Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, April 16, 2014

Failure to show class-wide reliance dooms certification motion

By Anne Sherry, J.D.

Class-action plaintiffs’ attempt to certify a class of investors allegedly wronged by Genworth Financial Wealth Management, Inc. failed when the district court determined that the plaintiffs were not entitled to either of the two presumptions of reliance. Furthermore, although the plaintiffs alleged certain misrepresentations, this did not lead to a conclusion that all class members relied on the representations (Goodman v. Genworth Financial Wealth Management, Inc., April 15, 2014, Bianco, J.).

Allegations. The plaintiffs sought to certify a class of over 2000 individual investors in an investment adviser subsidiary of Genworth. The investors allegedly invested based on the representation that Genworth was managing investments based on recommendations of Robert Brinker. In fact, the plaintiffs claim, Brinker did not select the funds for Genworth’s portfolios and Genworth did not implement any recommendations of his.

Class certification. To obtain class certification under Federal Rule of Civil Procedure 23(b)(3), the plaintiffs would need to prove by a preponderance of the evidence that questions of law or fact common to class members predominate over any questions affecting only individual members. They failed to do so, the court determined, because they did not demonstrate a method of proof of reliance common to all class members.

Inapplicability of presumptions of reliance. The plaintiffs were not entitled to the fraud-on-the-market presumption of reliance because they failed to identify an efficient market or market price for the securities in question; in fact, they conceded the inapplicability of the fraud-on-the-market presumption. Furthermore, the Affiliated Ute presumption of reliance in cases of a failure to disclose was inapplicable because the complaint mainly alleged misrepresentations.

Circumstantial evidence of reliance. The plaintiffs also contended that a jury could reasonably infer class-wide reliance from the facts that the defendants made the same representations to all class members and that all class members invested with the defendants. The court noted that while the Second Circuit has approved the use of circumstantial evidence to prove class-wide reliance in fraud cases other than securities fraud cases, it has done so only where the inference of reliance is practically inescapable. In this case, the evidence that the defendants made uniform representations and that all class members invested with the defendants does not compel the conclusion that all class members must have relied upon defendants’ representations. If the case went to trial, each class member’s reliance would have to be proven individually, defeating the commonality necessary for class certification under Rule 23(b)(3).

The case is No. 09-CV-5603 (JFB) (GRB).

Attorneys: Bryan L. Arbeit (Leeds Brown Law, PC) for Michael J. Goodman. Mark S. Mulholland (Ruskin Moscou Faltischek, PC) and Reid L. Ashinoff (Dentons US LLP) for Genworth Financial Wealth Management, Inc. and Genworth Financial, Inc.

Companies: Genworth Financial Wealth Management, Inc.; Genworth Financial, Inc.

MainStory: TopStory FraudManipulation NewYorkNews

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.