Defense counsel retained Cornerstone Research to assess plaintiff’s expert’s market analysis in a U.S. securities litigation involving a major foreign auto manufacturer.
Following a widely publicized product liability issue, a class of U.S. investors initiated a securities fraud litigation against a major automobile manufacturer whose common stock was listed outside the United States. The defendant company had a small portion of its equity float trading in the U.S. as American Depositary Receipts (ADRs), which were the only securities eligible for adjudication in the U.S. post-Morrison. Defense counsel retained Cornerstone Research to analyze ADR market dynamics and assess the opposing expert’s report on class certification.
Plaintiff’s expert had not considered unique aspects of the market for these ADRs, and thus lacked a reliable basis to assess the impact of relevant information.
In his rebuttal report, our expert demonstrated that the plaintiff’s expert’s market efficiency conclusion was not reliable, finding that many features of the market for these ADRs distinguished them from paradigmatic, blue-chip, U.S.-listed equities. These included relatively high ADR transaction costs; problems absorbing large ADR trades without price disturbances (i.e., without causing non-information-based price impact); and evidence that certain U.S. investors chose to execute transactions in common stock in the home market, where there was greater liquidity, instead of in the U.S. ADR market.
The case settled before a class certification ruling.