CRA assisted Morrison & Foerster, counsel for Farmland Partners, a NYSE-traded real estate investment trust (REIT), and its CEO and CFO in a securities class action.
Plaintiffs alleged that the defendants made materially false and misleading statements regarding certain loans made by the company through its loan program and, specifically, the implications of those loans on the extent and nature of the company’s related-party transactions. Plaintiffs also contended that the company’s stock price declined upon an alleged corrective disclosure via the release of a report on Seeking Alpha by a short seller. In a separate proceeding, the author of that report settled with Farmland, agreeing to pay a multiple of the profits made shorting the company.
CRA Vice President Tiago Duarte-Silva submitted rebuttal expert reports on market efficiency and loss causation, and testified at depositions and a court evidentiary hearing. CRA’s team was led by Vice President Aaron Dolgoff.
Regarding class certification, Dr. Duarte-Silva opined that the plaintiffs failed to show that Farmland’s shares traded in an informationally efficient market throughout the class period, namely that plaintiffs’ expert’s event study did not show a cause-and-effect relationship between the arrival of new information and the subsequent reaction in Farmland’s share price. Dr. Duarte-Silva also showed that none of the alleged misrepresentations affected Farmland’s stock price when they were made. Dr. Duarte-Silva also opined that the alleged disclosure did not provide any new information about the company’s loan program or the alleged related-party loans.
Regarding loss causation, Dr. Duarte-Silva showed that the plaintiffs’ expert’s method failed to isolate inflation attributable to the alleged misstatements and omissions from the stock price impact of many other negative statements in the Seeking Alpha report. Further, he opined that the plaintiffs’ expert’s method failed to establish that the purported correction of the alleged misstatements or omissions related to related-party transactions — as opposed to the many other negative allegations in the Seeking Alpha report — caused Farmland’s stock price to fall.
The Magistrate Judge noted concerns regarding the lack of statistical significance of a number of the alleged event dates in the plaintiffs’ expert’s analysis of price impact. In accordance with these concerns and with Dr. Duarte-Silva’s opinion that “there was no market impact upon the disclosure of the loan program,” the Magistrate Judge concluded that there were insufficient indicia to establish a prima facie case of class-wide reliance to trigger the Basic presumption for fraud-on-the-market for the first year of the class period, and thus the class period should be shorter by a year.
The Circuit Court Judge decided to start the class period even later because any certified class period could not begin until the first alleged misstatement or omission after the date on which the Court finds market efficiency. The case was later dismissed on summary judgment.