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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. Such things are no more elections than those in the late, unlamented Soviet Union.

  2. It appears the police and prosecutors are allowed to change the rules halfway through the game to suit themselves. I am surprised that the congress has not yet eliminated the right to a trial in cases involving any type of forensic evidence. That would suit their foolish law and order police state views. I say we eliminate the statute of limitations for crimes committed by members of congress and other government employees. Of course they would never do that. They are all corrupt cowards!!!

  3. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  4. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  5. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

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