Rolling Disclosure Cap Method May Lead To Lower Damages

Law360, 2021

In their Expert Analysis on, Managing Principal Mark Howrey, Principal Eric Korman, and Manager Emma Dong analyzed alternative methodologies for calculating damages in cases brought under Section 10(b) of the Securities Exchange Act and Rule 10b-5, which concerns fraud or deceit in connection with the purchase or sale of any security. The Private Securities Litigation Reform Act of 1995 (PSLRA) established a cap on such damages, and so the methodology used to calculate damages may determine whether the cap should be imposed in certain instances.

The article, “Rolling Disclosure Cap Method May Lead To Lower Damages,” presents the authors’ analysis of the impact on damages calculations that could result from utilizing a rolling disclosure methodology, instead of the more traditional final disclosure method, in cases involving multiple corrective disclosures.

Historically, plaintiffs typically only apply the PSLRA cap for shares that are held through the final corrective disclosure date. Early in 2021, however, the US District Court for the Northern District of California instead applied the PSLRA cap using the closest corrective disclosure prior to the date on which the lead plaintiff candidates sold the security – that is, using a rolling disclosure methodology to determine whether the damages were subject to the PSRLA cap.

To assess the relative impacts of the alternative methodologies, the authors calculated aggregate damages for a sample of securities class action matters using both the rolling disclosure cap and the final disclosure cap methodologies. They found that use of the rolling disclosure cap method would lower damage calculations in selected cases, and in a few cases by more than 20%. Thus, the authors conclude that practitioners should consider the potential reduction in damages achievable by implementing the rolling disclosure cap.

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Howrey M, Korman E, Dong E