The Harman matter was a Securities Fraud Class Action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, in which the central economic issues were Price Impact and the reasonable estimability of class-wide damages. Harman International Industries, Inc. (“Harman”), a manufacturer of audio and infotainment products, was alleged to have made materially false and misleading statements during a class period that coincided with a proposed leveraged acquisition of the company. Lead Plaintiff, a public pension fund, brought claims on behalf of purchasers of Harman common stock during the class period. After a dismissal order narrowed the case, the surviving claims concerned alleged misstatements made on three dates in 2007. At class certification, the Lead Plaintiff's expert opined that the market for Harman's stock was efficient and proposed a conceptual method for estimating class-wide damages.
On behalf of the Defendants, Professor Mark E. Zmijewski—the Charles T. Horngren Professor of Accounting Emeritus at The University of Chicago Booth School of Business—was retained to respond to the Lead Plaintiff's expert. He was supported by Keith Bockus, Erik Himan, and Pavel Nikolov. Professor Zmijewski was asked to analyze (i) whether the conceptual damages method the Lead Plaintiff's expert proposed could reasonably estimate the class-wide damages attributable to the allegations, and (ii) whether there was a statistically significant stock-price movement—price impact—in Harman's stock following certain alleged misstatements.
At a high level, Professor Zmijewski evaluated whether the proposed conceptual method could reasonably estimate the class-wide damages attributable to the allegations while identifying, isolating, and excluding the effects of confounding information disclosed on the alleged corrective-disclosure dates, and whether the Lead Plaintiff's expert analyses included an economic model to estimate the inflation in Harman's stock price after each alleged misstatement or that related the alleged corrective disclosures to the alleged misstatements.
Professor Zmijewski further evaluated, during the period when the leveraged acquisition of Harman was pending, whether the proposed transaction had dominated Harman’s stock price to the extent it became reduced—and possibly eliminated—the price’s responsiveness to the company’s other disclosures. He also examined the informational-efficiency (“cause-and-effect”) tests set out in the Lead Plaintiff expert’s own report and analyzed whether Harman’s stock failed those tests during the acquisition offer period.