Expert Article Library

Trading Stocks in a Volatile Market

Case Name: Bell v. Ascendant Solutions, Inc.

Court: U.S. Court of Appeals for the Fifth Circuit; on appeal from Northern District of Texas

Date: August 23, 2005

Type of expert: Stock Market. Professor R. Richardson Pettit, stock market expert

Issue: Is stock market expert’s testimony admissible if it doesn’t follow accepted market analysis?

Summary of case: Plaintiff tried to certify a securities fraud class action against Defendant, claiming Defendant made false statements about the company before its IPO. The central dispute in certification was whether the company was trading in an efficient market. If it was an efficient market, Plaintiffs could use a fraud-upon-the-market theory to meet the requirement of proving actual reliance. In fraud-upon-the-market, reliance is interpreted to mean reliance on the integrity of the market price instead of reliance on the allegedly false statement.

Role of the expert: Defense expert submitted a study showing that Defendant’s stock did trade in an efficient market.

Expert analysis: Plaintiff argued that defense expert evidence was severely flawed and unreliable because it did not follow generally accepted finance methodology.

Court ruled for Defendant on the grounds that Plaintiff’s expert inconsistently applied his analysis to fit Plaintiff’s argument, skewing the results and making his conclusions unreliable.

Summary prepared by J. Baik, Student, University of San Francisco School of Law