An Alabama federal judge has certified for the second time a class of shareholders suing Regions Financial Corp. Misrepresentations related to Regions 2006 acquisition of AmSouth Bancorp are alleged in the complaint. The Eleventh Circuit Court of Appeals had remanded the case to the lower court. U.S. District Judge Inge Prytz granted the Plaintiffs’ motion for class certification after reviewing the evidence Regions had previously placed before the court in light of the Supreme Court’s June 23 Halliburton II decision. In that case the high court ruled that securities defendants may rebut fraud-on-the-market presumption of reliance before the class certification stage by showing a lack of price impact.
Judge Prytz said that Region’s event study did not prove its corrective disclosures had no impact on the price of its stock. The fact that the plaintiffs haven’t shown there was price impact is irrelevant, the judge said. That was because the U.S. Supreme Court in Halliburton placed that burden of proof on the defendants. Judge Prytz wrote:
The defendants read too much into Halliburton II. While that case recognized that an event study can show the reaction of market price to corrective disclosures, nothing in Halliburton II requires the plaintiffs to produce an event study in opposition to defendants’ event study on a class certification motion.
The Plaintiffs alleged that Regions misrepresented millions of dollars in loans to keep the value of goodwill reflected in quarterly reports artificially high. It was alleged further that Regions represented that its goodwill had been repeatedly tested during 2007 and 2008 and was properly calculated. That was even though the value of its real estate investments was steadily dropping. It’s significant that on Jan. 20, 2009, the company made a substantial corrective disclosure, reporting $5.6 billion in losses. That day, Region’s stock fell to $4.60 per share, down from $23.33 per share the previous February.
In June 2012, Judge Prytz certified the class for the period from Feb. 27, 2008, to Jan. 20, 2009. In its highly anticipated Halliburton II decision, the U.S. Supreme Court in June declined to overturn its landmark opinion, Basic v. Levinson, which in 1988 established “the fraud-on-the-market presumption of reliance” that rests on the principle that “public, material information about a publicly traded company affects the price of the company’s stock and that investors thereby rely on that information when they purchase securities.” But the justices found that defendants should be allowed to rebut that presumption of reliance before class certification by showing evidence that an alleged misrepresentation did not affect the stock’s price.
The Eleventh Circuit in August asked Judge Prytz to review the Regions class certification in light of that ruling, giving Regions a chance to prove that alleged misrepresentations related to the acquisition did not actually affect the price of its stock. Now that Judge Prytz has certified the class, it will be interesting to see how this case develops as it moves forward.
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