Earlier this month, Judge Victor Marrero of the Southern District of New York issued his opinion certifying a class of buyers of the common stock of a company created by a Chinese reverse merger. McIntire v. China MediaExpress Holdings, Inc., 2014 U.S. Dist. LEXIS 113446 (S.D.N.Y. Aug. 15, 2014). In doing so, he rejected defendants’ Daubert motion challenging the qualifications and methodology of plaintiffs’ expert witness on market efficiency, Cynthia Jones, and concluded that the market was efficient enough to support the Basic presumption of reliance and to permit class certification.
The McIntire decision stands in stark contrast to two other recent decisions involving Chinese companies that accessed U.S. markets via reverse mergers, each of which found plaintiffs’ experts unreliable and concluded that markets for the securities at issue were inefficient and could not support the Basic presumption of reliance. George v. China Automotive Systems, Inc., 2013 U.S. Dist. LEXIS 93968 (S.D.N.Y. July 3, 2013) (Judge Forrest); Brown v. China Integrated Energy, Inc., 2014 U.S. Dist. LEXIS 117764 (C.D. Cal. Aug. 4, 2014) (Judge O’Connell).
Judge Marrero rejected defendants’ Daubert challenges to Ms. Jones’ qualifications as an expert on market efficiency, initially by noting that courts in 19 other cases had accepted her as an expert “on a variety of matters pertaining to the economic analysis of issues relevant to securities law.” But his opinion did not suggest that any of those courts found her to be an expert regarding market efficiency, a highly specialized area of economic analysis in securities cases.
By contrast, other courts have rejected proffered experts on market efficiency whose prior experience did not include analysis of market efficiency itself. For example Judge Forrest of the Southern District of New York found plaintiffs’ expert Michael Marek (Cynthia Jones’s supervisor) unqualified where his reports were riddled with mistakes, lacked awareness of current research and used a flawed methodology, and where his “expertise is being an expert in plaintiffs’ securities cases,” which “is not enough.” See IBEW Local 90 Pension Fund, et al. v. Deutsche Bank AG, 2013 U.S. Dist. LEXIS 155136 at *43-49 (S.D.N.Y. Oct. 29, 2013); see also China Integrated, 2014 U.S. Dist. LEXIS 117764, at *15-18 (finding plaintiff’s expert Kenneth McGraw unqualified where, despite impressive academic credentials and experience as an expert witness, he had testified only once based on an event study he used to evaluate market efficiency (receiving help from Michael Marek) and in this case gave unimpressive testimony based on work done largely by Cynthia Jones) .
Click here for a more thorough discussion of McIntire and other recent decisions deciding challenges to plaintiffs’ expert witnesses on market efficiency.