Menaldi v. Och-Ziff Capital Management Group LLC et al

Filing 186

OPINION AND ORDER: re: #175 LETTER MOTION to Seal Document #173 Letter addressed to Judge J. Paul Oetken from Robert F. Serio dated June 8, 2018 filed by Och-Ziff Capital Management Group LLC, #157 LETTER MOTION for Leave to File sur-reply in opposition to Plaintiffs' motion for class certification [ECF No. 60] addressed to Judge J. Paul Oetken from Robert F. Serio dated January 18, 2018 filed by Och-Ziff Capital Management Group LLC, #60 MOTION to Certify Class filed by Julie Lemond, Ralph Langstadt. For the foregoing reasons, the motion for class certification is GRANTED. The motions at Docket Numbers 157 and 175 are also GRANTED. Ralph Langstandt and Julie Lemond are appointed lead plaintiffs, and Pomerantz LLP and The Rosen Law Firm, P.A. are appointed class counsel. The Clerk of Court is directed to close the motions at Docket Numbers 60, 157, and 175. SO ORDERED. (Signed by Judge J. Paul Oetken on 9/14/2018) (ama)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ARTHUR MENALDI, individually and on
behalf of all others similarly situated,
Plaintiff,

14-CV-3251 (JPO)

-v-

OPINION AND ORDER

OCH-ZIFF CAPITAL MANAGEMENT
GROUP LLC, DANIEL S. OCH, and
JOEL M. FRANK,
Defendants.

J. PAUL OETKEN, District Judge:
This is a motion to certify a securities fraud class action. The putative class consists of
shareholders of Och-Ziff Capital Management Group. Plaintiffs claim that Och-Ziff
misrepresented the impact of a federal investigation into its bribery of African officials. For the
reasons that follow, the motion to certify is granted.
I.

Background
For the purposes of this motion, Plaintiffs’ allegations can be summed up as follows:

Beginning in 2007, Och-Ziff employees allegedly bribed various African officials. The federal
government subsequently launched an investigation. In 2012 and 2013, while the investigation
was ongoing, Och-Ziff’s public filings suggested that it was not facing any investigations that
could have a material impact on the company. Plaintiffs allege that these statements violated
securities laws.
The key factual issues relate mostly to dueling experts: Dr. Zachary Nye for Plaintiffs,
and Dr. Allan Kleidon for Och-Ziff. (See Dkt. Nos. 62-1, 144-18 & 153-2.) Familiarity with the
procedural background of this case, as discussed in this Court’s prior opinions, is presumed. See

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Menaldi v. Och-Ziff Capital Mgmt. Grp., 277 F. Supp. 3d 500 (S.D.N.Y. 2017); Menaldi v. OchZiff Capital Mgmt. Grp., 164 F. Supp. 3d 568 (S.D.N.Y. 2016).
After the last motion to dismiss, two claims remain: (1) a Rule 10b–5 claim against OchZiff and two of its executives based on allegedly misleading statements regarding the
government investigation, and (2) a § 20(a) control-person claim against the two executives, also
based on those statements. For simplicity, “Och-Ziff” refers to all Defendants.
Plaintiffs seek to certify the following class:
All persons other than defendants who purchased Och-Ziff
securities between February 9, 2012 and August 22, 2014, both
dates inclusive (the “Class Period”), excluding Defendants, current
and former officers and directors of Och-Ziff, members of their
immediate families and their legal representatives, heirs, successors
or assigns, and any entity in which Defendants have or had a
controlling interest.
(Dkt. No. 61 at 1.)
II.

Legal Standard
Federal Rule of Civil Procedure 23(a) sets four prerequisites to class certification, each of

which Plaintiffs must prove by a preponderance of the evidence:
(1) the class is so numerous that joinder of all members is
impracticable; (2) there are questions of law or fact common to the
class; (3) the claims or defenses of the representative parties are
typical of the claims or defenses of the class; and (4) the
representative parties will fairly and adequately protect the interests
of the class.
Johnson v. Nextel Commc’ns Inc., 780 F.3d 128, 137 (2d Cir. 2015).
In addition to these prerequisites, a class action under Federal Rule of Civil Procedure
23(b)(3) requires Plaintiffs to prove:
(1) predominance—“that the questions of law or fact common to
class members predominate over any questions affecting only
individual members”; and (2) superiority—“that a class action is

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superior to other available methods for fairly and efficiently
adjudicating the controversy.”
Id. (quoting Fed. R. Civ. P. 23(b)(3)).
Courts must conduct a “rigorous analysis” of the facts, sometimes looking behind the
pleadings, to ensure that a plaintiff has shown that each Rule 23 requirement has been satisfied.
Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013) (quoting Wal-Mart Stores, Inc. v. Dukes, 564
U.S. 338, 351 (2011)). This analysis frequently overlaps with the merits of the plaintiff’s
underlying claim, because “class determination generally involves considerations that are
enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.” Wal-Mart,
564 U.S. at 351 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982)).
III.

Discussion
Many of the Rule 23 requirements are not in dispute. Below, the Court reviews each

requirement and addresses the parties’ arguments where applicable. The key issues are
(1) whether the gradual trickle of corrective information creates class conflicts, (2) whether
reliance can be proven on a classwide basis, (3) whether damages can be calculated on a
classwide basis, and (4) the end-date for the class period.
A.

Numerosity

This requirement is clearly met, as Och-Ziff had more than a hundred million shares
outstanding during the class period (see Dkt. No. 62-1 (“Nye Report”) ¶ 20), likely held by
thousands of investors. Och-Ziff does not dispute this requirement.
B.

Commonality

This requirement is also met. The legal questions turn almost exclusively on Och-Ziff’s
conduct and are therefore common across the class. They include, for example, whether Och-

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Ziff’s statements were misleading and whether they were material. Och-Ziff does not dispute
this requirement either.
C.

Typicality and Adequacy

These two requirements overlap. Typicality focuses on the lead plaintiff; adequacy
focuses on class counsel. “The focus is on uncovering ‘conflicts of interest between named
parties and the class they seek to represent.’” In re Flag Telecom Holdings, Ltd. Sec. Litig., 574
F.3d 29, 35 (2d Cir. 2009) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997)).
“In order to defeat a motion for certification, however, the conflict ‘must be fundamental.’” Id.
(quoting In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 145 (2d Cir. 2001)).
Although the parties did not focus on these two requirements in their briefs, the Court
raised a potential class conflict and called for supplemental briefing. The potential conflict arises
out of the gradual way in which the government investigation was revealed to the public and the
buying patterns of the two lead plaintiffs, Julie Lemond and Ralph Langstadt. The relevant
events are most effectively conveyed chronologically:
•

2012–2013: Och-Ziff makes the allegedly misleading statements.

•

November 2013: Lemond buys Och-Ziff stock and sells it four days
later, after a dividend is paid. (Dkt. No. 173 at 1.)

•

January 2014: Lemond buys more Och-Ziff stock. (Dkt. No. 11-2.)

•

February 2014: The Wall Street Journal reveals that the government
is looking into Och-Ziff’s dealings in Libya. (Dkt. No. 144-10.)

•

March 11, 2014: Langstadt buys Och-Ziff stock. (Dkt. No. 11-2.)

•

March 21, 2014: Lemond buys more Och-Ziff stock. (Id.)

•

March 18, 2014: Och-Ziff reveals that it has received subpoenas
relating to dealings in Africa, but it does not indicate the expected
impact of the investigation. (Dkt. No. 144-11 at 4.)

•

April 2014: Lemond buys more Och-Ziff stock. (Dkt. No. 11-2 at 7.)

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•

August 2014: Bloomberg publishes a story describing Och-Ziff’s
misadventures in Africa. (Dkt. No. 144-21.)

The Court’s key concern was that the lead plaintiffs might be subject to unique defenses
because both bought stock after the Wall Street Journal revealed that there was an active
government investigation into Och-Ziff. Since Och-Ziff contends that the Wall Street Journal
article fully corrected any prior misstatements, there is a risk that lead plaintiffs—and class
counsel—would be preoccupied with the partial-disclosure issue to the detriment of class
members who bought their stock before any corrective disclosure. See Amgen Inc. v. Conn. Ret.
Plans & Tr. Funds, 568 U.S. 455, 472–73 (2013) (“[A] plaintiff whose relevant transactions
were not executed between the time the misrepresentation was made and the time the truth was
revealed . . . . would not be ‘typical’ of the claims of investors who did trade during the window
between misrepresentation and truth revelation.”); Gary Plastic Packaging Corp. v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990) (“Regardless of whether
the issue is framed in terms of . . . typicality . . . or . . . adequacy . . . , there is a danger that
absent class members will suffer if their representative is preoccupied with defenses unique to
it.”).
But with the benefit of the parties’ supplemental briefs, the Court is satisfied that there
are no class conflicts precluding certification.
First, a peek at the merits suggests that the Wall Street Journal article may have been only
a partial disclosure rather than a full correction. For example, one reason why the Court denied
Och-Ziff’s previous motion to dismiss was that “Plaintiffs have plausibly alleged that Och-Ziff
misled investors by suggesting that the company was not facing an investigation that could have
a material impact on its business, when, in fact, it was facing such an investigation.” Menaldi,
164 F. Supp. 3d at 584 (emphasis added). The Wall Street Journal merely revealed that Och-Ziff

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was facing an investigation; it arguably did nothing to correct Och-Ziff’s statements about
material impact. See In re Tronox, Inc. Sec. Litig., 262 F.R.D. 338, 345–46 (S.D.N.Y. 2009)
(holding that a stockholder who bought stock after a partial corrective disclosure was an
adequate lead plaintiff because the corrective disclosure left out some key details).
Second, Lemond is a typical plaintiff because she bought stock before the first corrective
disclosure and held some of it throughout the remainder of the class period. Though Lemond
bought and sold stock at several different times, the key facts are (1) that she bought stock in
January of 2014, before the Wall Street Journal article was published, and (2) that she continued
to hold at least some of that stock throughout the class period. (See Dkt. No. 173 at 1.)
Lemond’s claims are therefore typical of class members who bought stock before the Wall Street
Journal article, including anyone who bought stock in 2012 and 2013. Thus, even if the Wall
Street Journal article is deemed a corrective disclosure, Lemond would still make an adequate
lead plaintiff based on her pre-disclosure purchases.
Third, the fact that Lemond bought and sold stock in 2013 does not create a conflict.
While “in-and-out” stockholders—those who bought and sold before the truth came out—may be
subject to unique defenses, Lemond could still represent the class based on her 2014 stock
purchases. See In re Petrobras Sec. Litig., 312 F.R.D. 354, 360 (S.D.N.Y. 2016) (noting that
“‘in-and-out’ trading is not atypical in a class that contains . . . numerous sophisticated
institutional investors”), vacated in part on other grounds, 862 F.3d 250 (2d Cir. 2017).
Fourth, the fact that Lemond bought more stock even after the Wall Street Journal article
was published does not create a conflict. See id. (holding that the lead plaintiff was typical and
adequate despite having bought stock after a partial corrective disclosure); In re JPMorgan
Chase & Co. Sec. Litig., No. 12 Civ. 3852, 2015 WL 10433433, at *4 (S.D.N.Y. Sept. 29, 2015)

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(same). And even if those additional purchases are later excluded from her recovery, Lemond
could still represent the class based on her pre-Wall Street Journal article purchases. See Pirnik
v. Fiat Chrysler Autos., N.V., No. 15 Civ. 7199, 2018 WL 3130596, at *2 n.2 (“[T]he fact that a
putative class representative purchased additional shares in reliance on the integrity of the market
after the disclosure of corrective information has no bearing on whether or not the representative
relied on the integrity of the market during the class period[ for purposes of Rule 23(a)
typicality.]” (internal quotation marks and citations omitted)).
Fifth, it does not matter that Lemond was primarily motivated by dividend payments
rather than stock price: All that matters is that the value of her shares fell after the truth came
out. See Petrobras, 312 F.R.D. at 360−61 (rejecting the argument that the proposed lead
plaintiff’s “trading decisions were based on atypical considerations” because “it is common
practice for money managers to claim they have some special strategy that will deliver insights—
and returns—superior to the wider market”).
Finally, an overview of this case suggests that any conflict would be minor. This is a
relatively standard securities class action. Plaintiffs will obviously argue for the broadest class
definition, for the widest class period, and for liability to extend to even those who bought stock
after the partial disclosures. Defendants will obviously argue for the most restrictive class
definition, for the narrowest class period, and for liability to end with the first partial disclosure.
It will be the job of the Court and the factfinder to draw these lines, and the Court will be on
guard if a conflict crops up. But the need to draw lines does not create a fundamental conflict. If
it did, few securities class actions could be certified, if any. See In re Parmalat Sec. Litig., No.
04 MD 1653, 2008 WL 3895539, at *5 (S.D.N.Y. Aug. 21, 2008) (noting that the unique-defense

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rule is not rigidly applied in the Second Circuit, and it is generally applied only where a full
defense is available against an individual plaintiff’s action).
D.

Predominance

“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently
cohesive to warrant adjudication by representation.” Amchem, 521 U.S. at 623. Except for two
issues raised by Och-Ziff and discussed below, common issues clearly predominate. See id. at
625 (“Predominance is a test readily met in certain cases alleging consumer or securities fraud
. . . .”). These two issues are (1) whether reliance can be presumed, and (2) whether damages
can be calculated classwide.
1.

Presumption of Reliance

To succeed on their Rule 10b–5 claim, each plaintiff must have relied on Och-Ziff’s
alleged misrepresentations. Because of that, classwide adjudication is possible only if reliance
can be presumed. Otherwise, the individualized reliance determinations would overwhelm
common issues, hopelessly splintering the class. See In re Petrobras Sec., 862 F.3d 250, 275 (2d
Cir. 2017) (noting that unless reliance is presumed, “the reliance element would appear to
preclude class certification on predominance grounds”).
There are two relevant ways in which classwide reliance can be presumed: the Affiliated
Ute presumption and the Basic presumption. Plaintiffs argue that both apply. Defendants argue
that neither applies.
Affiliated Ute Presumption. The Affiliated Ute presumption applies in cases “involving
primarily a failure to disclose.” Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128,
153 (1972). This presumption holds that if the fraudulent act is an omission rather than an
affirmative misrepresentation, “positive proof of reliance is not a prerequisite to recovery.” Id.
As the Second Circuit explained, the reason for the Affiliated Ute presumption is that, in cases in
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which there was no affirmative misrepresentation, “reliance as a practical matter is impossible to
prove.” Wilson v. Comtech Telecomms. Corp., 648 F.2d 88, 93 (2d Cir. 1981). Thus, the
question here is whether the claims primarily involve misrepresentations or omissions.
Defendants are correct on this front: The claims here do not “involve[e] primarily a
failure to disclose.” Affiliated Ute, 406 U.S. at 153. It is not enough that Plaintiffs allege that
Och-Ziff omitted something. The Second Circuit has cautioned that the raw labels “omission”
and “misrepresentation” are of little help. Waggoner v. Barclays PLC, 875 F.3d 79, 95 (2d Cir.
2017), cert. denied, No. 17-1209, 2018 WL 1116150 (U.S. Apr. 30, 2018). Instead of focusing
on whether someone did or did not speak, courts must ask whether the facts fit the rationale of
Affiliated Ute—i.e., whether reliance would be impossible to prove. Id. Thus, “[i]n many
instances, an omission to state a material fact relates back to an earlier statement, and if it is
reasonable to think that that prior statement still stands, then the omission may also be termed a
misrepresentation.” Wilson, 648 F.2d at 93. The same is true even if the subsequent omission
“exacerbated the misleading nature of the affirmative statements.” Starr ex rel. Estate of
Sampson v. Georgeson S’holder, Inc., 412 F.3d 103, 109 n.5 (2d Cir. 2005).
For the same reasons the Second Circuit gave in Wilson, Starr, and Waggoner, Plaintiffs’
allegations are not primarily based on omissions. For one, as in Waggoner, “Plaintiffs’
complaint alleges numerous affirmative misstatements by the Defendants. The Plaintiffs are
therefore not in a situation in which it is impossible for them to point to affirmative
misstatements.” 875 F.3d at 96. Second, as in Waggoner, “Plaintiffs focus their claims on those
affirmative misstatements.” Id. Indeed, this Court has previously dismissed Plaintiffs’ claims
that were based purely on Och-Ziff’s failure to disclose the alleged bribery. It held that the only
remaining claim is that “Och-Ziff made actionable misstatements about the existence and risks

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of regulatory proceedings.” Menaldi, 164 F. Supp. 3d at 584 (emphasis added). Affiliated Ute
does not attach to such a claim.
Basic Presumption. The Basic presumption essentially holds that when a stock trades
on an efficient market, courts can presume that a material misrepresentation affected investor
behavior.
The Basic presumption applies if Plaintiffs 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 revealed.
Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2413 (2014). If these elements are
met, courts presume (a) that the misrepresentation affected the stock price, and (b) that the
plaintiff bought the stock in reliance on the defendant’s misrepresentation. Id. at 2414. A
defendant can rebut this presumption by showing that the misrepresentation “did not actually
affect the stock’s price.” Id. at 2405.
Only one element is in dispute here: whether Och-Ziff stock traded in an efficient market.
An efficient market is “one in which the prices of the [stock] incorporate most public
information rapidly.” Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546
F.3d 196, 204 (2d Cir. 2008). Neither the Supreme Court nor the Second Circuit has adopted a
particular test for market efficiency. Indeed, the Second Circuit has explicitly declined to do so.
See Waggoner, 875 F.3d at 94. But at the same time, the Second Circuit has nodded approvingly
at the Cammer and Krogman factors, so named after the district court cases expounding them.
Id. at 94−95.
The five Cammer factors are:
(1) the average weekly trading volume of the stock, (2) the number
of securities analysts following and reporting on it, (3) the extent to
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which market makers traded in the stock, (4) the issuer’s eligibility
to file an SEC registration Form S–3, and (5) the demonstration of a
cause and effect relationship between unexpected, material
disclosures and changes in the stock’s price.
Id. at 94 (quoting Bombardier, 546 F.3d at 200) (alterations omitted).
The three Krogman factors are:
(1) the capitalization of the company; (2) the bid-ask spread of the
stock; and (3) the percentage of stock not held by insiders.
Id. at 95 (quoting Krogman v. Sterritt, 202 F.R.D. 467, 474 (N.D. Tex. 2001)).
All eight factors are discussed below. Seven of them are not disputed, and all seven point
to market efficiency. One of them—the fifth Cammer factor—is discussed separately below.
Cammer one—the average weekly trading volume of the stock: Dr. Nye reports that the
average weekly turnover of Och-Ziff stock was 3.2 percent of outstanding shares. (Nye Report
¶ 20.) The Cammer court concluded that weekly turnover of at least 2 percent justifies a strong
presumption of market efficiency. See Cammer v. Bloom, 711 F. Supp. 1264, 1286 (D.N.J.
1989) (noting that trading volume implies significant investor interest, which, “in turn, implies a
likelihood that many investors are executing trades on the basis of newly available or
disseminated corporate information”).
Cammer two—the number of securities analysts following and reporting on the stock:
Dr. Nye lists many investment firms that followed Och-Ziff’s comings and goings. Dr. Nye
points to 400 analyst reports during the class period and routine coverage in the financial press.
(Nye Report ¶¶ 26–27.) This, too, weighs in favor of market efficiency. See Cammer, 711 F.
Supp. at 1286 (“The existence of such analysts would imply, for example, the [the allegedly
misleading statements] were closely reviewed by investment professionals, who would in turn
make buy/sell recommendations to client investors.”).

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Cammer three—the extent to which market makers traded in the stock: Dr. Nye reports
that Och-Ziff stock traded on the New York Stock Exchange during the class period and that
short trading was not constrained. (Nye Report ¶¶ 33–35.) Dr. Nye also analyzed the level of
institutional ownership, bid-to-ask spreads, and overall arbitrage opportunities. (Nye Report
¶¶ 35–38.) See Cammer, 711 F. Supp. at 1286–87 (“The 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.”).
Cammer four—the issuer’s eligibility to file an SEC registration Form S–3: Dr. Nye
reports that Och-Ziff could, and did, file S–3 reports during the class period. (Nye Report ¶ 43.)
This, too, points to market efficiency.
Krogman one—the capitalization of the company: Dr. Nye reports that Och-Ziff’s
market capitalization was as high as $7.35 billion. (Nye Report ¶ 10.) While the report does not
compare this number to other companies, it nevertheless appears to be high enough to indicate
market efficiency. See, e.g., Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 310
F.R.D. 69, 92 (S.D.N.Y. 2015) (holding that quarterly market capitalization of ranging from $0.5
to $3.2 billion indicated market efficiency).
Krogman two—the bid-ask spreads of the stock: Although Plaintiffs do not explicitly
address this factor, Dr. Nye concluded that “the average and median bid/ask spreads on Och-Ziff
stock during the Class Period were comparable to those of a random sample of stocks listed on
the [New York Stock Exchange].” (Nye Report ¶ 38.) This factor weighs in favor of market
efficiency. Cf. Krogman, 202 F.R.D. at 478 (“A large bid-ask spread is indicative of an
inefficient market, because it suggests that the stock is too expensive to trade.”).

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Krogman three—the percentage of stock not held by insiders: Neither party addresses
this point, although Dr. Nye does note that institutional investors held between 70.2% and 85.7%
of available Och-Ziff shares during the class period. (Nye Report ¶ 37.) But since no context is
provided for these figures, it weighs only slightly for market efficiency.
In sum, the first four Cammer factors weigh strongly in favor of market efficiency. The
three Krogman factors also point towards market efficiency, but their weight is lighter given that
Dr. Nye did not fully analyze them.
Cammer five—cause and effect relationship between news and price movement: The
main point of contention is the fifth Cammer factor: “the demonstration of a cause and effect
relationship between unexpected, material disclosures and changes in the stock’s price.”
Waggoner, 875 F.3d at 94 (alterations omitted) (quoting Bombardier, 546 F.3d at 200).
“Plaintiffs generally attempt to satisfy Cammer 5 by submitting an event study.” Id. Event
studies are “regression analyses that seek to show that the market price of the defendant’s stock
tends to respond to pertinent publicly reported events.” Erica P. John Fund, 134 S. Ct. at 2415.
It is important to note, however, that plaintiffs “need not always present direct evidence of price
impact through event studies.” Waggoner, 875 F.3d at 97.
Plaintiffs present an event study by their expert, Dr. Nye. Dr. Nye’s report sets out to
determine “whether unexpected corporate events or financial releases promptly caused a
measurable stock price reaction after accounting for contemporaneous market and industry
effects.” (Nye Report ¶ 46.) To perform this analysis, Dr. Nye compiled a dataset of seventeen
Och-Ziff news events such as earnings reports and news stories. (Nye Report ¶ 47; see also id. at
222 (listing the seventeen events).) Dr. Nye concluded that Och-Ziff stock reacted more
strongly in the days following those news events than it did on normal days. (Nye Report ¶ 48.)

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Dr. Nye also concluded that when the news was good, the stock price generally went up, and
vice versa. In sum, he concluded that “[the] event study clearly demonstrates a cause-and-effect
relationship between unexpected [Och-Ziff] disclosures and resulting movements in Och-Ziff’s
stock price during the Class Period.” (Nye Report ¶ 46.)
In opposition, Och-Ziff points to its expert report by Dr. Kleidon. (See Dkt. No. 144-18
(“Kleidon Report”).) Dr. Kleidon did not perform an event study of his own, but his report
points out purported deficiencies in Dr. Nye’s event study and his disagreements with Dr. Nye’s
methodology.
First, Och-Ziff attacks Dr. Nye’s choice of the seventeen news events. Och-Ziff does not
appear to quibble with the inclusion of Och-Ziff’s quarterly and annual earnings releases, which
compose eleven of the seventeen events. But Och-Ziff argues that the four news events that
relate to the corrective disclosures—i.e., the four revelations of the bribery allegations and the
investigation—were selectively inserted into the dataset. Och-Ziff also argues that the remaining
two events were added without explanation.
Och-Ziff has a point here. Dr. Nye did not fully explain how he chose these events and
why he chose some events but not others. Still, as one court in this district held, “[t]he dispute
over the inclusion of event dates is essentially about the role of subjectivity in such analysis.”
Petrobras, 312 F.R.D. at 368. As in Petrobras, “[t]he Court concludes that [the expert’s]
selection of event dates displays only that—a modest level of subjectivity—and that this is not
fatal to his conclusions.” Id. Plaintiffs also cite many cases crediting event studies that included
the corrective disclosures at issue in the case. (See Dkt. No. 153-1 ¶ 102 & nn. 293–94.) Also
noteworthy is that in Erica P. John Fund, the Supreme Court observed, without expressing any

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concern, that “[t]he episodes examined by [the plaintiff’s] event study included one of the
alleged misrepresentations that form the basis of the [plaintiff’s] suit.” 134 S. Ct. at 2415.
Second, Och-Ziff argues that Dr. Nye’s data failed to show that the stock price actually
reacted to news events. Whereas only 5% of a random sampling of days is expected to produce
statistically significant price movement, Dr. Nye found statistically significant price movement
in the days following eight of the seventeen news events—or 47.1%. (Nye Report ¶ 48.) OchZiff argues that this is too low a percentage.
This is perhaps Och-Ziff’s strongest argument. See George v. China Auto. Sys., Inc., No.
11 Civ. 7533, 2013 WL 3357170, at *12 (S.D.N.Y. July 3, 2013) (“[S]howing that only seven
out of sixteen days resulted in a market reaction is an insufficient foundation upon which to
pronounce market efficiency”). While Nye’s event study still shows a significant cause-andeffect relationship between news events and price movement, this objection nevertheless
weakens the Nye Report’s persuasive force.
Finally, Och-Ziff argues that Dr. Nye’s report actually shows market inefficiency because
it shows that the market had reacted to old news. Och-Ziff points to the four corrective
disclosures—all of which caused price movement—and argues that they were all describing
previously disclosed information. And because the efficient market hypothesis is based on the
notion that new information is immediately absorbed into the stock price, Och-Ziff argues that a
price movement based on old news shows that the news was not immediately absorbed.
This argument is not convincing because all four events appear to have revealed new
information. Och-Ziff hangs its hat on a news report from 2011 which said (a) that the
government was investigating financial firms’ dealings with Libya’s sovereign-wealth fund, and
(b) that Och-Ziff and several other companies did business with that fund. (See Dkt. No. 144-2.)

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But each of the four later disclosures seemingly added to this story: The first disclosure revealed
that Och-Ziff was actually under investigation, that the investigation was criminal, and that OchZiff was being investigated for a $120 million hotel venture with Libya. (See Dkt. No. 144-10.)
The second disclosure—Och-Ziff’s admission of the investigation in a public filing—was also
new information because it was the first time Och-Ziff acknowledged the investigation. (See
Dkt. No. 144-11 at 4.) The final two disclosures—two news articles—added a lot more color
and detail to Och-Ziff’s actions in Africa. (See Nye Report at 278–80; Dkt. No. 144-21.) It
would be quite a stretch to say that a single story about a possible investigation renders all
subsequent revelations old news.
In the end, this would be a much closer call if Plaintiffs’ case rested solely on Cammer 5.
But Plaintiffs are aided by the fact that the remaining four Cammer factors and the three
Krogman factors all point toward market efficiency. Plaintiffs are also aided by recent circuit
precedent, which holds that if those seven factors point to market efficiency, a court can dispose
with Cammer 5 completely:
[W]e conclude that a plaintiff seeking to demonstrate market
efficiency need not always present direct evidence of price impact
through event studies. In so concluding, we do not imply that direct
evidence of price impact under Cammer 5 is never important. . . .
Direct evidence of an efficient market may be more critical, for
example, in a situation in which the other four Cammer factors
(and/or the Krogman factors) are less compelling in showing an
efficient market. . . . The Cammer and Krogman factors are simply
tools to help district courts analyze market efficiency in determining
whether the Basic presumption of reliance applies in class
certification decision–making. But they are no more than tools in
arriving at that conclusion, and certain factors will be more helpful
than others in assessing particular securities and particular markets
for efficiency.
Waggoner, 875 F.3d at 97–98.
The Second Circuit then applied this rule to the facts of that case:

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[W]e conclude that the district court’s decision not to rely on direct
evidence of price impact under Cammer 5 in this case fell
comfortably within the range of permissible decisions. All seven of
the indirect factors considered by the district court (the first four
Cammer factors and the three Krogman factors) weighed so clearly
in favor of concluding that the market for [the defendant’s
securities] was efficient that the Defendants did not even challenge
them. . . . Because [the defendant] is one of the largest financial
institutions in the world, it is unsurprising that the market for [its
securities] is efficient. Indeed, this conclusion is so clear that the
Defendants failed to challenge such efficiency—based on seven
other factors—apart from their attack on [plaintiffs’ expert’s]
Cammer 5 event study. . . . Under the circumstances here, the
district court was not required to reach a conclusion concerning
direct evidence of market efficiency.
Id. at 98−99.
This case fits comfortably within the Waggoner framework. It is true that Dr. Nye’s
study is flawed. Och-Ziff assiduously points out some gaps and inconsistencies. (See, e.g., Dkt.
No. 143 at 13−14; Dkt. No. 157 at 2–5.) Och-Ziff also points to contemporaneous analyst
chatter that undercuts some of Dr. Nye’s assumptions. (See, e.g., Dkt. No. 157 at 4.) Still, the
event study goes to the basic premise of Cammer 5—i.e., it shows that when news came out,
Och-Ziff’s stock price moved more than it otherwise would have. Dr. Kleidon does not do an
event study of his own, nor does he conclude that Och-Ziff traded on an inefficient market. 1 He
pokes some holes in Dr. Nye’s conclusions. But while Dr. Nye’s theory takes in some water, his

1

The mere fact that Dr. Kleidon failed to conduct an event study of his own by
itself “arguably supports rejection of Defendants’ [reliance on his] arguments at this stage.”
Pirnik, 2018 WL 3130596 at *3 (rejecting criticisms of a Dr. Nye study demonstrating market
efficiency for purposes of establishing classwide reliance where defendants “did not conduct, or
submit, their own event study” but “instead [only relied] on, and criticize[d], the event study
conducted by Plaintiffs’ expert, Dr. Zachart Nye.”).

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basic premise mostly stays afloat. And even if it had not, the other seven Cammer and Krogman
factors would likely suffice. 2
It is easy to get sidetracked among the reams of expert materials, but it is important to
keep in mind 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.’” Erica P. John Fund, 134 S. Ct. at 2410 (quoting Basic
Inc. v. Levinson, 485 U.S. 224, 246 n.24 (1988)); see also id. at 2417 (Ginsburg, J., concurring)
(noting that fraud-on-the-market standards “should impose no heavy toll on securities-fraud
plaintiffs with tenable claims”). Given that seven factors weigh in Plaintiffs’ favor, and given
that Plaintiffs have presented a marginally convincing event study, the Court concludes that it is
more likely than not that Och-Ziff stock traded on an efficient market.
Accordingly, the Basic presumption applies. While a party may rebut the Basic
presumption by showing that the misrepresentation did not actually affect the stock’s price, OchZiff does not try to do so. And since reliance is presumed, there is no risk of individual reliance
issues predominating over common ones.
2.

Calculation of Damages on a Classwide Basis

The next issue is whether damages can be calculated on a classwide basis. Here,
Plaintiffs rely on Dr. Nye’s calculation method, which computes damages as the differential
between the pre-disclosure and post-disclosure stock prices. (Nye Report ¶¶ 50–54.)

2

See Pirnik, 2018 WL 3130596 at *3 (“As Plaintiffs easily satisfy the first four
Cammer factors, the Court need not and does not analyze the fifth Cammer factor. . . .” (citing
Waggoner, 875 F.3d at 97–98)). The contrary case most favorable to Och-Ziff, George v. China
Automotive Systems, Inc., No. 11 Civ. 7533, 2013 WL 3357170 (S.D.N.Y. July 3, 2013),
predates the Second Circuit’s opinions in Petrobras and Waggoner, and is therefore less
persuasive.

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Och-Ziff has one objection on this front: that Nye’s approach does not account for the
fact that some theories of liability have been dismissed. This Court had previously dismissed the
claim that Och-Ziff’s failure to disclose the illegal acts themselves—as opposed to its alleged lies
about the impact of the government’s investigation—was an actionable omission. Accordingly,
Och-Ziff argues, any damages model must differentiate between the price decline that resulted
from the actual illegal activity—which is not actionable—and the price decline that resulted from
Och-Ziff’s lying about the impact of the investigation. And since Dr. Nye does not discuss this
distinction, Och-Ziff argues that his model is deficient.
This is an interesting argument, and one this Court might have to deal with eventually.
But it does not impede class certification. First, the problem Och-Ziff identifies is not unique to
aggregated litigation. Even if this case had only one plaintiff who bought only one share, we
would still have to figure out the same issue: whether there is a quantifiable difference between
the two theories of liability, and if so, how much of the price drop is attributable to the alleged
cover-up as opposed to the actual illegality. Litigating this case on a classwide basis does not
make this problem more or less difficult to solve. The answer for the class will be the same as
the answer for the hypothetical lone plaintiff. Thus “to the extent Defendants’ argument is that
Plaintiffs’ model fails to account for factual evidence of varied [sources of price decline], that is
an argument that goes to the merits of whether Plaintiffs can accurately demonstrate price impact
and goes beyond the Rule 23 inquiry.” See Pirnik, 2018 WL 3130596, at *5 (“[Q]uestion of loss
causation (that is, whether Plaintiffs’ damages were caused by the alleged fraud alone or by other
market factors) . . . ‘[is a] common question[ ] that need not be adjudicated before a class is
certified.’” (quoting Amgen, 568 U.S. at 475).

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Second, the Second Circuit in Waggoner evaluated a similar report by Dr. Nye, and it
concluded that the report was good enough for the class certification stage. That report similarly
failed to disaggregate the stock drop caused by the alleged misstatements from the stock drop
caused by government fines. Still, the Second Circuit held that “the regulatory action and any
ensuing fines were a part of the alleged harm the Plaintiffs suffered, and the failure to
disaggregate the action and fines did not preclude class certification.” Waggoner, 875 F.3d at
106.
Och-Ziff relies on the Supreme Court’s opinion in Comcast Corp. v. Behrend, 569 U.S.
27 (2013). There, the plaintiffs posited four theories of antitrust liability, but the district court
held three theories incapable of class adjudication. The district court certified a class for the
fourth theory, based on a damages model that did not disaggregate the damages attributable to
the first three theories. The Supreme Court reversed, holding that “a model purporting to serve
as evidence of damages in this class action must measure only those damages attributable to that
theory.” Id. at 35. Och-Ziff seizes on this language to argue that Dr. Nye’s model does not
disaggregate the damages caused by the dismissed theories of liability.
But the Second Circuit, like other courts of appeals, has held that Comcast’s impact is
more muted than it first appears. Specifically, the Second Circuit held that:
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.
Roach v. T.L. Cannon Corp., 778 F.3d 401, 407 (2d Cir. 2015) (citations omitted).

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Dr. Nye’s model fits comfortably within this interpretation of Comcast because it
calculates the damages caused by the alleged cover-up. Even though the model does not
eliminate any alternative causes or contributing factors, that does not defeat the predominance
requirement. See Waggoner, 875 F.3d at 106 (“The Comcast standard is met notwithstanding
that some of the decline in the price of [the securities] may have been the result of the New York
Attorney General’s action and potential fines.”); Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d
70, 88 (2d Cir. 2015) (“Comcast did not rewrite the standards governing individualized damage
considerations . . . . All that is required at class certification is that ‘the plaintiffs must be able to
show that their damages stemmed from the defendant's actions that created the legal liability.’”)
(quoting Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013)).
Accordingly, the damages calculation does not undermine the predominance requirement.
E.

Superiority

The superiority requirement is met as well. Given the dispersed nature of the class,
aggregate adjudication is superior to piecemeal litigation. See Darquea v. Jarden Corp., No. 06
Civ. 722, 2008 WL 622811, at *5 (S.D.N.Y. Mar. 6, 2008) (“Securities suits easily satisfy the
superiority requirement [because] [m]ost violations of the federal securities laws . . . inflict
economic injury on large numbers of geographically dispersed persons such that the cost of
pursuing individual litigation to seek recovery is often not feasible.”).
F.

The Appropriate Class Period

The final dispute about class certification concerns the end-date of the class period. As
with typicality and adequacy, this disagreement relates to the trickle of news about the
investigation, which is again conveyed chronologically:
•

2012–2013: Och-Ziff makes the allegedly misleading statements.

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•

February 2014: The Wall Street Journal reveals that the government
is looking into Och-Ziff’s dealings in Libya. (Dkt. No. 144-10.)

•

March 2014: Och-Ziff reveals that it has received subpoenas relating
to dealings in Africa, but it does not indicate the expected impact of
the investigation. (Dkt. No. 144-11 at 4.)

•

August 2014: Bloomberg publishes a story describing Och-Ziff’s
misadventures in Africa. (Dkt. No. 144-21.)

Defendants insist that the class period should end in February; Plaintiffs insist that it
should extend into August. The nub of the dispute is whether the February or March disclosures
fully cured any prior misstatements.
Plaintiffs are correct on this front. Whether the February or March disclosures cured the
prior misstatements is a merits issue. Och-Ziff will certainly have the opportunity to argue that
those disclosures cured any prior misstatement, but that question does not have to be resolved at
the class certification stage. This issue is better suited for summary judgment or trial. See
Amgen, 568 U.S. at 482; Strougo v. Barclays PLC, 312 F.R.D. 307, 328 (S.D.N.Y. 2016)
(“While defendants will have the opportunity to require plaintiffs to prove materiality—
including the relevant time period—they have not shown that there is a reason to circumscribe
the Class Period now.”), aff’d sub nom. Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017).
Accordingly, the class period will end on August 22, 2014, the day after the final alleged
corrective disclosure.
G.

Class Counsel

Both of the law firms representing the proposed class are experienced securities litigators.
Pursuant to Federal Rule of Civil Procedure 23(g), the Court finds that Pomerantz LLP and The
Rosen Law Firm, P.A. would adequately represent the class.

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IV.

Conclusion
For the foregoing reasons, the motion for class certification is GRANTED. The motions

at Docket Numbers 157 and 175 are also GRANTED. Ralph Langstandt and Julie Lemond are
appointed lead plaintiffs, and Pomerantz LLP and The Rosen Law Firm, P.A. are appointed class
counsel.
The Clerk of Court is directed to close the motions at Docket Numbers 60, 157, and 175.
SO ORDERED.
Dated: September 14, 2018
New York, New York
____________________________________
J. PAUL OETKEN
United States District Judge

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