Class action damages, short-selling and third-party corrective disclosures

Brattle evaluated the price impact and associated harm to shareholders, from an alleged corrective disclosure made by a short-seller. Brattle’s analysis helped our client establish that the company was the subject of a short-and-distort scheme. In this scheme, the short-sellers took bearish positions in the stock prior to releasing a short thesis and benefited from the resultant temporary price decline. Our analysis considered several unique aspects of the case, including the materiality of the alleged misrepresentations and omissions; the impact of financial media on stock prices and therefore on a loss causation analysis; the “pseudo signal” nature of the alleged corrective disclosure (which makes information “appear” as news and result in temporary price movement); and the contrast between the observed price decline and what the counterfactuals might have suggested. We also combined our analysis framework with an examination of the trading records from certain identified short-sellers and put-option traders and showed that these traders profited from coordinated trading around the alleged third-party corrective disclosure, further supporting the notion of a short-and-distort scheme. All claims against our client were ultimately dismissed.