In re: Vale S.A. Securities Litigation

Analysis Group was retained by Gibson Dunn on behalf of Vale S.A., one of the largest mining companies in the world, the defendant in a long-running Rule 10b-5 securities fraud class action. The class plaintiffs, purchasers of Vale stock and bonds, alleged that the company and certain executives made a series of misstatements about the company’s risk-management practices and the safety of its operations. When a dam at one of Vale’s mines subsequently collapsed, the prices of the company’s securities fell. The plaintiffs sought damages related to the decline in the value of Vale’s securities after the incident.

An Analysis Group team led by Managing Principal Mark Egland, Principal Kevin Gold, Vice President Ahmer Nabi, and Managers Anastasia Bogdanova and Thomas Zimmerfaust supported academic affiliate Glenn Hubbard, who filed an expert report and testified at deposition and at a Daubert motion hearing. In his rebuttal to plaintiffs’ expert’s damages analysis, Professor Hubbard explained that an appropriate damages analysis should isolate the impact of the alleged fraud, including assessing the difference between investors’ assessment of the probability of an adverse event occurring given the alleged misrepresentations, and the ‘true’ probability of the event occurring. In particular, Professor Hubbard critiqued the plaintiffs’ expert’s contention that 100% of the drops in the securities’ prices after the dam collapse were due to the allegedly fraudulent statements, rendering the expert’s damages model unreliable from an economic perspective. 

The US District Court for the Eastern District of New York excluded the plaintiffs’ expert’s damages calculation. In its opinion, the court agreed with the defendants’ “principal criticism of Dr. Feinstein’s damages model” and found the plaintiffs’ expert’s damages model unreliable. Specifically, the court agreed with Professor Hubbard regarding the appropriate damages framework involving the materialization of an understated risk, noting that “the appropriate measure of inflation is the difference between the perceived and actual risk of a dam collapse,” and, relatedly, that the plaintiffs’ expert’s model “fails to disaggregate the investment losses caused by Vale’s alleged misrepresentations – i.e., the ostensible understatement of the risk – from the losses caused by the actual dam collapse.”