Joseph Waggoner, Mohit Sahni, Barbara Strougo, individually and on behalf of all others similarly situated, Plaintiffs-Appellees,
Barclays PLC, Robert Diamond, Antony Jenkins, Barclays Capital Inc., William White, Defendants-Appellants, Chris Lucas, Tushar Morzaria, Defendants.
Argued: November 15, 2016
from the United States District Court for the Southern
District of New York. No. 14-cv-5797 ― Shira A.
from an order of the United States District Court for the
Southern District of New York (Scheindlin, J.)
granting the Plaintiffs-Appellees' motion for class
certification in this action asserting violations of §
10(b) of the Securities Exchange Act of 1934. We affirm,
concluding that: (1) although the district court erred in
holding that the Affiliated Ute presumption of
reliance applied because the claims are primarily based on
misstatements, not omissions, the Basic presumption
of reliance applied; (2) direct evidence of price impact is
not always necessary to demonstrate market efficiency to
invoke the Basic presumption, and was not required
here; (3) defendants seeking to rebut the Basic
presumption must do so by a preponderance of the evidence,
which the Defendants-Appellants in this case failed to do;
and, (4) the Plaintiffs-Appellees' damages methodology
for calculating class wide damages is appropriate. We
therefore AFFIRM the order of the district
Alan Lieberman, Pomerantz LLP, New York, NY (Tamar Weinrib,
Pomerantz LLP, New York, NY; Patrick V. Dahlstrom, Pomerantz
LLP, Chicago, IL, on the brief), for Plaintiffs-Appellees.
Jeffrey T. Scott, Sullivan & Cromwell LLP, New York, NY
(Matthew A. Schwartz and Andrew H. Reynard, Sullivan &
Cromwell LLP, New York, NY; Brent J. McIntosh, Sullivan &
Cromwell LLP, Washington, DC, on the brief), for
Berger, Bernstein Litowitz Berger & Grossmann LLP, New
York, NY (Salvatore J. Graziano, Bernstein Litowitz Berger
& Grossmann LLP, New York, NY; Blair Nicholas, Bernstein
Litowitz Berger & Grossmann LLP, San Diego, CA; Robert D.
Klausner, Klausner, Kaufman, Jensen & Levinson,
Plantation, FL, on the brief), for the National Conference on
Public Employee Retirement Systems as amicus curiae in
support of Plaintiffs- Appellees.
P. Chiplock, Lieff Cabraser Heimann & Bernstein, LLP, New
York, NY, for the National Association of Shareholder and
Consumer Attorneys as amicus curiae in support of
Jeffrey W. Golan, Barrack, Rodos & Bacine, Philadelphia,
PA (James J. Sabella, Grant & Eisenhofer P.A., New York,
NY, of counsel; Daniel S. Sommers, Cohen Milstein Sellers
& Toll PLLC, Washington, DC, of counsel; James A.
Feldman, Washington, DC, on the brief), for Evidence Scholars
as amicus curiae in support of Plaintiffs-Appellees.
V. Prongay, Glancy Prongay & Murray LLP, Los Angeles, CA,
for Securities Law Professors as amicus curiae in support of
Charles E. Davidow, Paul, Weiss Rifkind, Wharton &
Garrison LLP, Washington, DC (Marc Falcone & Robyn
Tarnofsky, Paul, Weiss, Rifkind, Wharton & Garrison LLP,
New York, NY; Ira D. Hammerman and Kevin M. Carroll,
Securities Industry and Financial Markets Association,
Washington, DC, on the brief), for the Securities Industry
and Financial Markets Association as amicus curiae in support
S. Lesser (Fraser L. Hunter, Jr., Colin T. Reardon, John
Paredes, on the brief), Wilmer Cutler Pickering Hale and Dorr
LLP, New York, NY, for Paul S. Atkins, Elizabeth Cosenza,
Daniel M. Gallagher, Joseph A. Grundfest, Paul G. Mahoney,
Richard W. Painter, and Andrew N. Vollmer as amicus curiae in
support of Defendants-Appellants.
Michael H. Park, Consovoy McCarthy Park PLLC, New York, NY
(J. Michael Connolly, Consovoy McCarthy Park PLLC, Arlington,
VA; Kate Comerford Todd and Warren Postman, U.S. Chamber
Litigation Center, Washington, DC, on the brief), for the
Chamber of Commerce of the United States of America as amicus
curiae in support of Defendants-Appellants.
Before: Kearse, Lohier, and Droney, Circuit Judges.
Droney, Circuit Judge.
PLC, its American subsidiary Barclays Capital Inc.
(collectively, "Barclays"), and three senior
officers of those companies appeal from an order of the
United States District Court for the Southern District of New
York (Scheindlin, J.) granting a motion for class
certification filed by the Plaintiffs-Appellees
("Plaintiffs"), three individuals who purchased
Barclays' American Depository Shares ("Barclays'
ADS") during the class period. The Plaintiffs
brought this suit alleging violations of § 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
the Securities and Exchange Commission's Rule
Defendants-Appellants ("Defendants") contend that
the district court erred in granting class certification by:
(1) concluding that the Affiliated Ute presumption
of reliance applied, see Affiliated Ute Citizens of Utah
v. United States, 406 U.S. 128 (1972); (2) determining,
alternatively, that the Basic presumption, see
Basic Inc. v. Levinson, 485 U.S. 224 (1988), applied
without considering direct evidence of price impact when it
found that Barclays' ADS traded in an efficient market;
(3) requiring the Defendants to rebut the Basic
presumption by a preponderance of the evidence (and
concluding that the Defendants had failed to satisfy that
standard); and (4) concluding that the Plaintiffs'
proposed method for calculating classwide damages was
agree with the Defendants that the district court erred in
applying the Affiliated Ute presumption, but reject
the remainder of their arguments and conclude that the
district court did not err in granting the Plaintiffs'
motion for class certification. Specifically, we hold that:
(1) the Affiliated Ute presumption does not apply
because the Plaintiffs' claims are primarily based on
misstatements, not omissions; (2) direct evidence of price
impact is not always necessary to demonstrate market
efficiency, as required to invoke the Basic
presumption of reliance, and was not required here; (3)
defendants seeking to rebut the Basic presumption
must do so by a preponderance of the evidence, which the
Defendants in this case failed to do; and (4) the district
court's conclusion regarding the Plaintiffs'
classwide damages methodology was not erroneous. We therefore
AFFIRM the order of the district court.
Barclays' Recent Involvement in the LIBOR Scandal and Its
is a London-based international financial services provider
involved in banking, credit cards, wealth management, and
investment management services in more than fifty
countries.Barclays was the subject of a number of
investigations and suits involving the misrepresentation of
its borrowing data submitted for the calculation of the
London Interbank Offered Rate
("LIBOR").Barclays and other financial institutions
manipulated LIBOR, an important set of benchmarks for
international interest rates. In June 2012, Barclays was
fined more than $450, 000, 000 as a result of its
involvement. As a result of the LIBOR investigation,
Barclays' corporate leadership undertook significant
measures to change the company's culture and develop more
integrity in its operations.
LX, Dark Pools, and High-Frequency Traders
the time it was involved in the LIBOR investigations to the
present, Barclays, through its American subsidiary Barclays
Capital Inc., has operated an alternate trading
system-essentially a private venue for trading
securities-known as Barclays' Liquidity Cross,
or, more simply, as Barclays' LX ("LX"). LX
belongs to a particular subset of alternate trading systems
known as "dark pools." Dark pools permit investors
to trade securities in a largely anonymous manner. Neither
"information regarding the orders placed into the pool
for execution [n]or the identities of subscribers that are
trading in the pool" are displayed at the time of the
anonymous nature of dark pools makes them popular with
institutional investors, who seek to avoid victimization at
the hands of high-frequency traders.  High-frequency traders
often engage in "front running" or "trading
ahead" of the market, meaning that they detect patterns
involving large incoming trades, and then execute their own
trades before those incoming trades are
completed. Front running results in the incoming
trades being more costly or less lucrative for the
individuals or institutions making them. Thus, many
investors prefer to avoid high- frequency traders, and
utilize dark pools to do so. Some literature nevertheless
suggests that dark pools are also popular with high-
frequency traders, who similarly prefer them because they are
Barclays' Statements Regarding LX and Liquidity
address concerns that high-frequency traders may have been
front running in LX, Barclays' officers made numerous
statements asserting that LX was safe from such practices,
and that Barclays was taking steps to protect traders in LX.
example, Barclays' Head of Equities Electronic Trading
(and a Defendant in this action) William White told
Traders Magazine that Barclays monitored activity in
LX and would remove traders who engaged in conduct that
disadvantaged LX clients. On a different occasion, White
publicly stated that LX was "built on transparency"
and had "safeguards to manage toxicity, and to help
[its] institutional clients understand how to manage their
interactions with high-frequency traders." J.A. 237.
Other examples of purported misstatements made by Barclays
include the following allegations:
• Touting LX as encompassing a "sophisticated
surveillance framework that protects clients from predatory
trading activity." J.A. 240.
• Representing that "LX underscores Barclays'
belief that transparency is not only important, but that it
benefits both our clients and the market overall." J.A.
• Stating that Barclays' algorithm and scoring
methodology enabled it "to restrict [high-frequency
traders] interacting with our clients." J.A. 247.
also created a service for its LX customers entitled
"Liquidity Profiling." First marketed in 2011,
Liquidity Profiling purportedly allowed Barclays'
personnel to monitor high-frequency trading in LX more
closely and permitted traders to avoid entities that engaged
in such trading. For example, Barclays issued a press release
stating that Liquidity Profiling enabled "Barclays to
evaluate each client's trading in LX based on
quantitative factors, thereby providing more accurate
assessments of aggressive, neutral and passive trading
strategies." J.A. 246. Based on a numerical ranking
system that categorized traders, LX users could, according to
Barclays, avoid trading with high-frequency traders. Barclays
made numerous other alleged misstatements regarding Liquidity
Profiling, such as:
• Claiming in a press release that by using Liquidity
Profiling, clients could "choose which trading styles
they interact with, instead of choosing by the more arbitrary
designation of client type." J.A. 246.
• Explaining that "transparency" was the
biggest theme of the year 2013, and that "Liquidity
Profiling analyzes each interaction in the dark pool,
allowing us to monitor the behavior of individual
participants. This was a very significant step because it was
important to provide . . . clients with transparency about
the nature of counter parties in the dark pool and how the
control framework works." J.A. 252.
The New York Attorney General's Lawsuit
25, 2014, the New York Attorney General commenced an action
alleging that Barclays was violating provisions of the New
York Martin Act in operating its dark pool. The
complaint alleged that many of Barclays' representations
about protections LX afforded its customers from
high-frequency traders were false and misleading. See
People ex rel. Schneiderman v. Barclays Capital Inc., 1
N.Y.S.3d 910, 911 (N.Y. Sup. Ct. 2015).
next day, the price of Barclays' ADS fell 7.38%. On the
following day, news reports estimated that Barclays could
face a fine of more than £300, 000, 000 as a result of
the Attorney General's action, and on June 30th its stock
price dropped an additional 1.5%.
The Plaintiffs' Action
Plaintiffs filed the instant putative class action shortly
thereafter. They alleged in a subsequent second amended
complaint that Barclays had violated § 10(b) and Rule
10b-5 by making false statements and omissions about LX and
Plaintiffs alleged that Barclays' statements about LX and
Liquidity Profiling "were materially false and
misleading by omission or otherwise because, " J.A. 227,
contrary to its assertions, "Barclays did not in fact
protect clients from aggressive high frequency trading
activity, did not restrict predatory traders' access to
other clients, " and did not "eliminate traders who
continued to behave in a predatory manner, " J.A. 228.
to the complaint, Barclays "did not monitor client
orders continuously, " or even apply Liquidity Profiling
"to a significant portion of the trading" conducted
in LX. J.A. 228. Instead, the Plaintiffs alleged that
Barclays "favored high frequency traders" by giving
them information about LX that was not available to other
investors and applying "overrides" that allowed
such traders to be given a Liquidity Profiling rating more
favorable than the one they should have received. J.A. 228.
result of these fraudulent statements, the Plaintiffs
asserted, was that the price of Barclays' ADS had been
"maintained" at an inflated level that
"reflected investor confidence in the integrity of the
company" until the New York Attorney General's
lawsuit. J.A. 224.
Defendants moved to dismiss the Plaintiffs' claims. They
contended, among other arguments, that the alleged
misstatements recited by the Plaintiffs were not material and
therefore could not form the basis for a § 10(b) action.
In particular, the Defendants pointed out that the revenue
generated by LX was only 0.1% of Barclays' total revenue,
which was, according to the Defendants, significantly below
what would ordinarily be considered quantitatively material
to investors. The Defendants also contended that the
Plaintiffs had not adequately pleaded that the alleged
misstatements were qualitatively material because they had
not alleged that any Barclays investor had considered them in
making investment decisions; the statements were directed
only to LX clients, not investors.
district court denied the Defendants' motion to dismiss,
in part. Strougo v. Barclays PLC, 105 F.Supp.3d 330,
353 (S.D.N.Y. 2015). The court explained that it was
obligated to consider whether the purported misstatements
were quantitatively or qualitatively material. Id.
at 349-50. In its quantitative analysis, the court agreed
with the Defendants that LX was a small part of Barclays'
business operation and accounted for a small fraction of the
company's revenue. Id. at 349. It nevertheless
concluded that the misstatements could be qualitatively
material. Id. After the LIBOR scandal, the court
explained, "Barclays had staked its long-term
performance on restoring its integrity." Id.
(internal quotation marks omitted). Barclays' statements
regarding LX and Liquidity Profiling could therefore
"call into question the integrity of the company as a
The Plaintiffs' Motion for Class Certification
Plaintiffs then sought class certification for investors who
purchased Barclays' ADS between August 2, 2011, and June
order to satisfy Federal Rule of Civil Procedure
23(b)(3)'s predominance requirement, the Plaintiffs
argued that § 10(b)'s reliance element was satisfied
by the members of the proposed class under the presumption of
reliance recognized by the Supreme Court in Basic,
485 U.S. at 224.
support of their motion, the Plaintiffs submitted an expert
report from Dr. Zachary Nye that considered whether the
market for Barclays' ADS was efficient, a necessary
prerequisite for the Basic presumption to apply. Dr.
Nye's report applied the five factors identified in
Cammer v. Bloom, 711 F.Supp. 1264 (D.N.J. 1989), and
the three factors identified in Krogman v. Sterritt,
202 F.R.D. 467 (N.D. Tex. 2001). See In re Petrobras
Sec., 862 F.3d 250, 276 (2d Cir. 2017). Dr. Nye
explained that all eight factors supported the conclusion
that the market for Barclays' ADS was efficient. Dr. Nye
first concluded that the seven factors that rely on
"indirect" indicia of an efficient market-the first
four Cammer factors and all three Krogman
factors-supported his conclusion.
respect to the final factor-the fifth Cammer factor,
or "Cammer 5, " which is considered the
only "direct" measure of efficiency-Dr. Nye
conducted an "event study" to determine whether the
price of Barclays' ADS changed when new material
information about the company was released. Based on the
results of that event study, Dr. Nye concluded that the final
factor also weighed in favor of concluding that the market
for Barclays' ADS was efficient. Thus, relying on Dr.
Nye's report, the Plaintiffs asserted that they were
entitled to the Basic presumption.
alternative, the Plaintiffs argued that reliance could be
established under the presumption of reliance for omissions
of material information, as recognized by the Supreme Court
in Affiliated Ute, 406 U.S. at 128. That
presumption, the Plaintiffs asserted, applied because
Barclays had failed to disclose material information
regarding LX, such as the fact that Liquidity Profiling did
not apply to a significant portion of the trades conducted in
LX and that Barclays provided advantages such as
"overrides" to high- frequency traders.
also addressed the calculation of class damages. He opined
that the damages class members had suffered as a result of
Barclays' fraudulent conduct could be calculated on a
classwide basis. According to Dr. Nye, the amount by which a
stock's price was inflated by fraudulent statements or
omissions could be calculated by measuring how much the price
of the stock declined when those statements were revealed to
be false or when previously undisclosed information was
revealed. An event study could then isolate company-specific
changes in stock price from changes resulting from outside
factors such as fluctuations in the stock market generally or
the particular industry. Once the decline caused by the
corrective disclosure was isolated, the "daily level of
price inflation" could be readily calculated for
Barclays' ADS for the class period. J.A. 348. Then, each
class member's actual trading in the security could be
used to determine individual damages.
b. The Defendants' Opposition to Class
response, the Defendants argued that the Plaintiffs had not
made the requisite showing to invoke the Basic
presumption because they had failed to show that the market
for Barclays' ADS was efficient. The Defendants pointed to
the report of their expert, Dr. Christopher M. James,
which claimed that the Plaintiffs had not shown direct
evidence of efficiency under Cammer 5 because the
event study conducted by Dr. Nye was flawed. The Defendants
did not, however, challenge Dr. Nye's conclusion that the
seven indirect factors demonstrated that the market for
Barclays' ADS was efficient, nor did Dr. James conduct
his own event study to demonstrate the inefficiency of the
market for Barclays' ADS.
Defendants also argued that even if the district court were
to conclude that the Plaintiffs were entitled to the
Basic presumption of reliance, class certification
should be denied because the Defendants rebutted that
presumption. They asserted that the event study conducted by
Dr. Nye indicated that the price of Barclays' ADS did not
increase by a statistically significant amount on any of the
days on which the purportedly fraudulent statements had been
made. Thus, according to the Defendants, there was no
connection between the misstatements and the price of
Defendants further contended that the Affiliated Ute
presumption was inapplicable to the complaint's
allegations. That presumption, they argued, applied only to
situations primarily involving omissions, and the complaint
alleged affirmative misstatements, not omissions.
the Defendants contended that the damages model proposed by
Dr. Nye failed to satisfy Comcast Corp. v. Behrend,
569 U.S. 27 (2013). Dr. Nye's model, the Defendants
argued, did not disaggregate confounding factors that could
have caused the price drop in Barclays' ADS that occurred
when the New York Attorney General announced his action, such
as the likelihood of regulatory fines. Nor had the model
sufficiently accounted for variations in the time each
alleged misstatement became public. According to the
Defendants, these deficiencies precluded class certification.
The District Court's Class Certification
district court granted the Plaintiffs' motion for class
certification. Strougo v. Barclays PLC, 312 F.R.D.
307, 311 (S.D.N.Y. 2016). It concluded that the
Affiliated Ute presumption applied. Id. at
319. The court explained that "a case could be made that
it is the material omissions, not the affirmative statements,
that are the heart of this case." Id. According
to the court, it was "far more likely that investors
would have found the omitted conduct, " as opposed to
the misstatements, material. Id.
alternative, the district court concluded that the
Basic presumption of reliance for misrepresentations
applied. Id. at 323. The Defendants, the court
noted, had conceded that the Plaintiffs had "established
four of the five Cammer factors and all three
Krogman factors." Id. at 319-20. They
disputed only the sufficiency of Dr. Nye's event study
under Cammer 5. Id. at 320. Although Dr.
Nye's event study had been presented to the district
court (and was the subject of extensive court proceedings),
the district court concluded that direct evidence of price
impact under Cammer 5 was not necessary to its
determination that the market for Barclays' ADS was
efficient during the class period. Id. The district
court noted that although an event study may be particularly
important where the indirect factors do not weigh heavily in
favor of market efficiency, it was not necessary here where
the application of the indirect factors, including that the
"stock trades in high volumes on a large national market
and is followed by a large number of analysts, " weighed
so strongly in favor of a finding of market efficiency.
Id. at 322-23. Therefore, the court declined to
determine whether Cammer 5 was satisfied, but
concluded based on the showing made by the Plaintiffs on all
the indirect factors that Barclays' ADS traded in an
efficient market during the class period. Id. at
district court noted that, based on Dr. Nye's report,
Barclays' ADS had an average weekly trading volume of
17.7% during the class period. Id. at 323 n.103.
That volume far exceeded the 2% threshold for a "strong
presumption" of efficiency based on the average weekly
trading volume described in Cammer. Id.
Additionally, the district court noted that analysts had
published more than 700 reports regarding Barclays' ADS
during the class period, and it explained that "the
amount of reporting on Barclays['] [ADS] by security
analysts during the Class Period indicates that
company-specific news was widely disseminated to
investors." Id. at 323 n.104. That
consideration was directly relevant to a different
"indirect" Cammer factor and, like the
average weekly trading volume, supported the conclusion that
the market for Barclays' ADS was efficient. Id.
court further determined that the Defendants had not rebutted
the Basic presumption. Id. at 327. They had
failed to demonstrate that the allegedly fraudulent
statements did not impact the price of Barclays' ADS.
Id. The "fact that other factors contributed to
the price decline does not establish by a preponderance
of the evidence that the drop in the price of
Barclays['] ADS was not caused at least ...