Rauch v. Vale S.A. et al

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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IN RE VALE S.A. SECURITIES
LITIGATION.
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MEMORANDUM & ORDER
19-CV-526(EK)(VMS)
ERIC KOMITEE, United States District Judge:
Following the catastrophic collapse of an iron-ore
tailings dam in Brazil, plaintiff brought this securities-fraud
action against the dam’s owner, Vale S.A., and five of its
executives. 	Judge Dearie certified a class of purchasers,
finding that plaintiff had successfully invoked the presumption
of reliance under Basic v. Levinson, 485 U.S. 224 (1988).
Defendants now move to decertify the class. 	They advance new
expert analysis, which they claim conclusively establishes that
Vale’s securities operated in an inefficient market and,
therefore, that the presumption of reliance is inapplicable.
The Court disagrees, and for the following reasons, denies
defendants’ motion for decertification.
Background
A. 	Reliance and the Basic Presumption
To prevail on a Section 10(b) claim, a plaintiff must
prove, among other things, that he relied on a defendant’s
misrepresentation or omission. 	Goldman Sachs Grp., Inc. v.
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Arkansas Tchr. Ret. Sys., 594 U.S. 113, 117-18 (2021).1 	The
plaintiff can do so in two ways: (1) he can offer direct
evidence that he “was aware of a defendant’s misrepresentation
and engaged in a transaction based on that misrepresentation”;
or (2) he can invoke the rebuttable presumption, first adopted
by the Supreme Court in Basic, that an investor “relies on a
misrepresentation so long as it was reflected in the market
price at the time of his transaction.” 	Id. 	Because individual
reliance is not susceptible to proof by common evidence, the
Basic presumption “has particular significance in securities-
fraud class actions.” 	Id. at 118-19.
Basic effectively “import[ed] fraud on the market
theory from economics into securities litigation.” 	Id. at 130
(Gorsuch, J., dissenting). 	The fraud-on-the-market theory
posits that, in an efficient market, a security’s price will
incorporate all publicly available information and change only
in response to that information. 	In re Petrobras Sec., 862 F.3d
250, 276 (2d Cir. 2017). 	To invoke the Basic presumption,
plaintiffs must prove market efficiency by a preponderance of
the evidence. 	Id. at 275 (plaintiffs’ burden); Teamsters Loc.
445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196,
204 (2d Cir. 2008) (preponderance standard).
1 Unless otherwise noted, when quoting judicial decisions this order
accepts all alterations and omits all citations, footnotes, and internal
quotation marks.
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To assess market efficiency, district courts typically
rely on the “Cammer” and “Krogman” factors — so named because
they were first articulated in Cammer v. Bloom, 711 F. Supp.
1264 (D.N.J. 1989), and Krogman v. Sterritt, 202 F.R.D. 467
(N.D. Tex. 2001).2 	The Krogman and first four Cammer factors
examine “indirect” evidence of market efficiency,3 while the
fifth Cammer factor — share-price response to news that is
unexpected and material — analyzes more “direct” evidence.
Waggoner v. Barclays PLC, 875 F.3d 79, 94, 98 (2d Cir. 2017).
This is usually done via an event study, which is a “regression
analysis that seeks to show [whether] the market price of the
defendant’s security tends to respond to pertinent publicly
reported events.” 	In re Waste Mgmt. Sec. Litig., 775 F. Supp.
3d 742, 760 (S.D.N.Y. 2025). 	“[D]irect and indirect evidence”
are not “distinct requirements.” 	Petrobras, 862 F.3d at 277.
Rather, courts should review these factors in “a holistic
analysis based on the totality of the evidence presented.” 	Id.
B. 	Prior Proceedings in This Case
In 2021, plaintiff moved to certify a class of
purchasers of two types of securities: Vale’s “American
2 The Second Circuit has not adopted the Cammer and Krogman factors, nor
any other test for market efficiency. 	See Petrobras, 862 F.3d at 276.
3 Those factors are the market capitalization, bid-ask spread, float,
average trading volume, number of sell-side analysts who follow and report on
the stock, existence of market makers and arbitrageurs, and ability of the
company to file Securities and Exchange Commission Form S-3. 	See Cammer, 711
F. Supp. at 1283-87; Krogman, 202 F.R.D. at 478.
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Depositary Shares” (“ADSs”) and several of Vale’s “Guaranteed
Notes” (“Notes”). 	See Pl.’s Class Cert. Br. 1, ECF No. 96-1.
Judge Dearie — relying on a Report and Recommendation (“R&R”)
from then-Magistrate Judge Bulsara — held that plaintiff made
the necessary showing to invoke the Basic presumption on behalf
of purchasers of Vale ADSs and Notes. 	See Order Adopting R&R 5-
10, ECF No. 116.
The R&R concluded that the Cammer and Krogman factors,
taken as a whole, pointed to market efficiency. 	R&R 13-39, ECF
No. 110. 	Judge Bulsara agreed with defendants that plaintiff’s
event study — which purported to establish the efficiency of the
ADS and Notes markets — had serious “methodological
deficiencies” and was therefore “entitled to no weight.” 	Id. at
38. 	But because (1) defendants’ expert offered no event study
affirmatively proving that the ADS and Notes markets were
inefficient and (2) the weight of the other, “indirect” factors
favored plaintiff, he determined that the markets for both
securities were efficient — though the Notes market was a closer
call. 	Id. at 39.
Defendants raised several objections to the R&R,
including — as relevant here — to Judge Bulsara’s conclusion
that plaintiffs had satisfied their burden of establishing
market efficiency. 	See Obj. to R&R 4-11, ECF No. 111. 	Judge
Dearie was unpersuaded. 	Regarding the market for ADSs, he
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concluded that even if defendants had presented “some direct
evidence of inefficiency,” plaintiff had still proven market
efficiency on “the strength of the seven unrebutted indirect
factors.” 	Order Adopting R&R 7. 	Defendants argued that the
same could not be said for the Notes market because not all the
“indirect” factors pointed to efficiency. 	Id. at 9. 	Judge
Dearie disagreed, concluding that because “the Cammer and
Krogman factors were designed to test market efficiency for
equity securities,” it is even more important for courts to be
holistic in their analysis of debt securities. 	Id. (emphasis
added). 	And while plaintiff’s evidence was less overwhelming
when it came to the Notes market, it still weighed toward a
finding of efficiency. 	Id. at 9-10.
Vale sought leave to file an interlocutory appeal of
the certification decision, which the Second Circuit denied.
ECF No. 119.
C. 	Defendants’ Motion for Decertification
A year later, defendants submitted the instant motion
for decertification, which relies on a new expert report by Dr.
Sumon Mazumdar — a finance professor and economic consultant.
Mazumdar Rpt. ¶¶ 1-2, ECF No. 132-3. 	Defendants argue that Dr.
Mazumdar’s event study provides “direct and unassailable
evidence that the markets for Vale Securities were inefficient.”
Defs.’ Decert. Br. 7, ECF No. 132-1.
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Plaintiff maintains that indirect evidence is
sufficient to establish the efficiency of the Vale ADS and Notes
markets. 	Pl.’s Decert. Opp’n 17-19, ECF No. 132-4. 	But
plaintiff also responds with a new event study of its own, see
generally Rebuttal Rpt. of David I. Tabak, PhD, ECF No. 132-6,
and argues that Dr. Mazumdar’s report should be disregarded
because — among other reasons — he employed “a subjective
approach in identifying value-relevant news.” 	Pl.’s Decert.
Opp’n 19-22.
Discussion
“In opposing the decertification motion, [plaintiff]
retain[s] the burden to demonstrate” that Rule 23’s requirements
are satisfied. 	Mazzei v. Money Store, 829 F.3d 260, 270 (2d
Cir. 2016). 	But the court must still “find that a previously
satisfied requirement of Rule 23 is now lacking.” 	Jin v.
Shanghai Original, Inc., 990 F.3d 251, 262 (2d Cir. 2021).
Here, defendants argue that “newly adduced expert evidence
definitively resolves the question of market efficiency.”
Defs.’ Decert. Br. 3.
Defendants fail to adduce conclusive, “direct”
evidence that the Vale securities traded in inefficient markets.
In the absence of such evidence, the Court’s earlier ruling must
stand: the weight of the remaining Cammer and Krogman factors
supports a finding of efficiency.
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A. 	Mazumdar and Tabak Event Studies
As with plaintiff’s initial motion for class
certification, the Court is confronted with a “battle of the
experts.” 	The parties submitted dueling event studies. 	And
each party levels meaningful criticisms against the other’s
expert, namely regarding his methodology for selecting the “news
days” used to test the Vale securities’ reactions to unexpected
material information.
“[I]dentifying news [and] categorizing which news is
material . . . are [both] subjective determinations.” 	In re
Barclays Bank PLC Sec. Litig., No. 09-CV-1989, 2017 WL 4082305,
at *24 (S.D.N.Y. Sep. 13, 2017), aff’d, 756 F. App’x 41 (2d
Cir.), as amended (Nov. 20, 2018); see also DoubleLine Cap. LP
v. Odebrecht Fin., Ltd., No. 17-CV-4576, 2024 WL 1115944, at *11
(S.D.N.Y. Mar. 14, 2024) (same).4 	As such, this process is
highly susceptible to “cherry-picking.” 	In Re Waste Mgmt., 775
F. Supp. 3d at 760-61; In re Teva Sec. Litig., No. 17-CV-558,
2021 WL 872156, at *21-22 (D. Conn. Mar. 9, 2021). 	And here,
there is legitimate cause for concern that both experts’ methods
of identifying news days led to imperfect results. 	But Dr.
4 It is also a logically circular process: experts select material news
to see if the price of a security reacts — as it should in an efficient
market — but what makes news material is the fact that it produces a price
reaction.
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Tabak at least employed defined and replicable criteria; Dr.
Mazumdar did not.
To identify all news days during the class period, Dr.
Mazumdar began with Vale’s Forms 6-K, its credit rating
announcements, and articles about Vale identified in a Factiva
search of “five well-known [news] sources” and “five others that
. . . consistently provided news about Vale.” 	Mazumdar Rpt.
¶ 58, App’x C ¶ 4. 	He then removed Forms 6-K and news articles
that “provided stale information or only provided information
that was not value-relevant,” before aggregating the data to
remove duplicative news days. 	Id. ¶¶ 58-59.
Dr. Mazumdar’s method of identifying “value-relevant,”
or material, news is both subjective and overinclusive. 	He
provides examples of news that he deemed “not value-relevant” —
e.g., articles that “simply reported Vale’s share price change
or mentioned Vale among other companies as part of broader
discussion on market and industry trends,” id. ¶ 58 — but he
does not identify a full set of criteria with which another
person could replicate his results. 	That is because no such
criteria exist. 	Instead, he began with the (doubtful)
presumption that all news derived from his Form 6-K and Factiva
searches was material, and then relied on his own case-by-case
judgment to eliminate news that was (to him) clearly immaterial.
While there will always be some subjective judgment involved in
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the process of selecting news days, see In re Barclays Bank,
2017 WL 4082305, at *24, “the events for study should be
selected using criteria that are as objective as possible.” 	In
re Countrywide Fin. Corp. Sec. Litig., 273 F.R.D. 586, 618 (C.D.
Cal. 2009). 	Dr. Mazumdar’s study does not meet that standard.
The result is that Dr. Mazumdar identifies 214 news
days out of 572 total days in the class period, id. ¶ 21 — a
number that strains credulity. 	And, on review, many of his
purported “news days” did not see the release of information
that would be reasonably expected to move the price of a
security. 	While defendants may quibble with Dr. Tabak’s
examples of days Dr. Mazumdar should not have counted as “news
days,” see Defs.’ Decert. Reply 5-6, ECF. No. 132-8, the Court
can identify others: January 5, 2017 (“designation of the vice
[chairman] and relocation of alternate members of the board of
directors”); March 10, 2017 (“Vale informs about executive
recruiting firm to support the selection of new CEO”); June 27,
2017 (shareholder meeting minutes, with no further details).
See Mazumdar Rpt. Ex. 1. 	This overinclusion biases his event
study because he treats days with “events not expected to shift
the market one way or another” as days on which such a price
impact should have been observed. 	In Re Waste Mgmt., 775 F.
Supp. 3d at 761 (“primary problem with Defendants’ event study
[was] its overly expansive selection of news days”). 	Dr.
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Mazumdar’s event study therefore “does not disprove market
efficiency.” 	Id.
Dr. Tabak’s method for selecting news days, while also
flawed, at least rests on defined and replicable criteria. 	Dr.
Tabak treated news days as “days with stories” about Vale
“published by the Dow Jones Newswires.” 	Tabak Rpt. ¶ 39. 	He
then sorted the list of news days by the number of stories
published about Vale on each — treating repetition as a proxy
for materiality — and focused on the top 25% and 10% of news
days. 	Id. ¶¶ 41, 45-46.
Dr. Tabak’s selection of news days may well be
underinclusive. 	He only identifies forty-one news days in
total, a number that he reduces further by concentrating on days
with the highest number of news stories about Vale. 	See Tabak
Rpt. Ex. 6a. 	His set of news days also excludes days that
surely saw the release of material, unexpected news — the day of
the dam collapse and eight of Vale’s nine earnings-announcement
days. 	Mazumdar Reply Rpt. ¶ 50, ECF No. 132-10.
Moreover, repetition is an imperfect proxy for
materiality. 	Particularly in today’s media environment, a piece
of news could go viral not because it is material to investors,
but because it is entertaining, politically charged, or tied to
broader world events. 	Accordingly, while Dr. Tabak’s is the
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better of the two methodologies, it still does not provide
unimpeachable evidence of market efficiency.
B. 	Indirect Evidence of Market Efficiency
Even setting aside both experts’ event studies, we are
still left with persuasive “indirect” evidence of market
efficiency. 	Defendants do not attempt to rebut Judges Bulsara
and Dearie’s conclusions on this point. 	Instead, they note only
in passing that “academics have cast substantial doubt on
whether the indirect factors . . . shed any meaningful light on
market efficiency.” 	Defs.’ Decert Br. 12.
“[H]ow courts should measure and evaluate market
efficiency has spurred vigorous debate since almost the time
Basic was decided.” 	In re Teva, 2021 WL 872156, at *7 & n. 16
(collecting academic critiques). 	And defendants are correct
that the Cammer and Krogman factors have come under considerable
academic criticism. 	See, e.g., Alon Brav & J.B. Heaton, Event
Studies in Securities Litigation: Low Power, Confounding
Effects, and Bias, 93 Wash. U. L. Rev. 583, 601 (2015) (“There
is no generally accepted method in financial economics for
determining whether a security trades in an efficient market,
and the so-called Cammer factors that are important in the
courts have no general acceptance — indeed, are not even used —
in academic research for that purpose.”). 	But so too have
courts recognized the limitations of using event studies to
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establish “direct” evidence of market efficiency. 	E.g.,
Petrobras, 862 F.3d at 278 (“Event studies offer the seductive
promise of hard numbers and dispassionate truth, but
methodological constraints limit their utility in the context of
single-firm analyses.”).
Accordingly, flawed though they may be, the “indirect”
Cammer and Krogman factors are sufficient on their own to
establish market efficiency. 	Waggoner, 875 F.3d at 97-98; see
also R&R 32-33, 39; Order Adopting R&R 6-10.
Conclusion
Defendants’ motion for decertification is denied.
SO ORDERED.
/s/ Eric Komitee
ERIC KOMITEE
United States District Judge
Dated: 	March 10, 2026
Brooklyn, New York
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