First Circuit Disallows Event Study Which Fails to Connect to Key Events

An event study provides the basis for identifying movements that can attributed to specific events and illustrate how the public markets react (or fails to react) to a specific event.  Identifying and measuring such activity can substantiate (or counter) a claim for economic damages. In Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse First Boston (“CSFB”) the Court of Appeals for the First Circuit affirmed a district court’s exclusion of an event study as unreliable under Daubert v. Merrell Dow Pharm., Inc. because the study as executed failed to offer meaningful insight into the events at issue in the case.

Plaintiffs were AOL shareholders.  CSFB’s research analysts covered AOL stock and issued target prices.  Plaintiffs alleged that CSFB’s research reports misrepresented its analysts’ true opinions about AOL and thereby allowed AOL’s stock to trade at artificially inflated prices.  In support of this position, plaintiffs’ expert constructed an event study aimed at tying alleged misstatements by CSFB to AOL’s stock price.

However, the First Circuit agreed that plaintiffs’ expert

  1. failed to examine relevant event dates
  2. classified certain dates as relevant even though the disclosures on those dates largely repeated previously disclosed information
  3. failed to control for confounding factors, such as other news stories, statements or events

In agreeing with exclusion, the First Circuit also affirmed summary judgment on behalf of CSFB since the event study formed the entirety of the causation evidence.



Permanent link to this article:

Leave a Reply

Your email address will not be published.