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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. The is an unsigned editorial masquerading as a news story. Almost everyone quoted was biased in favor of letting all illegal immigrants remain in the U.S. (Ignoring that Obama deported 3.5 million in 8 years). For some reason Obama enforcing part of the immigration laws was O.K. but Trump enforcing additional parts is terrible. I have listed to press conferences and explanations of the Homeland Security memos and I gather from them that less than 1 million will be targeted for deportation, the "dreamers" will be left alone and illegals arriving in the last two years -- especially those arriving very recently -- will be subject to deportation but after the criminals. This will not substantially affect the GDP negatively, especially as it will take place over a number of years. I personally think this is a rational approach to the illegal immigration problem. It may cause Congress to finally pass new immigration laws rationalizing the whole immigration situation.

  2. Mr. Straw, I hope you prevail in the fight. Please show us fellow American's that there is a way to fight the corrupted justice system and make them an example that you and others will not be treated unfairly. I hope you the best and good luck....

  3. @ President Snow - Nah, why try to fix something that ain't broken??? You do make an excellent point. I am sure some Mickey or Minnie Mouse will take Ruckers seat, I wonder how his retirement planning is coming along???

  4. Can someone please explain why Judge Barnes, Judge Mathias and Chief Judge Vaidik thought it was OK to re weigh the evidence blatantly knowing that by doing so was against the rules and went ahead and voted in favor of the father? I would love to ask them WHY??? I would also like to ask the three Supreme Justices why they thought it was OK too.

  5. How nice, on the day of my car accident on the way to work at the Indiana Supreme Court. Unlike the others, I did not steal any money or do ANYTHING unethical whatsoever. I am suing the Indiana Supreme Court and appealed the failure of the district court in SDIN to protect me. I am suing the federal judge because she failed to protect me and her abandonment of jurisdiction leaves her open to lawsuits because she stripped herself of immunity. I am a candidate for Indiana Supreme Court justice, and they imposed just enough sanction so that I am made ineligible. I am asking the 7th Circuit to remove all of them and appoint me as the new Chief Justice of Indiana. That's what they get for dishonoring my sacrifice and and violating the ADA in about 50 different ways.

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