Opinion ID: 3046029
Heading Depth: 2
Heading Rank: 1

Heading: The Einhorn Presentation

Text: The Investors first argue that the Einhorn Presentation qualifies as a corrective disclosure because it contained in-depth analysis of information not readily available to the investing public and revealed to the market that St. Joe’s real-estate assets “needed to be impaired.” The problem with this argument is that it ignores the very efficient market hypothesis upon which the Investors’ entire claim is based. “The efficient market theory . . . posits that all publicly available information about a security is reflected in the market price of the security.” Thompson, 610 F.3d at 691 (Tjoflat, J., concurring in part and dissenting in part). Therefore, any information released to the public is immediately digested and incorporated into 15 Case: 12-11488 Date Filed: 02/25/2013 Page: 16 of 25 the price of a security. “A corollary of the efficient market hypothesis is that disclosure of confirmatory information—or information already known by the market—will not cause a change in the stock price.” FindWhat, 658 F.3d at 1310. It follows that “[c]orrective disclosures must present facts to the market that are new, that is, publicly revealed for the first time.” Katyle, 637 F.3d at 473; see FindWhat, 658 F.3d at 1311 n.28 (explaining that a corrective disclosure “obviously must disclose new information”). The Einhorn Presentation contained a disclaimer on the second slide of the presentation stating that all of the information in the presentation was “obtained from publicly available sources.” Indeed, the material portions of the Einhorn Presentation were gleaned entirely from public filings and other publicly available information.9 Because a corrective disclosure “obviously must disclose new 9 Insofar as the Investors argue that the Einhorn Presentation was not based on public information because some information in the presentation came from Freedom of Information Act requests, meeting minutes of the Airport Authority of Panama City, aerial photographs, and information gleaned from conversations with members of the Airport Authority of Panama City, that suggestion—even if it were true—would not alter our result. First of all, none of the allegations in the Investors’ complaint have anything at all to do with the Company’s real-estate developments in and around the Panama City Airport. The complaint alleges that St. Joe’s properties at Rivertown, WaterSound, SummerCamp Beach, WindMark Beach, Victoria Park, Seven Shores, and SouthWood were overvalued. Obviously, if the complaint does not allege any fraud relating to the Company’s development near the Panama City Airport, any information about that development would quite literally be unable to “reveal[] to the market the pertinent truth that was previously concealed or obscured by the company’s fraud.” FindWhat, 658 F.3d at 1311. The Investors’ attempt to bootstrap these immaterial portions of the presentation in order to render the actual portions of the presentation at issue nonpublic therefore falls wide of the mark. Moreover, and even were that not so, the only part of the Einhorn Presentation that relied on the information above was the part in which Einhorn sought to refute the “bull case” for St. 16 Case: 12-11488 Date Filed: 02/25/2013 Page: 17 of 25 information,” the fact that the sources used in the Einhorn Presentation were already public is fatal to the Investors’ claim of loss causation. See FindWhat, 658 F.3d at 1311 n.28 (emphasis supplied). That result makes good sense. Having based their claim of reliance on the efficient market theory, the Investors must now abide by its consequences. The Investors specifically invoked the efficient market theory in their complaint, stating that “at all relevant times, the market for St. Joe’s common stock was an efficient market” and that all relevant information was therefore reflected by the price of St. Joe’s stock. They did so to avail themselves of Basic’s presumption of reliance, so that each member of the putative class would not have to show that he or she individually relied upon the Company’s alleged misstatements in making a given purchase of stock. See Basic, 485 U.S. at 247, 108 S. Ct. at 991. The efficient market theory, however, is a Delphic sword: it cuts both ways. The Investors cannot contend that the market is efficient for purposes of reliance and then cast the theory aside when it no longer suits their needs for purposes of loss causation. Joe, which involved the theory that the Company’s holdings in and around Panama City were worth so much money that, by buying St. Joe stock, one would “be getting the [Company’s] other 500,000 acres ‘for free.’” In other words, not only is that portion of the Einhorn Presentation wholly immaterial to the Investors’ claims, it is also not revelatory of any fraud. Finally, and to the extent that the Investors’ rest their claim on the argument that county property appraiser’s sales lists are nonpublic, we simply disagree. In a case about the value of land, in which the public disclosures at issue were released over time, the efficient market would easily digest the information contained in these sales lists without the need for Einhorn to regurgitate it first. While we might be willing to countenance some lag in the market’s processing of the information contained in these public sources, we reject the idea that they were not yet public on the day of the Einhorn Presentation, which is the relevant time for our purposes here. 17 Case: 12-11488 Date Filed: 02/25/2013 Page: 18 of 25 Either the market is efficient or it is not. A plaintiff in the Investors’ situation must take the bitter with the sweet, and if he chooses to embrace the efficient market theory for purposes of proving one element of a § 10(b) claim, he cannot then turn around and contend that the market is not efficient for purposes of proving another element of the very same claim. The Investors next venture an alternative argument: they contend that the Einhorn Presentation qualifies as a corrective disclosure despite its reliance on public information because it provided “expert analysis of the source material” that was previously unavailable to the market. The problem with this argument, of course, is that the mere repackaging of already-public information by an analyst or short-seller is simply insufficient to constitute a corrective disclosure. See In re Omnicom, 597 F.3d at 512 (“A negative . . . characterization of previously disclosed facts does not constitute a corrective disclosure . . . .”); see also Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 187 (4th Cir. 2007) (explaining that the attribution of an improper purpose to previously disclosed facts is not a corrective disclosure); In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261, 270–71 (3d Cir. 2005) (holding that the Wall Street Journal’s analysis of previously available information is not a corrective disclosure). After all, if the information relied upon in forming an opinion was previously known to the market, the only thing actually disclosed to the market when the opinion is released is the opinion 18 Case: 12-11488 Date Filed: 02/25/2013 Page: 19 of 25 itself, and such an opinion, standing alone, cannot “reveal[] to the market the falsity” of a company’s prior factual representations. 10 FindWhat, 658 F.3d at 1311 n.28 (internal quotation marks omitted). In fact, such opinions are exactly the type of confounding information, including “changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events,” that do not qualify as corrective disclosures for purposes of loss causation. Dura, 544 U.S. at 343, 125 S. Ct. at 1632. If every analyst or short-seller’s opinion based on already-public information could form the basis for a corrective disclosure, then every investor who suffers a loss in the financial markets could sue under § 10(b) using an analyst’s negative analysis of public filings as a corrective disclosure. That cannot be—nor is it—the law.11 See id. at 347–48, 125 S. Ct. at 1634. 10 We need not reach the question of whether an analyst or short-seller’s opinion can ever constitute a corrective disclosure. Just as black swans may exist, there may theoretically be some form of opinion that is factual or revelatory in nature such that it qualifies as a corrective disclosure. But at the very least, such an opinion would need to reveal to the market something previously hidden or actively concealed. That is not this case, and we need not delve into that metaphysical question here. Einhorn’s opinion reveals no fact to the market. Nothing suggests that the Company obfuscated or concealed the information on which Einhorn relied. We need not go further. We merely note that if they do exist, such opinions—like black swans—will be the exception, not the rule. Cf. In re Winstar Commc’ns, No. 01 CV 3014, 2006 WL 473885, at  (S.D.N.Y. Feb. 27, 2006) (finding that a short-seller’s report could qualify as a corrective disclosure where it revealed information new to the market—namely, that the company had insufficient cash flow to funds its operations and, contrary to statements made by the defendants, would likely default on its credit obligations). 11 Insofar as the Investors argue that not every analyst opinion, but only those that are in depth or well researched (in other words, only the good analyst opinions), should qualify as corrective disclosures, that argument proves far too much. The point is that the factual 19 Case: 12-11488 Date Filed: 02/25/2013 Page: 20 of 25 The present case provides a prime example of why that is so. David Einhorn was not an insider at St. Joe, and the information upon which he relied in making his bearish call had been public for months before he made the presentation. Moreover, as a short-seller, Einhorn was bound to profit if the price of St. Joe’s shares swooned in reaction to his presentation. Further, Einhorn was a maven of Wall Street, well known for accurately predicting the downfall of Lehman Brothers only two years prior. Given Einhorn’s reputation, then, it is no great surprise that investors might flee like rats from a sinking ship upon news that he viewed a stock’s prospects as grim. 12 Put another way, because the information used in the presentation had already been public for some time, the decline in the value of St. Joe’s shares in the wake of the Einhorn Presentation was not due to the fact that the presentation was revelatory of any fraud, but was instead due to “changed investor expectations” after an investor who wielded great clout in the industry voiced a negative opinion about the Company. See Dura, 544 U.S. at 342–43, 125 S. Ct. at 1632 (explaining the “tangle of factors” that affect stock price but do not qualify for purposes of loss causation). information upon which the opinion is based was already available to the market, which—being an efficient market—has already digested it into the security’s price. The quality or exhaustiveness of the report, in other words, is simply beside the point. 12 By way of example, when Einhorn revealed that he was short the stock of Green Mountain Coffee Roasters (GMCR), the maker of Keurig K-Cups, at the Value Investing Conference the very next year, the price of GMCR’s stock declined from $91.66 to $69.80 per share over the three days of trading that followed. 20 Case: 12-11488 Date Filed: 02/25/2013 Page: 21 of 25 Finally, we note that the opinions in the Einhorn Presentation, though certainly pessimistic about the future, were not necessarily revelatory of any past fraud. The Einhorn Presentation systematically analyzed several of St. Joe’s realestate developments and explained why, in Einhorn’s view, the Company would not be able to recoup the carrying value of these holdings. Because management’s determination that it would not reap future cash flows in excess of the asset’s carrying value would require an impairment under GAAP’s accounting treatment for assets “held and used,” Einhorn explained his belief that St. Joe’s assets “should be” or “need[ed] to” be impaired. Moreover, in summarizing his presentation, Einhorn equivocated, explaining that “if no impairment is needed, there has been a negative return on development,” but that “if [St. Joe] needs to take an impairment, the return on development is highly negative.” When all is weighed in the balance, we think these are statements about potential future action, not “reve[lations] to the market” of some previously concealed fraud or misrepresentation. See FindWhat, 658 F.3d at 1311. That is yet another reason why they do not qualify as corrective disclosures for purposes of loss causation.