The case involved Rule 10b-5 claims stemming from Xcelera’s disclosure that it might be required to issue new common shares to a third party, which would dilute the value of the ownership interests of then-current Xcelera shareholders.
Retained by Wilmer Cutler Pickering Hale and Dorr
The U.S. District Court of Massachusetts granted a motion by Cornerstone Research’s client, Xcelera (formerly known as Xcelera.com), to exclude the testimony of the opposing expert in this securities litigation. The court concluded that the method the plaintiffs’ expert used for his event study did not conform to generally accepted procedures and was inconsistent with his finding of market efficiency.
The case involved Rule 10b-5 claims stemming from Xcelera’s disclosure that it might be required to issue new common shares to a third party, which would dilute the value of the ownership interests of then-current Xcelera shareholders. This information was disclosed in Xcelera’s annual report, filed on Form 20-F after the market closed on July 31, 2000. The plaintiffs argued that the disclosed information was not fully reflected in the company’s stock price until analysts commented on the disclosure in publications on August 1 and 2, 2000, and until Bloomberg News published an article about it on August 9, 2000. The plaintiffs alleged that the disclosures caused Xcelera’s stock price to fall and sought hundreds of millions of dollars in damages. The plaintiffs’ expert conducted an event study in support of this allegation.
Cornerstone Research analyzed the plaintiffs’ findings and determined that Xcelera’s shareholders had incurred no damages. In particular, the company’s stock price rose on August 1, 2000, the first trading day after the release of the Form 20-F. Moreover, the news on August 2, 2000, and August 9, 2000, did not provide any material new information about the dilution of Xcelera’s stock.
Cornerstone Research also found that the plaintiffs’ expert did not apply reliable methods when conducting his event study. In particular, his analysis ignored the stock price increase that occurred on the first trading day after the Form 20-F filing, and failed to take into account other confounding factors that affected Xcelera’s stock price in the first nine days of August 2000. Further, the plaintiffs’ expert asserted that analyst commentary that merely repeated information already in the market the day before—stale information, up to nine days old—caused changes in Xcelera’s stock price. This assertion was clearly inconsistent with his finding of market efficiency.
After a Daubert hearing, the court agreed and granted Xcelera’s motion to exclude the testimony of the plaintiffs’ expert.