Industry risk, confounding factors, and loss causation
In a Section 11 shareholder class action, Brattle was retained by an energy company to analyze damages to shares issued in an acquisition. An oil and gas firm was alleged to have omitted material facts about its debt covenants in a registration statement issued as part of the acquisition, and the revelation of this information subsequently caused a stock price decline. Our analysis established that 90% of the alleged losses could be explained by controlling for declining oil prices and deteriorating industry conditions. That is, shareholders in the acquired firm would have suffered similar losses in a but-for world with no acquisition due to worsening market conditions. Further, by examining the firm’s disclosures in the context of its peers’ financial conditions, Brattle’s expert established that the risk of a breach of debt covenants was evident from the information disclosed in the registration statement. The matter settled favorably for our client.