August 15, 2014

On August 15, 2014, in one of the first cases interpreting the Supreme Court’s recent decision in Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”).  Judge Marrero issued an order granting Plaintiffs’ motion for class certification in its entirety.  In doing so, Judge Marrero first noted that Halliburton II did not change Second Circuit case law, which already permitted a securities-fraud defendant to rebut the presumption, prior to class certification, by showing the absence of a price impact.  Judge Marrero then rejected Defendant DTT HK’s argument that, because the price of China MediaExpress stock actually dropped slightly on the day of the alleged misstatement (a clean audit opinion), that this shows the absence of a price impact.  Judge Marrero explained that 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” and that the fact that China MediaExpress’s stock plummeted when the truth came out cuts against DTT HK’s argument that the original audit opinion had no impact on China MediaExpress’s stock price.  Judge Marrero also rejected Defendants’ argument that the fact that China MediaExpress’s price exhibited material price movement on less than 50% of days identified as news days meant that the market for China MediaExpress securities was inefficient.  Instead, Judge Marrero held the test put forward by Plaintiffs and their experts which found that it was between six and eight times more likely for China MediaExpress’s share price to see a statistically significant change in price on news days on news days as constituted sufficient evidence to satisfy the Court that the price of China MediaExpress stock responded to unexpected corporate events or financial releases.  The Court also held that its efficiency finding applied equally to the market for China MediaExpress options.

Order - August 15, 2014