12 Apr 2016 Cases

Appellate Court Relies on Analysis of Compass Lexecon Affiliate Kenneth M. Lehn in Reversing Class Certification Decision in Best Buy Securities Litigation

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On April 12, 2016, the Eighth Circuit Court of Appeals reversed a district court ruling certifying a securities class action against Best Buy and three of its executives regarding certain allegedly false and misleading statements. The Court held that the lower court had misapplied the U.S. Supreme Court's Halliburton II decision because the Defendants had provided evidence that the alleged misstatements did not impact Best Buy's stock price, thereby rebutting the fraud on the market presumption of reliance Plaintiffs used to support their motion for class certification.

The Plaintiffs in this matter were a putative class of purchasers of Best Buy common stock who alleged that the Defendants made false and misleading statements in a conference call following an earnings release in violation of federal securities laws. In support of Plaintiffs' reliance claim, they submitted expert analysis that concluded that the alleged misstatements had a positive price impact based on a statistical "event study" analysis.

In response, Compass Lexecon Affiliate Professor Kenneth M. Lehn explained that Plaintiffs' expert's analysis was fundamentally flawed and unreliable because the event study analyzed daily stock price changes and therefore did not distinguish the price effects of the non-actionable statements in the press release from the actionable statements in the conference call. Because the press release and conference call occurred at different times on the same date, Professor Lehn performed his own event study analysis of Best Buy's intraday price changes as well as an intraday analysis based on Plaintiffs' expert's event study model. Professor Lehn found that under both analyses, Best Buy's stock price change was statistically significant prior to the conference call but was not statistically significant afterward. He thus concluded that the economic evidence contradicted Plaintiffs' and their expert's claim that the alleged misstatements had a positive price impact on Best Buy's stock.

The district court nevertheless certified the class but a divided panel of the Eighth Circuit reversed. The majority, relying in part on Professor Lehn's analysis, ruled that the Defendants successfully rebutted the presumption of reliance under the fraud on the market theory because the allegedly false and misleading statements did not impact Best Buy's stock price, as required by Halliburton II.

Professor Lehn was supported by a team at Compass Lexecon led by Michael A. Keable that included Anne Marie Yale, David Strahlberg, Eugenia Vinogradsky, and Elizabeth Stone in our Chicago office.

Joseph M. McLaughlin, George S. Wang and Daniel J. Stujenske from Simpson Thacher & Bartlett LLP and Eric J. Magnuson, Stephen P. Safranski and Jeffrey S. Gleason from Robins Kaplan LLP successfully represented Best Buy in the case.

A new version of Compass Lexecon is available.