Securities Regulation Keyed to Coffee
In re PolyMedica Corp. Securities Litigation
PolyMedica Corp. (PolyMedica) was the parent of Liberty Medical Supply, Inc. (Liberty). Allegedly, over the course of eight months, PolyMedica falsely reported substantial gains in Liberty's business(accounting for roughly 80% of PolyMedica's profits) stated by a PolyMedicastock buyer. Traded on the NASDAQ and American Stock Exchange, these reports then led to considerable gains in PolyMedica'sstock and purportedlyinfluenced the buyer to purchase artificially inflated stock. Once the truth came out, the value of PolyMedica'sstock plunged by 80%. The buyer filed suit and sought class certification, alleging that because of PolyMedica’s misstatement of sale figures, accounts receivable, earnings and fake press releases, that others in similar situations also purchased artificially inflated PolyMedica stock. The buyer stated that common questions of law and fact prevailed based on the fraud-on-the-market theory, which removes the need for a plaintiff to prove individualized reliance on a defendant’s misrepresentation by allowing a class-wide rebuttable presumption of reliance, thuspermitting a securities fraud class action to meet the commonalityobligation needed for class action certification. PolyMedica,contending that the fraud-on-the-market presumption of reliance was not applicable for the eight-month timeframe at issue (the "Contested Time Period") due to themarket for PolyMedicastockfailing to meet the “efficiency” condition needed for applying presumption, opposed the motion. While both sides offered expert testimony supporting their individual stances, the buyer's expert depended on five widely accepted market-efficiency elements and determined that PolyMedicastockmarket was efficient and depending on three different elements, PolyMedica's expert, arrived at the opposite conclusion. The trial court disallowed the evidence provided by PolyMedica'sexpert as immaterial, and granted the buyer's motion to certify the class for the whole proposed class period. By allowing this, the district court went past the four corners of the pleadings, bearing in mindthat each party had expert’s statements and hundreds of pages of exhibits fixated on market efficiency. An interlocutory appeal was filed by PolyMedica, and review was granted by the court of appeals.
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