Defense counsel retained Dr. Daniel M. Garrett, a vice president of Cornerstone Research, to respond to the analysis offered by the plaintiffs’ expert in this federal securities matter.
Defense counsel retained Dr. Daniel M. Garrett of Cornerstone Research, to respond to the analysis offered by the plaintiffs’ expert in this federal securities matter. The plaintiffs alleged that China Automotive made a series of false and misleading statements regarding its accounting for certain convertible notes, operating expenses, and other charges against income. The plaintiffs’ expert claimed that the plaintiffs could properly rely on a fraud-on-the market theory for class certification and damages because China Automotive stock allegedly traded in an efficient market. During the putative class period, China Automotive had traded on NASDAQ.
The issues in dispute concerned one of the Cammer factors, specifically whether or not the plaintiffs could demonstrate a cause-and-effect relationship between news and China Automotive’s stock price during the putative class period. The plaintiffs’ expert proffered five tests of the cause-and-effect relationship. In a declaration and at an evidentiary hearing, Dr. Garrett testified that each of the plaintiffs’ expert’s five tests failed to demonstrate a cause-and-effect relationship.
The U.S. District Court for the Southern District of New York denied class certification for two categories of reasons. The first was on the basis of unique defenses, whose presence defeats adequacy, typicality, and predominance. Second, the court found that the plaintiffs failed to show that the securities at issue traded in an efficient market, thereby defeating predominance. U.S. District Judge Katherine B. Forrest’s opinion repeatedly cited Dr. Garrett’s analysis:
At the evidentiary hearing the court was able to explore the bases for [the plaintiffs’ expert] and Garrett’s opinions. The court finds that Garrett provided complete and sound examples of the methodological shortcomings of each of [the plaintiffs’ expert’s] tests. In contrast, the court found that [the plaintiffs’ expert] could not explain or defend why his methodology made analytical sense given the definition of market efficiency. None of the tests utilized by [the plaintiffs’ expert] provides a reliable basis upon which to rest an opinion or evidence of market efficiency.
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