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Fed. Courts Are Best Regulator Of Securities Class Actions By Nessim Mezrahi (June 19, 2020, 6:03 PM EDT) In their working legal paper, law professors Jill E. Fisch and Jonah B. Gelbach posit: "Federal judges are poorly positioned to weigh the policy considerations reflected by the tradeoff between confidence level and power" in single-firm event studies that are used and relied upon to evaluate market efficiency, price impact, and loss causation in securities class actions that allege violations of federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b5 promulgated thereunder by the U.S. Securities and Exchange Commission.[1] The Fisch and Gelbach working paper states that the evaluation of the statistical threshold "for determining whether an event study is admissible or probative is a legal, not a scientific question."[2]
Nessim Mezrahi
Moreover, the law professors' working paper indicates that the judiciary cannot weigh policy considerations related to the deterrence of fraud on the market and as a result "it becomes clear that although courts are wrong to accept blindly the 95% confidence level, the judiciary also is not the bestsituated branch of government to determine whether or how to modify that standard."[3] According to the working paper, Fisch and Gelbach propose that the SEC "is well — and deliberately — positioned to regulate the private securities litigation landscape" and better suited than the federal judiciary to undertake the fact-intensive exercise of determining the statistical threshold that should be applied in single-firm event study analyses that are routinely relied on to evaluate class certification and loss causation.[4] The proposal presented in the Fisch and Gelbach working paper is inapplicable and untimely for two reasons. First, their working paper acknowledges that the judiciary in the U.S. Court of Appeals for the Second Circuit has already addressed the applicability of the 95% confidence standard and the power tradeoff in multivariate linear regression analyses that support single-firm event studies in the context of securities class action litigation.[5] In re: Chicago Bridge & Iron Co. NV Securities Litigation, former U.S. District Judge Shira A. Scheindlin reviewed extensive expert testimony by leading financial economists regarding the adequacy of the 95% confidence standard and the application of the Holm-Bonferroni adjustment to address the