Counsel for the defendants retained James Malernee, a managing director of Cornerstone Research, to opine on loss causation in this securities class action.
Retained by Thompson & Knight
Counsel for the defendants retained James Malernee, a managing director of Cornerstone Research, to opine on loss causation in this securities class action. The plaintiffs claimed that Allegiance Telecom, a provider of bundled telecommunications services, artificially inflated its stock price by overstating its installed line count. The plaintiffs alleged that Allegiance’s February 19, 2002, announcement of a downward reconciliation of its line count caused a stock price drop on February 20, 2002.
Dr. Malernee opined that there was no evidence that the line count reconciliation announcement caused the stock price decline. He pointed out that the line count measure on which the plaintiffs’ expert focused for evidence of loss causation had lost relevance in the marketplace as the company had grown. Dr. Malernee also pointed out that analysts did not attribute the price drop to the line count reconciliation. He concluded that most of the February 20 drop in Allegiance’s stock price was due to the company’s mixed to weak fourth quarter 2001 financial results, lowered guidance, and the increased risk of potential covenant violations.
The court denied the plaintiffs’ motion for class certification because the lead plaintiffs failed to establish loss causation. The court concluded that plaintiffs had not shown “that the market gave line count any significant weight in its valuation of Allegiance shares on February 20, especially in light of the confirmatory nature of the line count information, and all of the negative or somewhat negative debt covenant and earnings news Allegiance concurrently provided.” The court subsequently denied the plaintiffs’ motion to reconsider, and the plaintiffs filed a petition for permission to appeal. Eight months later, the U.S. District Court for the Northern District of Texas, Dallas Division, ordered the dismissal with prejudice of all the plaintiffs’ claims against the defendants, based on the parties’ joint filing of an agreed stipulation to that effect.