument also fails. Defendants rightly argue that a
company does not have a duty to disclose that it is committing fraud and that there

204

Goodman, 300 F.R.D. at 105 (citing Fogarazzo v. Lehman Brothers,
Inc., 263 F.R.D. 90, 106 (S.D.N.Y. 2009)).
205

Starr, 412 F.3d at 109 n.5. Accord Goodman, 300 F.R.D. 90.
69

was no material omission in this case.206 While the Second Circuit has yet to
decide whether the Affiliated Ute presumption of reliance applies in manipulation
cases and courts in this circuit are split on the issue, I am persuaded by the
rationale that “[i]f [] nondisclosure of a defendant’s fraud was an actionable
omission, then every manipulative conduct case would become an omissions
case”207 and that “[a]pplying the Affiliated Ute presumption in such cases, . . .
would risk . . . ‘swallow[ing] the reliance requirement almost completely.”208
In short, the thrust of plaintiffs’ allegations are that defendants’
statements were “materially false and misleading”209 and there are no independent

206

See Tr. II at 295:5-9.

207

Desai v. Deutsche Bank Sec. Ltd., 573 F.3d 931, 941 (9th Cir. 2009).

208

Joseph v. Wiles, 223 F.3d 1155, 1163 (10th Cir. 2000)). In In re UBS
Auction Rate Securities Litigation, the court reached the issue and held that when a
“‘defendant [] engaged in conduct that amounts to ‘market manipulation’ under
Rule 10b-5(a) or (c),” an independent duty to disclose was created. In re UBS
Auction Rate Sec. Litig., No. 08 Civ. 2967, 2010 WL 2541166, at *26 (S.D.N.Y.
June 10, 2010) (quoting In re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281,
381 (S.D.N.Y. 2003)). However, the claims in that case included other material
omissions in addition to the failure to disclose manipulation. Plaintiffs also
claimed that defendants “fail[ed] to disclose [the] practice of seeking and obtaining
[] waivers, as well as . . . to disclose the temporary nature of the waivers.” Id.
That is, “in large part, the claim consist[ed] of omissions[].” Id. Accordingly, the
facts are distinguishable from the case at bar where plaintiffs’ omissions claims
revolve completely around the defendants’ failure to disclose the alleged
manipulation and do not include other actionable omissions.
209

Complaint ¶¶ 109, 173.
70

actionable omissions in this case. Accordingly, the presumption of reliance set
forth in Affiliated Ute does not apply.
E.

Individualized Damages Issues Will Not Predominate
Comcast Corp. v. Behrend held that a model for determining damages

must “measure damages resulting from the class’s asserted theory of damages.”210
Relying on Comcast, defendants argue that plaintiffs have not shown that
individualized damages issues will not predominate.211 Plaintiffs’ theory of the
case is that the false LIBOR submissions and Diamond’s statements artificially
maintained the stock price, and that this inflation was removed from the ADS price
following the corrective disclosure on June 27, as reflected in the price change on
June 28, 2012. Consistent with this, Dr. Finnerty explained that he would use “the
damages methodology [that he] customarily appl[ies, which]
involves [ ] measuring the abnormal return on Barclays ADS on
the correct[ive] disclosure date, in this case June 28, and then
adjusting for any confounding news. And I haven’t done that yet.
I have been asked to perform a loss causation analysis or damages
analysis, but I would then parse out the [e]ffects of the
confounding news, and then I would apply the constant dollar
method to calculate the amount of inflation throughout the Class
Period.212

210

Roach, 778 F.3d at 407 (interpreting Comcast narrowly).

211

Def. Mem. at 21-25.

212

Tr. I at 76:21-77:7. Accord Finnerty II ¶¶ 106-108.
71

The constant dollar approach “assumes that the amount of the inflation per ADS is
a constant dollar amount within each of the relevant time intervals during the Class
Period.”213 Defendants argue that this proposed method is flawed because
plaintiffs have not shown “how purported price reactions in June 2012 provide an
appropriate starting point for calculating damages on the claims still at issue”;
“how they will isolate the incremental impact of LIBOR-related statements on
Barclays’ ADS in light of other information relating to Barclays’ borrowing costs”;
or “how they will account for variations in inflationary impact over time.”214
Plaintiffs’ model survives the minimal scrutiny required under
Comcast and Rule 23(b)(3) — their theory of liability matches their theory of
damages and individualized damages issues will not predominate. As explained by
the Second Circuit, Comcast “did not foreclose the possibility of class certification
under Rule 23(b)(3) in cases involving individualized damages calculations.”215
While there are significant obstacles to proving damages in this case, plaintiffs’
merits expert reports on damages and loss causation are not due until October 7,
2015, and plaintiffs are not required to demonstrate either loss causation or

213

Finnerty II ¶ 106(d).

214

Def. Mem. at 21-25. at 23-24. See also Gompers II ¶¶ 157-178.

215

Roach, 778 F.3d at 401.
72

damages for purposes of class certification.216 In other words, whether plaintiffs
will be able to prove loss causation or measure price impact — in this case, the
inflationary impact of the false LIBOR disclosures and Diamond’s statements —
are questions that go to the merits and not whether common issues predominate.217
F.

Appointment of Class Representatives Under Rule 23(a)(4) and
Class Counsel Under Rule 23(g)
Rule 23(a)(4) requires that “the representative parties will fairly and

adequately protect the interests of the class.” This requirement is met if a plaintiff
does not have interests antagonistic to those of the class, and if its chosen counsel
is qualified, experienced, and able to conduct the litigation.218 Proposed Class
Representatives are already representing the interests of the proposed Class and
216

Among other things, plaintiffs will have to address the argument that
“any inflation directly associated with the market being misled about Barclays’
financial condition through allegedly false LIBOR submissions, if it existed at all,
would have dissipated as soon as Barclays started making accurate LIBOR
submissions.” Gompers II ¶ 149. They will also have to quantify the inflationary
impact of the LIBOR submissions (and Diamond’s statements) even though Dr.
Finnerty previously “tested whether there was statistically significant reactions on
those [LIBOR submission] day, and [ ] couldn’t find any.” Tr. I at 153:1-2.
217

See, e.g., Betances v. Fischer, 304 F.R.D. 416, 430-31 (S.D.N.Y.
2015) (holding that Comcast did not bar certification of a damages class even
though plaintiffs “failed to provide the mathematical formula they intend[ed] to use
to calculate damages on a class-wide basis”); In re Scotts EZ Seed Litig., 304
F.R.D. 397, 414 (S.D.N.Y. 2015) (stating that “nothing in Comcast requires an
expert to perform his analyses at the class certification stage”) (citing cases).
218

See Drexel Burnham Lambert Grp., Inc., 960 F.2d 285, 290-91 (2d

Cir. 1992).
73

have demonstrated their adequacy, assertiveness, and commitment to vigorously
prosecute this action. The Pension Trust Fund and St. Clair each purchased
thousands of Barclays ADS during the Class Period, and have actively supervised
and monitored the progress of this litigation, and will continue to actively
participate in its prosecution should they be appointed as Class Representatives. In
addition, their interests are not antagonistic to those of the Class. Accordingly, I
find that the interests of the absent Class members will be more than adequately
protected by Lead Plaintiffs, and I hereby appoint them as Class Representatives.
Lead Plaintiffs have retained the law firm of Robbins Geller to
represent them and the proposed Class in this matter. Courts within this Circuit
have repeatedly found Robbins Geller to be adequate and well-qualified for the
purpose of litigating class action lawsuits.219 Thus, Robbins Geller is qualified,
and, along with Lead Plaintiffs, will vigorously protect the interests of the Class.
Accordingly, the adequacy requirement of Rule 23(a)(4) is satisfied, and I hereby
appoint Robbins Geller as Class Counsel.
VI.

CONCLUSION
For the foregoing reasons, plaintiffs’ motion for class certification is
219

See, e.g., Billhofer, 281 F.R.D. at 158; Ellenburg v. JA Solar Holdings
Co. Ltd., 262 F.R.D. 262, 268 (S.D.N.Y. 2009); In re Alstom SA Sec. Litig., 253
F.R.D. 266, 278 (S.D.N.Y. 2008); Vanamringe v. Royal Grp. Techs., Ltd., 237
F.R.D. 55, 58 (S.D.N.Y. 2006).
74

-AppearancesFor Plaintiffs:
Samuel Howard Rudman, Esq.
David Avi Rosenfeld, Esq.
Christopher Michael Barrett, Esq.
Michael G. Capeci, Esq.
Robbins Geller Rudman & Dowd LLP
58 South Service Road, Suite 200
Melville, NY 11747
[phone]
Joseph E. White III, Esq.
Maya Sexena, Esq.
Lester R. Hooker, Esq.
Saxena White P.A.
Boca Center, 5200 Town Center Circle, Suite 601
Boca Raton, FL 33431
[phone]
For Defendants:
Jeffrey T. Scott, Esq.
Brian T. Frawley, Esq.
Matthew Joseph Porpora, Esq.
Stephen H. O. Clarke, Esq.
Sullivan & Cromwell LLP
125 Broad St.
New York, NY 10004
[phone]
Jonathan D. Schiller, Esq.
Amos E. Friedland, Esq.
Boies Schiller & Flexner LLP
575 Lexington Avenue
New York, NY 10022
76

[phone]
Michael Brille, Esq.
Thomas Keenan, Esq.
Boies Schiller & Flexner LLP
5301 Wisconsin Avenue NW
Washington, D.C. 20015
[phone]
William Todd Thomas, Esq.
Boies Schiller & Flexner LLP
401 East Las Olas Blvd., Suite 1200
Fort Lauderdale, FL 33301
[phone]
Karen Paik, Esq.
Boies Schiller & Flexner LLP
401 Wilshire Blvd., Suite 850
Santa Monica, CA 90401
[phone]
Andrew J. Levander, Esq.
Jeffrey A. Brown, Esq.
Amanda Rios, Esq.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036
[phone]

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