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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. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  2. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

  3. It's a big fat black mark against the US that they radicalized a lot of these Afghan jihadis in the 80s to fight the soviets and then when they predictably got around to biting the hand that fed them, the US had to invade their homelands, install a bunch of corrupt drug kingpins and kleptocrats, take these guys and torture the hell out of them. Why for example did the US have to sodomize them? Dubya said "they hate us for our freedoms!" Here, try some of that freedom whether you like it or not!!! Now they got even more reasons to hate us-- lets just keep bombing the crap out of their populations, installing more puppet regimes, arming one faction against another, etc etc etc.... the US is becoming a monster. No wonder they hate us. Here's my modest recommendation. How about we follow "Just War" theory in the future. St Augustine had it right. How about we treat these obvious prisoners of war according to the Geneva convention instead of torturing them in sadistic and perverted ways.

  4. As usual, John is "spot-on." The subtle but poignant points he makes are numerous and warrant reflection by mediators and users. Oh but were it so simple.

  5. ACLU. Way to step up against the police state. I see a lot of things from the ACLU I don't like but this one is a gold star in its column.... instead of fighting it the authorities should apologize and back off.

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