Opinion ID: 2565
Heading Depth: 3
Heading Rank: 1

Heading: Analyst Coverage of the Certificates

Text: According to Cammer, the existence of a number of financial analysts who report on a security supports a finding of market efficiency because it permits an inference that financial statements relating to a security are closely reviewed by investment professionals, who ... in turn make buy/sell recommendations to client investors. Cammer, 711 F.Supp. at 1286; accord In re Xcelera.com Sec. Litig., 430 F.3d 503, 514 (1st Cir.2005) (Both parties agree that the greater the number of securities analysts following and reporting on a company's stock, the greater the likelihood that information released by a company is being relied upon by investors.). Teamsters argued to the district court that the analyst coverage factor supports a finding that the Certificates traded in an efficient market for two main reasons. First, its expert, Dr. Tavy Ronen, attested that forty-four individual analysts from twenty-eight firms specifically reported on BI during the class period. Ronen Supp. Aff. ¶ 21. She reasoned that [s]ince the Certificates are backed by loans that were purchased by a division of Bombardier, Inc., and since analysts provided information on BI as a whole, including any material information on its divisions, Certificate investors had a strong base of information to draw upon in determining the price of the Certificates. Id. Ronen also attested that BI and BCI were integrated in the servicing of the Certificates[,] and had arranged for financing into the Certificates, which meant that any news affecting their financial health and hence ability to continue supporting/servicing these Certificates would be expected to impact the investors. Ronen Reply Aff. ¶ 22. Second, Ronen pointed to the fact that the three major bond rating agenciesFitch, Moody's Investors Service and Standard & Poor'srated the Certificates, which also helped Certificate prices reflect material information about BI and BCI. Ronen Supp. Aff. ¶ 21. The appellees disputed these arguments. Their expert, Andrew Carron, contended that the activities of analysts who followed BI were irrelevant because the Certificates were not BI debt securities. Carron Aff. ¶ 39. He also argued that Teamsters failed to show that analysts specifically followed the Certificates themselves and criticized Ronen's reliance on rating agency activity. Id. Analyzing the frequency of transactions and average price of transactions in the Certificates on days following three specific instances in which the credit rating of the Certificates was changed, Carron concluded that [e]ither there [is] insufficient data to determine whether the Certificate prices reflected the credit analyst coverage, or Certificate prices did not react in a consistent manner, indicating that the market was not efficient. Carron Aff. ¶¶ 42-44, Ex. 11-12. The district court found that Teamsters... presented no evidence that analysts specifically followed the Certificates, the value of which is tied to the performance of the underlying mobile homes, and only incidentally to the performance of BI or its subsidiaries. Teamsters, 2006 WL 2161887, at . On this ground, the district court determined that a lack of analyst coverage indicated that the market was inefficient. Id. We find no error in this determination. Contrary to Teamsters' claims, the district court did not disregard its evidence on this point. Rather, it acknowledged Ronen's opinion that the forty-four analysts who followed BI followed the Certificates as well because BCI was servicing the collateral for the Certificates, and because BI financially supported BCI. Id. The district court simply found Ronen's account unpersuasive and instead accepted Carron's reasoning that there were no analysts who specifically followed the Certificates. Moreover, although the district court did not address the question of whether the three major bond rating agencies promoted the efficiency of the Certificate market in a manner akin to that of analysts reporting on equities, it was not required to do so in light of the compelling reasons in the record for rejecting such an analogy. [12]