Kill Cammer: Securities Litigation Without Junk Science

Securities litigation is a hotbed of junk science concerning market efficiency. This Article explains why and suggests a way out. In its 1988 decision in Basic v. Levinson, the Supreme Court endorsed the fraud on the market presumption for securities traded in an efficient market. Faced with the task of determining market efficiency, courts throughout the nation embraced the ad hoc speculations of a first-mover district court that proclaimed, in Cammer v. Bloom, how to allege (and presumably prove) facts that would do just that. The Cammer court’s analysis did not rely on financial economics for its notions, but instead regurgitated the assertions of a single plaintiff’s expert affidavit—from a securities law professor, not a financial economist—and a securities law treatise equally uninformed by the relevant field. The result has been thirty years of junk science in securities adjudication. This Article traces the development of the fraud on the market theory from its pre-efficient-markets-hypothesis roots through a brief “gilding the lily” phase where an appeal to social science results on market efficiency was only an ancillary, bolstering argument for already-sufficient precedent for the fraud on the market presumption, to the requirement that litigants plead and prove efficiency using indicia with no support in financial economics. The way out of this embarrassing state of affairs is to return to the roots of fraud on the market in the non-technical notion of “a free and open public market” that inquires only whether the market for the security at issue is open to active buyers and sellers and is not subject to substantial seller lockups or bans on short selling. It is reasonable to presume that prices in such free and open public markets can be distorted by fraud, a presumption that is then rebuttable by establishing (1) that the alleged fraud in fact had no price impact; (2) that there are substantial limits on the ability of active investors to buy and sell in the market, such that the market is not a “free and open public” one; or (3) that the plaintiff would have made their purchase or sale at the affected price even knowing of the falsity of the alleged misrepresentation. This formulation is consistent with all controlling Supreme Court opinions

Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias

An event study is a statistical method for determining whether some event—such as the announcement of earnings or the announcement of a proposed merger—is associated with a statistically significant change in the price of a company’s stock. The main inputs to an event study are historical stock returns for the companies under study, benchmark returns like the return to the broader stock market, and standard statistical tests like t-tests that are used to test for statistical significance. In securities litigation and regulation, event studies are used primarily to detect the impact of disclosures of alleged fraud on the price of a single traded security. But are event studies in securities litigation reliable? What is interesting about the use of event studies in securities litigation is that the methodology litigants use in court differs from the methodology that economists apply in their research. With few exceptions, securities litigation event studies are single-firm event studies, while almost all academic research event studies are multi-firm event studies. Multi-firm event studies are generally accepted in financial economics research, and peer-reviewed journals contain them by the hundreds. By contrast, single-firm event studies—the mainstay of modern securities fraud litigation—are almost nonexistent in peer-reviewed journals. Importing a methodology that economists developed for use with multiple firms into a single-firm context creates three substantial difficulties. First, single-firm event studies suffer from a severe signal-to-noise problem in that they lack statistical power to detect price impacts unless the price impacts are quite large. Inattention to statistical power lowers the deterrent effect of the securities laws by giving a “free pass” to some economically meaningful price impacts and may encourage more small- and mid-scale fraud than is socially optimal given the costs of litigation. Second, single-firm event studies do not average away confounding effects. While this problem is well known, some courts have unrealistic expectations of litigants’ ability to quantitatively decompose observed price impacts into those caused by alleged fraud and those unrelated to alleged fraud. Third, low statistical power and confounding effects combine to generate sizeable upward bias in detected price impacts and therefore in damages. To improve the accuracy of adjudication in securities litigation, we suggest that litigants report the statistical power of their event studies, that courts allow litigants flexibility to deal with the problem of confounding effects, and that courts and litigants consider the possibility of upward bias in the detection of price impacts and the estimation of damages

Constraining fault constitutive behavior with slip and stress heterogeneity

We study how enforcing self-consistency in the statistical properties of the preshear and postshear stress on a fault can be used to constrain fault constitutive behavior beyond that required to produce a desired spatial and temporal evolution of slip in a single event. We explore features of rupture dynamics that (1) lead to slip heterogeneity in earthquake ruptures and (2) maintain these conditions following rupture, so that the stress field is compatible with the generation of aftershocks and facilitates heterogeneous slip in subsequent events. Our three-dimensional finite element simulations of magnitude 7 events on a vertical, planar strike-slip fault show that the conditions that lead to slip heterogeneity remain in place after large events when the dynamic stress drop (initial shear stress) and breakdown work (fracture energy) are spatially heterogeneous. In these models the breakdown work is on the order of MJ/m^2, which is comparable to the radiated energy. These conditions producing slip heterogeneity also tend to produce narrower slip pulses independent of a slip rate dependence in the fault constitutive model. An alternative mechanism for generating these confined slip pulses appears to be fault constitutive models that have a stronger rate dependence, which also makes them difficult to implement in numerical models. We hypothesize that self-consistent ruptures could also be produced by very narrow slip pulses propagating in a self-sustaining heterogeneous stress field with breakdown work comparable to fracture energy estimates of kJ/M^2

Clay as Thermoluminescence Dosemeter in diagnostic Radiology applications

As part of efforts to isolate and utilize local and naturally occurring materials for development of thermoluminescece dosemeters and other technologies, an earlier report had shown that Nigerian clay showedprospects of utility as a thermoluminescence dosemeter (TLD). This paper reports the investigation of the basic thermoluminescence properties of clay at x-rays in the diagnostic radiology range, including dose monitoring in abdominal radiography. Clay sourced from Calabar, Nigeria, was tested for thermoluminescence response after irradiation at diagnostic radiology doses, including application in abdominal radiography dose monitoring in a clinical setting.Results show that thermoluminescence (TL) output in natural clay is very low, but demonstrates enhanced performance with the addition of common salt. Specific TL characteristics of good repeatability for individual and batched pellets (variability index of 3.08%) and a high degree of trap emptying were observed. It had a glow curve peak at 275 C; with traces of spurious thermoluminescence emission at the reader anneal temperature. There was evidence of good batch homogeneity (< 30%) and a similar pattern of dose absorption in abdominal radiography with commercialLithium Fluoride (LiF TLD-100). A high fading rate (over 30% in twelve hours) and low sensitivity (12 times less than LiF TLD-100) however, signal the unacceptability of clay as aTLD in diagnostic radiology in the forms studied. Clay demonstrates poor TL response at diagnostic radiology doses. However, it's water absorbing property offers a means of overcoming the hygroscopic nature of common salt. This could beexplored to improve the use of sodium chloride as a radiation detector.Keywords: Clay, Thermoluminescence, Dosemeter, Detector, Radiology, x-rays

Thermodynamics and mechanisms of protonated diglycine decomposition: a guided ion beam study

pre-printWe present a full molecular description of fragmentation reactions of protonated diglycine (H+GG) by studying their collision-induced dissociation (CID) with Xe using a guided ion beam tandem mass spectrometer (GIBMS). Analysis of the kinetic energy-dependent CID cross sections provides the 0 K barriers for the sequential H2O + CO and CO + NH3 losses from H+GG as well as for the reactions involved in y1 and a1 ion formation, after accounting for unimolecular decay rates, internal energy of reactant ions, and multiple ion-molecule collisions. Here seven energetic barriers are measured for the fragmentation processes of H+GG, including the loss of H2O and of CO at ~140 and ~156 kJ/mol, the combined loss of (H2O + CO) and of (CO + NH3) at ~233 and ~185 kJ/mol, and formation of y1 and a1 ions at ~191 and ~212 kJ/mol, respectively, with a second channel for a1 formation opening at ~326 kJ/mol. Theoretical energies from the preceding paper are compared to our experimental energies and found to be in good agreement. This validates the mechanisms explored computationally, including unambiguous identification of the b2 ion as protonated 2-aminomethyl-5-oxazolone, thereby allowing a complete characterization of the elementary steps of H+GG decomposition. These results also demonstrate that all reactive species are available from the ground state conformation, as opposed to involving an initial broad distribution of protonated conformers. This result verifies the utility of the "mobile proton" model for understanding the fragmentation of protonated proteins

DuraTable Enterprises Inc.

In late 2017, DuraTable received a number of unsolicited inquiries regarding its interest in selling out in a going private transaction, mostly from private equity firms. Since the chairman of the board and founder, Gary Reynolds, was approaching retirement age and the largest single shareholder who had provided the seed capital to start the company was over 80 years old, Mr. Reynolds was willing to consider a sale and provided information to four or five of them to prepare bids. DuraTable was a closely held company with relatively few individuals holding the vast majority of shares. As such, DuraTable’s shares traded infrequently. As a result, Mr. Reynolds questioned if even the share price itself appropriately reflected the value of the company. As he looked forward to a meeting that would be held with Pierce the following week, Mr. Reynolds asked himself, ‘What price would reflect a fair valuation of DuraTable’s operations?