In July, U.S. District Judge Robert W. Sweet of the Southern District of New York issued a comprehensive opinion in the federal securities action, Sherman v. Bear Stearns, Master File No. 08 MDL 1963, Index No. 09 Civ. 8161, 2016 U.S. Dist. LEXIS 97784, at *18-35 (S.D.N.Y. July 25, 2016), explaining why the plaintiff’s expert report purporting to prove loss causation under a “leakage” theory should be excluded. The plaintiff, Bruce S. Sherman, who is the former chief executive officer and chief investment officer of Private Capital Management, sued Bear Stearns Companies Inc., and two of the company’s former executive officers (the defendants) for alleged violations of Section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5, promulgated thereunder (10b-5 claim).
To establish the loss causation element of his 10b-5 claim, Sherman proffered the expert report of John D. Finnerty, which purported to show that information concerning Bear’s “true” financial condition “leaked” into the market between Dec. 20, 2007, and March 13, 2008, causing the price of Bear’s stock to decline before the March 14, 2008, public disclosure of the company’s deteriorating liquidity, and the March 16, 2008, announcement that JPMorgan would acquire Bear for $2 per share. The defendants moved to exclude Finnerty’s report and testimony under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993). Sweet granted the defendants’ motion, holding that Finnerty’s report failed to qualify under Rule 702 for its lack of general acceptance and not having been subject to peer review and its failure to control for nonfraud factors.
Proving Loss Causation
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