Angela DiIenno contributed to this article.
On September 27, 2016, the Second Circuit ruled against a value investor in an opt-out action brought in the continuing Vivendi litigation. The recently issued opinion, however, does have positive implications for institutional investor class participants. First, the opinion confirms the availability of the fraud-on-the-market theory of reliance for institutional investors. Second, the opinion restricts the situations in which defendants may successfully rebut the presumption of reliance. Notably, however, institutions that have significant after-class purchases should be aware that such purchases could undercut their ability to rely on the fraud-on-the-market theory of reliance.
In GAMCO Investors Inc. v. Vivendi, S.A., GAMCO brought an individual action asserting Section 10(b) and Rule 10b-5 claims against Vivendi, alleging Vivendi made material misrepresentations regarding its liquidity. First, the U.S. District Court for the Southern District of New York held that Vivendi was estopped from denying any elements of GAMCO’s Section 10(b) claim other than reliance. After a bench trial on the reliance issue, the Court entered judgment for Vivendi, holding that Vivendi had successfully rebutted the fraud-on-the-market presumption of reliance. Continue Reading In GAMCO v. Vivendi, the Second Circuit Affirms that Value Investors Can Rely on the Fraud-on-the-Market Presumption Unless Specific Facts Establish Non-Reliance