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From Securities Regulation Daily, August 21, 2015

Class certified in Barclays LIBOR action

By Rodney F. Tonkovic, J.D.

The District Court sitting in Manhattan has certified a class in a securities fraud action alleging that Barclays PLC manipulated the London Interbank Offered Rate (LIBOR) interest rate. The court found that the class could rely on the Basic presumption of reliance and that individualized damage issues would not predominate under Rule 23(b)(3). The court accordingly certified a class of purchasers of Barclays ADS between July 10, 2007 and June 27, 2012 and appointed Carpenters Pension Trust Fund of St. Louis and St. Clair Shores Police & Fire Retirement System as lead plaintiffs, and Robbins Geller Rudman & Dowd LLP was appointed as class counsel (Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, August 20, 2015, Scheindlin, S.).

Background. The plaintiffs alleged that Barclays and its president, Robert E. Diamond, Jr., manipulated the LIBOR by misrepresenting the bank’s cost of borrowing funds in violation of the antifraud provisions of the Exchange Act. According to the complaint, Barclays submitted artificially low rates to enhance the view of its financial results and boost its stock price. As a result of prior rulings (e.g., October 21, 2014 and April 25, 2014), only two sets of alleged misstatements remain: Barclays's LIBOR submissions between August 2007 and January 2009, and Diamond’s remarks during a conference call with market analysts on October 31, 2008, in which he stated that Barclays was "not paying higher rates in any currency" and that it was not transacting "at high levels."

Class certified. The plaintiffs sought certification under Rule 23(b)(3), positing that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.” At issue was whether the plaintiffs could satisfy class-wide reliance based on either Affiliate Ute or Basic, or whether individual damages would predominate.

Event study. The plaintiffs' expert conducted two event studies and opined that the market for Barclays ADS was open, developed, and efficient. The court noted as an initial matter that the plaintiffs relied heavily on the Cammer test for market efficiency, which has been endorsed, but not required, by the Second Circuit. The defendants maintained that the plaintiffs' expert's event study showed no evidence of the fifth Cammer factor, the share price response to unexpected news, but the court said that this factor is not dispositive, and, moreover, that an event study is not always necessary to satisfy the fifth factor. The event studies also survived the defendants' Daubert challenge on the grounds of relevance, reliability, sufficiency of the data, and objectivity, because the court saw no basis to exclude the expert's testimony.

Efficient market. The court then concluded that plaintiffs showed by a preponderance of the evidence that the market for Barclays ADS was efficient during the class period. Each of the Cammer factors weighed in favor of market efficiency: the shares traded at a large average weekly volume; a significant number of analysts reported on the shares; a majority of the ADS were held by market makers; Barclays was eligible to file Form S-3; and there was a relationship between news events and changes in the share price. Since the defendants failed to prove lack of price impact, the court found that the plaintiffs were entitled to the Basic presumption of reliance. The Affiliated Ute presumption, however, did not apply because there were no actionable omissions in this case.

Damage issues. Finally, the court found that individualized damage issues would not predominate. The plaintiffs proposed to apply the "constant dollar" method to calculate the amount of share price inflation throughout the class period, which, the defendants argued, would not account for variations in inflation over time. According to the court, the plaintiffs' model of damages matched their theory of damages and individualized damages issues would not predominate. Whether the plaintiffs will be able to prove loss causation or measure price impact are questions that go to the merits and not whether common issues predominate, the court said.

The case is No. 12-cv-5329.

Attorneys: David Avi Rosenfeld (Robbins Geller Rudman & Dowd LLP) for Carpenters Pension Trust Fund of St. Louis, St. Clair Shores Police & Fire Retirement System and Pompano Beach Police & Firefighter's Retirement System. Daniel W. Krasner (Wolf Haldenstein Adler Freeman & Herz LLP) for Vladimir Gusinsky. Alanna Cyreeta Rutherford (Boies, Schiller & Flexner LLP) for Barclays PLC, Barclays Bank PLC and Barclays Capital Inc.

Companies: Carpenters Pension Trust Fund of St. Louis; Pompano Beach Police & Firefighter's Retirement System; St. Clair Shores Police & Fire Retirement System; Barclays PLC; Barclays Bank PLC; Barclays Capital Inc.

MainStory: TopStory FraudManipulation NewYorkNews

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