SW Legal studies in Business

Falling Stock Price Does Not Preclude Class Action for Securities Fraud
Description

Appeals court held that the district court properly certified a class action suit for securities fraud against the managers of a company who are alleged to have stated the company was doing well despite the stock price falling constantly during the time period in question. It does not matter if the price was rising or falling if there was fraud.

Topic

Securities Law

Key Words

Fraud; Class Action; Losses

C A S E   S U M M A R Y
Facts

Conseco is a large, publicly traded financial-services firm. While profitable now, it filed for bankruptcy in 2002. A securities fraud suit was filed against some Conseco managers for actions in 2001-2002. Investors claim that the managers made false statements about the company future, asserting it would be good, when it was nearing bankruptcy. The managers opposed class certification of the unhappy investors, but the district court granted class certification. Defendants appealed.

Decision

Affirmed. Contrary to defendantsí claims, the fact that the stock price was declining during the entire time period in question does not preclude class certification. Measuring losses may be difficult, but would not be impossible. Defendants also claim that short sellers of the stock should not be included in the class, but they are not precluded from participating. If the managers engaged in fraud on the market, that could impact short sellers too. Since the parties to the class all claim the same cause of action against the managers, it is sensible that they be allowed to form a class and deal with the matter in one suit.

Citation

Schleicher v. Wendt, ---F.3d--- (2010 WL 3271964, 7th Cir., 2010)

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