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Court OKs class certification in Conseco securities-fraud case

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In a securities-fraud case involving the Carmel-based financial and life insurance services company Conseco, a 7th Circuit Court of Appeals panel has refused to significantly alter the class certification rules and throw out the long-established fraud-on-the-market doctrine.

The ruling comes today in Franz Schleicher, et al. v. Gary C. Wendt, et al., No. 09-2154, which stems from several lawsuits that were consolidated in the Southern District of Indiana. The suit alleges that Conseco (now CNO Financial Group) violated the Securities and Exchange Act through misleading statements about Conseco’s financial position that inflated stock prices for investors prior to the company’s bankruptcy.

Early last year, U.S. Judge David F. Hamilton on the trial bench certified a class, but the defendants resisted that certification.

“That’s not surprising, because certification substantially increases the settlement value of a securities suit,” Chief Judge Frank Easterbrook wrote in the ruling today. “What do surprise are the arguments defendants advance, arguments that if accepted would end the use of class certification in securities cases.”

Defendants contend that even a firm as large as Conseco does not qualify for the fraud-on-the-market doctrine, which was established in the 22-year-old case of Basic, Inc. v. Levinson, 485 U.S. 224 (1988) that held securities sellers and purchasers relying on market price integrity are also impacted by any material misrepresentations. Along with that argument, the Conseco defendants also argue that a District judge must determine that contested statements actually caused material stock price changes before granting class certification.

The 5th Circuit Court of Appeals in Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F. 3d 261 (5th Cir. 2007) ruled that way, but Chief Judge Easterbrook said that jurisdiction stands alone and the 7th Circuit doesn’t agree with that stance. That court’s position would more than just tighten the class certification rules, it would make that certification virtually impossible in many securities suits.

By holding a hearing to basically determine the merits of a complaint before granting class certification, a court would basically be disregarding the federal rules established more than four decades ago. That review of the merits should be limited, the 7th Circuit ruled.

“That would resurrect the one-way-intervention model that was ditched by the 1966 amendments to Rule 23,” Chief Judge Easterbrook wrote. “Under the current rule, certification is largely independent of the merits… and a certified class can go down in flames on the merits.”

Judge Hamilton assured that the market for Conseco stock was thick enough to transmit defendants’ statements to investors by way of the price, and that finding supports the use of the fraud-on-the-market doctrine as a replacement for individual reading and reliance on the statements. As a result, the 7th Circuit found that he didn’t commit legal error or abuse his discretion.
 

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  1. "So we broke with England for the right to "off" our preborn progeny at will, and allow the processing plant doing the dirty deeds (dirt cheap) to profit on the marketing of those "products of conception." I was completely maleducated on our nation's founding, it would seem. (But I know the ACLU is hard at work to remedy that, too.)" Well, you know, we're just following in the footsteps of our founders who raped women, raped slaves, raped children, maimed immigrants, sold children, stole property, broke promises, broke apart families, killed natives... You know, good God fearing down home Christian folk! :/

  2. Who gives a rats behind about all the fluffy ranking nonsense. What students having to pay off debt need to know is that all schools aren't created equal and students from many schools don't have a snowball's chance of getting a decent paying job straight out of law school. Their lowly ranked lawschool won't tell them that though. When schools start honestly (accurately) reporting *those numbers, things will get interesting real quick, and the looks on student's faces will be priceless!

  3. Whilst it may be true that Judges and Justices enjoy such freedom of time and effort, it certainly does not hold true for the average working person. To say that one must 1) take a day or a half day off work every 3 months, 2) gather a list of information including recent photographs, and 3) set up a time that is convenient for the local sheriff or other such office to complete the registry is more than a bit near-sighted. This may be procedural, and hence, in the near-sighted minds of the court, not 'punishment,' but it is in fact 'punishment.' The local sheriffs probably feel a little punished too by the overwork. Registries serve to punish the offender whilst simultaneously providing the public at large with a false sense of security. The false sense of security is dangerous to the public who may not exercise due diligence by thinking there are no offenders in their locale. In fact, the registry only informs them of those who have been convicted.

  4. Unfortunately, the court doesn't understand the difference between ebidta and adjusted ebidta as they clearly got the ruling wrong based on their misunderstanding

  5. A common refrain in the comments on this website comes from people who cannot locate attorneys willing put justice over retainers. At the same time the judiciary threatens to make pro bono work mandatory, seemingly noting the same concern. But what happens to attorneys who have the chumptzah to threatened the legal status quo in Indiana? Ask Gary Welch, ask Paul Ogden, ask me. Speak truth to power, suffer horrendously accordingly. No wonder Hoosier attorneys who want to keep in good graces merely chase the dollars ... the powers that be have no concerns as to those who are ever for sale to the highest bidder ... for those even willing to compromise for $$$ never allow either justice or constitutionality to cause them to stand up to injustice or unconstitutionality. And the bad apples in the Hoosier barrel, like this one, just keep rotting.

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