Credit Suisse First Boston (Lantronix) Analyst Securities Litigation


The U.S. District Court for the Southern District of New York decertified a class based partly on expert testimony that the analyst reports at issue did not inflate the stock price.

Retained by Davis Polk & Wardwell

U.S. District Court Judge Loretta A. Preska granted the defendants’ motion for reconsideration and decertified a Rule 10b-5 class in the Credit Suisse First Boston (Lantronix) Analyst Securities Litigation. Though the class had originally been certified, defendants filed a motion for reconsideration in light of the Court of Appeals decision in Miles v. Merrill Lynch.

The central issue in the motion involved whether the “fraud on the market” presumption of reliance adopted in Basic v. Levinson was applicable to Credit Suisse’s allegedly deceptive analyst reports on Lantronix. In decertifying the class, Judge Preska ruled that the presumption of reliance had not been satisfied and thus that the lead plaintiff had failed to meet his burden of satisfying the predominance requirement of Rule 23.

The court noted that Professor Stulz “testified persuasively” about several developments at Lantronix over the course of the class period.

Counsel for Credit Suisse retained Cornerstone Research to provide consulting analysis and to work with Professor René Stulz of The Ohio State University. Professor Stulz conducted an event study and concluded that there was no evidence to support the plaintiff’s claims that the analyst reports at issue affected Lantronix’s stock price.

In addition, through analysis of the evolving mix of public information on Lantronix, Professor Stulz rebutted the plaintiff’s contention that the analyst reports, all issued near the start of the class period, boosted the stock price over the next two years. Professor Stulz also refuted the plaintiff’s suggestion that Credit Suisse’s role as a lead underwriter meant that Lantronix’s stock would have fallen earlier had the bank not issued the reports.

As the opinion noted, “the Court is not persuaded that the absence of a report would have an effect on the market. Because, as both experts testified, there is no way to test for the ‘booster shot’ theory espoused by [the plaintiff’s expert], the Court does not credit her testimony on that theory. Rather, the Court is persuaded by Dr. Stulz’s testimony to the contrary.”

The court also noted that Professor Stulz “testified persuasively” about several developments at Lantronix over the course of the class period and how they influenced investor expectations for Lantronix relative to the analyst reports at issue: “In sum, the Court agrees with Dr. Stulz that ‘[i]t is inconceivable…that anybody…would still be paying attention to those reports [at the end of the class period].’”

Case Expert

René M. Stulz

Everett D. Reese Chair of Banking and Monetary Economics,
Director, Dice Center for Research in Financial Economics,
Fisher College of Business,
The Ohio State University