Deposition of Steven Grenadier, Ph.D. — In re January 2021 Short Squeeze Trading Litigation (Dkt. 582-3, S.D. Fla.)
Summary
Exhibit 2 (Document 582-3) in In re January 2021 Short Squeeze Trading Litigation, No. 1:21-MD-2989-CMA (Case 1:21-md-02989-CMA), in the U.S. District Court for the Southern District of Florida, entered on the FLSD docket June 21, 2023: a 125-page transcript of the deposition of Steven Grenadier, Ph.D., taken on behalf of the Plaintiffs by remote Zoom proceedings from Menlo Park, California on Wednesday, April 19, 2023, from 9:05 a.m. until 4:11 p.m., Pacific Daylight Time, before Leslie Rockwood Rosas, RPR, Certified Shorthand Reporter No. 3462, and produced by Veritext Legal Solutions. Laurence M. Rosen of The Rosen Law Firm examines for the Plaintiffs. The index lists deposition exhibits including Exhibit 175, the Corrected Expert Report of Professor Steven Grenadier dated 02/24/23, and Exhibit 176, the Rebuttal Expert Report dated 03/28/23.
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“Deposition of Steven Grenadier, Ph.D. (Dkt. 582-3).”
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Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 1 of
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1 IN THE UNITED STATES DISTRICT COURT
2 FOR THE SOUTHERN DISTRICT OF FLORIDA
3
4
5 IN RE JANUARY 2021 SHORT
SQUEEZE TRADING LITIGATION No. 1:21-MD-2989-CMA
6 ____________________________/
7
8
9
10
11
12 DEPOSITION OF STEVEN GRENADIER, PH.D.
13 Remote Zoom Proceedings
14 Menlo Park, California
15 Wednesday, April 19, 2023
16
17
18
19
20
21
22
23 REPORTED BY:
24 LESLIE ROCKWOOD ROSAS, RPR, CSR 3462
25
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1 IN THE UNITED STATES DISTRICT COURT 1 INDEX
2 FOR THE SOUTHERN DISTRICT OF FLORIDA 2
3 3
4 4 Wednesday, April 19, 2023
5 IN RE JANUARY 2021 SHORT 5
SQUEEZE TRADING LITIGATION No. 1:21-MD-2989-CMA 6 WITNESS EXAMINATION
6 ____________________________/ 7
7 8 STEVEN GRENADIER, PH.D.
8
9
9
10 BY MR. ROSEN 6
10
11
11 Deposition of STEVEN GRENADIER, PH.D., taken on
12
12 behalf of the Plaintiffs, Remote Zoom Proceedings from
13
13 Menlo Park, California, beginning at 9:05 a.m. Pacific
14
14 Daylight Time and ending at 4:11 p.m. Pacific Daylight
15 QUESTIONS WITNESS INSTRUCTED NOT TO ANSWER
15 Time, on Wednesday, April 19, 2023, before
16 (None)
16 Leslie Rockwood Rosas, RPR, Certified Shorthand Reporter
17 No. 3462. 17
18 18
19 19
20 20
21 21
22 22
23 23
24 24
25 25
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1 APPEARANCES: 1 DEPOSITION EXHIBITS
2 2 STEVEN GRENADIER, PH.D.
3 FOR THE PLAINTIFFS: 3 NUMBER DESCRIPTION IDENTIFIED
4 THE ROSEN LAW FIRM 4 Exhibit 175 Corrected Expert Report of 6
5 BY: LAURENCE M. ROSEN, ESQ. 5 Professor Steven Grenadier,
6 275 Madison Avenue, 40th Floor 6 02/24/23
7 New York, New York 10016 7 Exhibit 176 Rebuttal Expert Report of 6
8 (866) 767-3653 8 Professor Steven Grenadier,
9 lrosen@rosenlegal.com 9 03/28/23
10 10 Exhibit 177 Court Order 42
11 11 Exhibit 178 Efficient Capital Markets: II, 85
12 FOR THE DEFENDANTS: 12 by Eugene F. Fama
13 CRAVATH SWAYNE & MOORE LLP 13 Exhibit 179 Inefficient Markets, by Andrei 93
14 BY: ANTONY L. RYAN, ESQ. 14 Shleifer
15 CHARLOTTE LEPIC, ESQ. 15
16 825 Eighth Avenue 16
17 New York, New York 10019-7475 17 PREVIOUSLY MARKED EXHIBIT REFERRED TO HEREIN:
18 (212) 474-1296 (Mr. Ryan) 18 EXHIBIT NO. PAGE
19 (212) 474-1325 (Ms. Lepic) 19 Exhibit 117 101
20 aryan@cravath.com 20
21 clepic@cravath.com 21
22 22
23 Also Present: 23
24 Nicholas Lin, Robinhood 24
25 25
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1 Menlo Park, California; Wednesday, April 19, 2023 1 Okay, I have them.
2 9:05 a.m. Pacific Daylight Time 2 Q. All right. Okay.
3 PROCEEDINGS 3 So now in addition to being a professor at
4 4 Stanford, you've also had some outside professional
5 --oOo-- 5 activities related to finance; is that right?
6 (Exhibit 175, Corrected Expert Report of 6 A. Yes.
7 Professor Steven Grenadier, 02/24/23, was marked 7 Q. Okay. And it shows here you're a director of
8 for identification by counsel electronically.) 8 E*TRADE funds; is that right?
9 (Exhibit 176, Rebuttal Expert Report of 9 A. That is correct, yes.
10 Professor Steven Grenadier, 03/28/23, was marked 10 Q. And what -- what did E*TRADE funds do?
11 for identification by counsel electronically.) 11 A. Sure. So E*TRADE, the brokerage firm -- I don't
12 12 know if they still do, but for a while salvaged their own
13 STEVEN GRENADIER, PH.D., 13 proprietary fund family, and I was an outside trustee for
14 having been first duly sworn, was examined 14 that fund family.
15 and testified as follows: 15 So it grew from maybe two to approximately ten
16 16 mutual funds, and then at one point, they shut them down.
17 THE WITNESS: I do. 17 Q. I see. And what was your role as a trustee of
18 THE REPORTER: Thank you, sir. 18 the funds?
19 You may proceed, Counsel. 19 A. So I was an outside trustee, and there were also
20 20 inside trustees. And the outside trustee is a -- my
21 EXAMINATION 21 understanding, was a fiduciary area looking after the
22 BY MR. ROSEN: 22 investors in the underlying funds.
23 Q. Good morning, Professor Grenadier. How are you 23 Q. Okay. And do you know approximately how many
24 doing? 24 funds they had?
25 A. Very well. Thank you. 25 A. I think it grew to about ten.
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1 Q. All right. So let's see, where are you now? 1 Q. And do they have specific strategies, those
2 A. I'm in Menlo Park, which is right near Stanford 2 funds?
3 University. 3 A. They were -- it's all -- as I can recall, all of
4 Q. All right. And what office are you with? 4 them were index funds. And so it was a mixture of
5 A. This is Cornerstone Silicon Valley office. 5 different types, but your sort of classic stock, bond,
6 Q. All right. Is anybody with you now? 6 international, that kind of index fund.
7 A. Just the -- just the two Cravath attorneys. 7 Q. So an index fund, does that mean -- were they
8 Q. Two Cravath attorneys are with you? 8 equally weighted or if they valuated the index funds?
9 A. Yes. 9 How does that work?
10 Q. Okay. Let's see. 10 A. Most index funds are market valuated.
11 So you're a professor at Stanford; is that 11 Q. So an index fund that's market valuated would
12 right? 12 purchase and maintain a portfolio of an equal weight of
13 A. Pardon me? 13 every fund, every stock in that portfolio; is that how it
14 Q. You're in the business school? 14 works?
15 A. Yes, I am. 15 A. So it would not be like that. So a classic
16 Q. Okay. And I'm going to introduce exhibit -- 16 example -- and I'm sure we had one of them -- would be an
17 well, we've already introduced Exhibit 175 and 176. The 17 S&P 500 fund --
18 first is your opening expert report which was corrected 18 Q. Uh-huh.
19 for some typo, I think, and then -- so I have the 19 A. -- which is approximately the 500 largest by
20 corrected version. And then there's a rebuttal report 20 market value US stocks. And what you would do to manage
21 which is Exhibit 176. 21 a fund like that would buy each of them in their market
22 Could you just identify them and tell me if 22 value proportions. So, for example, today you would put
23 those are your reports. 23 much more in Apple than you would do in some other one
24 A. Sure. Just give me a moment. I'm going to -- I 24 like Walmart or something like that.
25 see them on my screen. I just have to download them. 25 And then it's actually because they're market
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1 weighted, they're relatively easy to maintain because you 1 A. So it was hedge fund like. So there were some
2 can essentially buy and hold them. They float. So as 2 unusual funds in there. So there was one relatively
3 Apple goes up, and you hold the same number of shares, it 3 small fund that actually I would call hedge fund in the
4 moves up with Apple's market cap. 4 sense that they did things like merger arbitrage and
5 So valuated indices are generally quite easy o 5 stuff like that, which is unusual for a mutual fund.
6 maintain and low cost to index because you don't really 6 They had some more conventional funds that were
7 have to really do much. You just buy in the right 7 international. They even had a fund when I was there
8 proportions, and then they essentially move in proportion 8 that was a momentum fund.
9 over time. 9 So they were -- I don't know. They don't fit
10 Q. Okay. And what if suddenly you had a hundred 10 neatly into active versus passive. They're somewhere in
11 million dollar of new investment to the fund; would you 11 between. And like I say, I left there --
12 then buy the same proportion of the portfolio that you 12 Q. Passive would be E*TRADE, for example?
13 already have with that hundred million, then? 13 A. Correct.
14 A. Yes. They would get their pro-rata share of 14 Q. I see. Okay.
15 that pie. And so everybody in the fund would have the 15 All right. Okay. It says you're a senior
16 same fractional weights in the underlying stocks, and 16 advisor to Cornerstone. What does it mean to be a senior
17 then as new money comes in, they just get another slice 17 advisor to Cornerstone Research?
18 of that pie. 18 A. So I don't know specifically what that -- what
19 Q. All right. And it says here that you also 19 that means in general. In my circumstance, I have a
20 worked as a director of Nicholas-Applegate Institutional 20 relationship with Cornerstone where I do my expert
21 Funds; is that right? 21 witness -- my expert witness work mostly exclusively with
22 A. That is. 22 them.
23 Q. And what was your role there? 23 So when I have -- help on a case such as this
24 A. Sure. 24 one, I work with Cornerstone, and because I work
25 It was again as an outside trustee, and 25 exclusively with Cornerstone, I have a contract that has,
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1 Nicholas-Applegate was, as it says, institutional funds. 1 you know, some additional terms because of that.
2 It was different than E*TRADE funds in that the 2 Q. Some additional terms?
3 underlying owners were essentially institutional 3 A. Yeah.
4 investors, not retail investors. 4 Q. What do you mean by "some additional terms"?
5 And that -- I don't remember exactly. It's been 5 A. So normally when I work with -- in the old days,
6 a while. Nicholas-Applegate funds had a mixture of 6 when I'd work with a litigation consultant, it would be
7 mostly active funds, and they were much more hedge fund 7 on a per-deal basis. You know, there would be some split
8 like. So they may have even involved some amount of 8 and understanding of who I bill. You know, very basic
9 shorting in them. 9 stuff.
10 Q. I see. 10 When I work with Cornerstone, I have a contract
11 Is Nicholas-Applegate still in business? 11 that will say exactly how much of their revenues, as it's
12 A. Ha-ha. I think so. They -- but I haven't 12 defined in the contract, that I would get a percentage
13 followed them in like years. They were -- my 13 of.
14 understanding when -- at least when I was there, they 14 Q. So Cornerstone would bill the client for this
15 were a -- they were subsidiary of Allianz. I believe 15 case, and you would just get a cut out of that?
16 it's a larger international bank, and that -- that was my 16 A. Yes. You said it correctly. I just was
17 recollection. I don't know if that's still true, though. 17 self-correcting. When I said a percentage of revenues,
18 Q. And what about AQR Funds; what was your role 18 obviously no revenues that I had no dealings with. So
19 there? 19 you put it correctly.
20 A. Sure. It's the same thing. 20 If I'm working on a case with them, I will bill
21 So AQR is mostly known as a hedge fund, but they 21 my hours, and Cornerstone bills their hours, and subject
22 started mutual fund family, and when they started the 22 to some sort of description of what hours I have a
23 mutual fund family, I was one of their outside directors. 23 fraction of, that's the case. I get a fraction of their
24 And I did that for around five years or so. 24 hours on the case.
25 Q. And what type of investing did AQR do? 25 Q. Okay. All right.
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1 You're familiar with Professor Fischel; is that 1 Q. So let's talk about Robinhood. You're familiar
2 right? 2 with the defendant in this case, Robinhood Markets?
3 A. Yeah. I am. 3 A. Yes.
4 Q. You know he -- he produced two reports in this 4 Q. Okay. And how do they -- do you know how they
5 matter? 5 make money?
6 A. I do. 6 A. I have a vague understanding, but I'm certainly
7 Q. Have you had a chance to read those reports? 7 not an expert in their business.
8 A. Yes. 8 Q. Are you aware that they derive a material
9 Q. And when did you -- did you read a draft of the 9 portion of their revenue from selling their clients'
10 reports before they were finished? 10 order flow to market makers?
11 A. I did not. 11 A. That's my general understanding, yes.
12 Q. Do you consider Professor Fischel to be an 12 Q. Do you know why market makers would pay to have
13 economist? 13 that order flow?
14 A. Yes. 14 A. I have a general understanding. It involves
15 Q. Now your reports have very similar narratives 15 things such as they can make money just on the
16 and conclusions, and I'm just wondering whether you had 16 transactions themselves. It's possible that there are
17 an opportunity to discuss with Professor Fischel the case 17 other benefits of understanding order flow, but that's
18 prior to drafting your respective reports? 18 really all I know about that.
19 A. I did not. 19 Q. So is it possible that the order flow contains
20 Q. Have you ever represented a plaintiff, 20 valuable information for Citadel?
21 plaintiffs, in a securities class action? 21 A. It is possible.
22 A. Yes, I believe so. 22 (Discussion off the record.)
23 Q. Okay. Can you tell me which case that was? 23 THE REPORTER: Excuse me, Counsel. Can we go
24 A. So my recollection is there were many. Let me 24 off the record, please.
25 see if I can think of some here. One was -- this was a 25 MR. ROSEN: Sure.
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1 long time ago. It was -- so one of my very first cases 1 (Discussion off the record.)
2 was on a class action. I'm trying to think. What's 2 MR. RYAN: If there's anybody listening in,
3 the -- I forget. It's like the largest German telecom 3 could they please identify themselves on the record. I
4 funds -- telecom firm, and it was a class action against 4 was unaware that anybody was listening in.
5 them. I'm just forgetting. Most people would know the 5 MR. ROSEN: I'm not sure anyone is, but I know
6 name. It's not coming to me. 6 there's other people in my office who have a link and may
7 I believe I did some life insurance companies, 7 or may not log in to listen at some point. But they're
8 several of them that I worked for the plaintiffs in a 8 not making appearances, but they're just going to listen.
9 class action suit for. 9 So I don't know.
10 Q. Were those securities, though, or was that like 10 But it sounds like nobody's -- nobody's there at
11 more of a consumer contract type of case? 11 the moment.
12 A. I don't recall. It's -- I did -- I wouldn't 12 All right. Let's go forward.
13 have known the distinction. I assume that the one with 13 Q. So you read the Complaint in this action,
14 the German telecom was a securities one. And there were 14 Professor Grenadier; is that right?
15 others. You know, when I first started as an expert, I 15 A. I did.
16 think I predominantly worked for plaintiffs. 16 Q. All right. And what do you understand the
17 Q. And why did you stop? They weren't paying you 17 allegations of misconduct are against Robinhood and its
18 enough? 18 subsidiaries?
19 A. It was all the -- I charge the same. I enjoyed 19 A. So I'm -- I'm looking at the first exhibit that
20 working with those attorneys, too. But I started getting 20 you shared with me, my original report, and it's
21 asked more often by defense sides. Of course, from my 21 paragraph 7 where it starts. Let me go to paragraph 11,
22 standpoint, a lot -- some of my cases, they're not class 22 please.
23 action, and I can't really distinguish is one a 23 And I say -- this is, of course, my
24 traditional -- you know, they're banks on both sides. So 24 understanding -- "Plaintiffs allege that the share prices
25 I don't see the normal distinction that others may see. 25 of the affected stocks" -- that's nine stocks that are
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1 named -- plummeted because of Robinhood's unexplained 1 it might have been something like six or so individuals.
2 decision to prohibit all share purchases." 2 Q. And what function did they perform in your
3 And so my understanding is in paragraph 11 -- 3 report for you?
4 and it does show up in more detail below, but it's my 4 A. Sure.
5 understanding that there are these restrictions on 5 So this would be no different than my other
6 purchases during this class week, and in 2021, that 6 cases. It's a matter of -- so one of the -- one of the
7 plaintiffs allege caused the prices of these stocks to 7 things that they did for me in this case, which is very
8 fall during that week. 8 typical, is in terms of under my instruction, doing
9 Q. And did you -- you're aware that the Securities 9 things with data. I know that's very generic. But for
10 and Exchange Commission issued a report about the what 10 example, collecting data. For example, in this case,
11 they called the meme stock market events, something like 11 running regressions, as I describe how to do that.
12 that; right? Are you aware of that SEC report? 12 Doing -- basically acting as a professor would call a
13 MR. RYAN: I apologize. Objection to form. It 13 research assistant. And so helping me draft my report,
14 was an SEC staff report. 14 which means commenting on my draft, me commenting on
15 THE WITNESS: So I cite a report from the SEC 15 their updates, proofreading, that kind of stuff.
16 talking about this matter, which had explicit emphasis 16 So it's generally like one would consider a
17 on -- yeah. So I do mention that in my report, and I am 17 research assistant, but not for an academic paper, but
18 familiar with that report. 18 for a report of this kind.
19 Q. BY MR. ROSEN: Yes. It's titled "Staff Report 19 Q. And approximately how many hours have you spent
20 on Equity and Options Market Structure Conditions in 20 so far working on these two reports or this Robinhood
21 Early 2021." 21 matter in total, you personally?
22 A. Correct. 22 A. Yes.
23 Q. All right. Okay. 23 So I never -- you asked approximately, which
24 So you read that report? 24 makes it very fair because I never really know. But I
25 A. I have. 25 think between the two, I think something like 150, maybe
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1 Q. And in issuing your two expert reports in this 1 200 hours between all this, and I'm maybe including also
2 matter, did you assume the truth of the findings in the 2 prep.
3 SEC report? 3 Q. And do you know how many hours the research
4 MR. RYAN: Objection to form. 4 staff at Cornerstone who assisted you spent to date?
5 THE WITNESS: I have not thought about it that 5 A. I don't.
6 way. If you're -- you're welcome to ask me specific 6 Q. What is your definition of a meme stock?
7 questions. There are so many things mentioned in that 7 A. It's obviously a term of art, and it really
8 report. I certainly did not assume all of them as facts 8 shows up in this case. It's not something that's
9 in the sense a lot of the report -- my view of reading it 9 generic. And it's a general mention of the stocks that
10 was it was some things reporting, some things 10 are named in this case. GameStop is obviously -- I would
11 hypothesizing about. I didn't view it as a normal like 11 view as the quintessential one. But it's stocks that had
12 statement of facts. So I've never thought of it in the 12 lots of social media discussion during this time.
13 way you're characterizing it. 13 Q. During this time?
14 Q. BY MR. ROSEN: Now did anyone at Cornerstone 14 A. Yeah, during the time of this case. So, for
15 Research participate in preparing either of your reports? 15 example, you know, January 2021 would be sort of a big
16 A. Yes. Cornerstone, which obviously is a group of 16 period.
17 individuals, assisted me in the preparation of my 17 Q. Okay. Is there a joke element to meme stocks?
18 reports. 18 A. I'm not aware of that.
19 Q. And do you know about how many people over there 19 Q. Okay. Have you ever purchased equity
20 helped? 20 securities?
21 A. So I never know exactly because there's people 21 A. I have.
22 that move in and out, and also, there's always people 22 Q. Do you have one or more investment strategies
23 behind the scenes, generally more junior people. So I 23 that you've implemented in the past in purchasing equity
24 don't know. 24 securities?
25 But I would guess in terms of regular contact, 25 A. Investment strategy broadly defined, yes.
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1 Q. And what type of investment strategies have you 1 In a metaphysical sense, maybe there is one that's known
2 used in the past? 2 to some sort of deity, but in general, all we can do is
3 A. So I am basically an index person. So I have a 3 estimate it.
4 very well-diversified portfolio, and I mean diversified 4 So I've never thought that there is a
5 across countries, asset classes, all that kind of stuff. 5 fundamental value that I can grab onto, but we try very
6 So I'm very much -- very diversified. I would say I -- 6 hard to estimate it.
7 my only -- only idiosyncratic nature is I'm probably 7 Q. You've done damages analyses in securities class
8 less risk -- more risk averse than the average person so 8 actions before; is that right?
9 I generally keep a higher component of my money in low 9 A. Yes.
10 risk fixed income than -- than most people do. 10 Q. All right. Now have you ever used the term
11 Q. Like corporate fixed income or government fixed 11 "true value" in connection with a securities class action
12 income? 12 damages analysis?
13 A. Generally government fixed income. So of that, 13 A. I don't know. It's possible. It's not the type
14 of course, is for tax reasons, I hold a lot of California 14 of term that falls right out of my lips. So it's
15 municipal bonds, but I also own a lot of relatively 15 possible. It's not the normal term I use, but it is
16 short-term treasury bonds. 16 possible I've used that in some report.
17 Q. Do you -- do you ever trade on momentum? 17 Q. Okay. So, you know, in the typical Section
18 A. I do not. 18 10(b) securities class actions, you know, stock drop
19 Q. Do you ever make short-term trades in equities? 19 case, how would you measure per-share damages? What's
20 A. I never have. 20 the simple calculation you would typically use to
21 Q. What is the fundamental value of a stock? 21 measure?
22 A. So generally, so that's -- that's not a -- that 22 A. So generally in most of these cases, there's
23 term can be defined different ways by different people. 23 something I would call conceptual, which is the
24 Let me try to give you my best understanding of a sort of 24 difference between an actual value at a time, you know,
25 umbrella meaning to that. 25 in the real world, versus a but-for value, which is a
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1 Fundamental value of a stock is the present 1 value -- I'm not using it in a legal sense, but sort of a
2 value of all future cash flows that you will receive by 2 logical economic sense, the value that you imagine would
3 holding stock. 3 have been in place at that time had the circumstances
4 Now that might sound sort of definitional, but 4 been different.
5 it's actually a very important concept. We hold 5 So a classic example would be there's a
6 stocks -- they're not like widgets. We hold stocks for a 6 statement at a point in time, earnings equals ten, in the
7 particular reason, and that's because we want earnings 7 but-for world is what if the market thought earnings was
8 from them. We want cash flows from them. 8 eight. And you would try to figure out what the but-for
9 And so given that basic idea, anything that 9 price would be had earnings been announced as eight. And
10 determines those underlying cash flows is what we would 10 it would be the difference of those two at a point in
11 consider a fundamental value. So, for example, type of 11 time.
12 things that influence those future earnings would be 12 Q. So in trying to do the damages analysis, you're
13 expectation -- excuse me, cash flows, would be 13 not trying to find out what the true value is absent the
14 expectations of things like revenues, profits, 14 fraudulent statement, but it's you're trying to get the
15 competition, and of course, underlying riskiness. 15 but-for value, but for the fraudulent -- allegedly
16 So it's these company-specific characteristics 16 fraudulent statement of value?
17 that would drive a fundamental value as opposed to 17 A. So let me answer that again with the caveat I'm
18 non-fundamental things such as frenzies and bubbles and 18 not quite sure -- excuse me -- what "true value" may
19 madness of crowds, that kind of stuff. 19 mean, but I am trying -- I would be trying to figure out
20 Q. Is there -- do you know how to derive the 20 in that but-for world what the stock price would have
21 fundamental value of a stock? 21 been had circumstances been different.
22 A. Unfortunately, there is no one fundamental value 22 So it sounds similar to true value. I just
23 of a stock. We try our best to get a good estimate of 23 wouldn't normally use that term. You're trying to figure
24 it, but it's -- it's a -- something we try to approach. 24 out, as best you can as an economist, what the stock
25 But I don't believe there is a known fundamental value. 25 price would have been had, in my hypothetical, earnings
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1 been announced at $8 versus $10. You were trying to 1 chalkboard of a price path of a stock, I could find
2 figure out as best you can what the stock would have 2 analysts that see all different -- technical analysts
3 traded for in that but-for world. 3 that see all sort of things. But in general, technical
4 Q. And is it -- is it necessarily true there the 4 analysis is focused on trends and pattern spotting.
5 but-for value is equal to its fundamental value? 5 Q. And are there -- are there investment funds that
6 MR. RYAN: Objection to form. 6 use technical analysis as an investment strategy?
7 THE WITNESS: So, again, I don't normally think 7 A. I'm sure there are.
8 of the fundamental value there. I don't know. I would 8 Q. What about high-frequency trading? Could --
9 normally think of it -- I think the best way I convey it 9 what exactly is this?
10 is the but-for price would have been an economist's best 10 A. Sure.
11 estimate of what the price would have been in the actual 11 It -- a lot of high-frequency trading would fit
12 world had the circumstance -- circumstances had been what 12 into technical analysis. So high-frequency trading, very
13 is described in the but-for world, what the price would 13 generally, is doing some sort of pattern recognition, but
14 have been in that world. 14 as the name implies, over very short frequencies,
15 Q. BY MR. ROSEN: Do you have any sense of what 15 sometimes fractions of a second.
16 portion of the volume of trading on the NYSE and NASDAQ 16 And generally nowadays, they're computer driven,
17 that is represented by investors who buy primarily based 17 and the competition in that world has gotten down to who
18 on their view of the fundamental value? 18 has the fastest connection to the trading platform. And
19 A. I don't know the answer to that question. 19 so they compete over large amounts of investments in some
20 Q. Okay. So, well, you know, is it true that 20 sort of wire or wireless technology to trade as fast as
21 there's a quite a lot of people or there are many people 21 possible, seeking profits from very short-term trading
22 who -- who are considered -- who consider themselves 22 patterns.
23 value investors or value investing is sort of a strategy, 23 Q. Now I've heard the term "program trading" in the
24 an investment strategy that people use, some people use. 24 past. Is that -- is that a broader -- is -- is
25 Is that fair? 25 high-frequency trading a subset of program trading?
Page 27 Page 29
1 A. It is fair. But I would add that what one 1 A. I would say so because they're both often --
2 person called a value investor is very different than 2 obviously for high frequency, they're computer generated,
3 others. I -- I teach a class that's primarily on value 3 there's not an individual that's thinking in split
4 investing. And even people who are real-world value 4 seconds. They're both computer driven.
5 investors, they have very different views of what value 5 But there's a large body of trading that's
6 investing is. It's sort of a constant shock to me. 6 program trading that's very different. So an example
7 But value investing as a term is used all the 7 might be a strategy that uses a computer to formulate
8 time among certain kinds of investors. 8 hedges.
9 Q. Have you ever heard of the investment strategy 9 So an institution might use computer trading
10 called technical analysis? 10 that would invest in an equity that the computer figured
11 A. I have. 11 out how to get an insurance like put option on it at the
12 Q. And what do you understand that to be? 12 same time to get rid of some of downside.
13 A. So, again, with the caveat that that's a very 13 And that's not necessarily the same thing as
14 broad term, technical analysis is -- technical analysis 14 high-frequency trading.
15 is generally used by investors who focus more on what I 15 Q. And earlier the term "momentum trading," I don't
16 would call trends and timing issues. 16 know if I mentioned it or you mentioned it. Could you
17 So an example of a technical analysis put to 17 explain what "momentum trading" is?
18 work would be somebody who believes in what you asked me 18 A. Sure.
19 earlier about momentum. They may believe over certain 19 Let's just be generic for the moment and just
20 time horizons stocks that went up are more likely to go 20 say there is a horizon, which could be a week or a month
21 up again. 21 or a day. And momentum generally believes that what we
22 There are also technical analysts who do the 22 call there is positive auto-correlation. That is a rise
23 exact opposite, and they try to find stocks that moved up 23 in a security's price over a particular period of time is
24 recently, and they think they're going to go back down. 24 more highly to be followed by a subsequent rise.
25 So for any sort of drawing I could do on a 25 So that's a particular pattern, and momentum
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1 traders sometimes believe there are such patterns over 1 Q. What about the investment strategy called
2 these split seconds that we previously spoke about. But 2 "events-driven investing"? Have you heard that term?
3 they also believe that it may also be true over longer 3 A. I believe so.
4 periods like weeks or months. 4 Q. And that's, for example, mergers or investing
5 I am not aware of a momentum trader that 5 when a merger is announced? Is that an example of
6 believes they last for many years. In fact, generally 6 events?
7 people believe the opposite over longer periods of time. 7 A. That would be my understanding. There's a hedge
8 Q. What about the investment strategy called trend 8 fund strategy that they will call events driven, and
9 following? Is that separate from momentum trading? 9 sometimes it's things that are even broader in a macro
10 A. I would put -- so that's not a term that I use. 10 context. Like I think of a George Soros as doing this
11 I would view trend following as a -- as an analogous term 11 kind of thing. About sort of like large events dealing
12 for technical analysis. 12 with monetary policy and things like that. So I'm
13 Q. Okay. So what about "swing trading"? Do you 13 familiar with events, not just corporate events, but also
14 know what "swing trading" is? 14 macro events, too.
15 A. I don't. 15 Q. Now we -- your -- your -- your report mentions,
16 Q. How about the investment strategy called "moving 16 it uses the term "short squeeze," and you understand what
17 average crossover"? 17 that -- you have a general idea of what a short squeeze
18 A. I know what a moving average is. That's sort of 18 is supposed to be; right?
19 a -- you know, if you have a list of data, you can 19 A. I think that you put it correctly. I have a
20 calculate an average, and then every day that data shifts 20 general idea. It's a bit of a term of art. As I think I
21 forward another day, and you can calculate another 21 convey in my report, the definitions vary, but we all
22 average. And you can track those averages over time. 22 agree on some basic principles of a short squeeze.
23 That's all -- I know what a moving average is. 23 Q. Do you -- do you think it would be fair to
24 The strategy you're talking about conveys that it uses 24 characterize investing because you believe there is a
25 the moving average, which sounds like technical analysis, 25 short squeeze to be a form of event-driven investing?
Page 31 Page 33
1 but I do not know that particular strategy you mentioned. 1 A. I -- I don't really have a good answer to that
2 Q. Okay. And you mentioned index investing. 2 because I don't use the phrase "event-driven investing."
3 That's another separate strategy; is that correct? 3 I don't disagree with it. It's just -- it's not a phrase
4 A. I would say so. In my view, yes, it is. 4 I would normally use so I'm not sure how to answer that
5 Q. And what about growth investing? Is that 5 one.
6 separate from value investing? 6 Q. Is that because the term "event driven" is so --
7 A. It is. With the same caveat. Some people say 7 is very vague?
8 growth investing sounds just like someone else's value. 8 A. I wouldn't even go that far. I would just
9 But in general, growth investing is what it sounds like. 9 simply say event-driven investing isn't the kind of term
10 You're trying to find stocks that are going to grow 10 I normally do. So I don't really want to venture out and
11 faster than others in the future. 11 offer an opinion on a phrase that I normally don't do.
12 Q. What about socially responsible investing; is 12 Part of it's vagueness, but it's vagueness in my
13 that a separate investment strategy? 13 own mind. It's possible there are traders on Wall Street
14 A. So I would mostly say yes. I'm not 100 percent 14 who would say, "I know exactly what you mean by that."
15 sure I would call it wholly an investment strategy. It 15 But "event driven" to me is a very broad term. So I'm
16 could also be a more broad strategy of what people view 16 not really sure how I would convey that.
17 as something that's good for society as opposed to what's 17 Q. What about "contrarian investing"? Is that a
18 good for their portfolio. They get enmeshed. 18 type of investment strategy that people use?
19 But social investment strategy is a strategy 19 A. Yes, it is.
20 where investors take into account things other than 20 Q. And how does that work?
21 financial values, and you can come up with your own list 21 A. So --
22 of what they're looking at, but it could be whatever they 22 Q. Or not work?
23 think is good for society, they may take that as an 23 A. Sure.
24 attribute and something that makes them want to invest 24 As a general principle, a contrarian does what
25 more in it. 25 it sounds like. They try to make investments that are
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1 currently out of favor with the idea that they think that 1 A. Then that's an almost impossible question to
2 things will turn around. 2 answer. Because if you can't rely on the price as the
3 So I would view a contrarian strategy as being 3 best estimate of value, in an efficient market, we're
4 somewhat the opposite as a momentum trader. 4 left to individual calculations. So I don't know what
5 Q. All right. So there are nine stocks that are 5 more I can say is investors would have to use other
6 the subject of this litigation that are listed in the 6 resources to value them, not necessarily silly resources,
7 Complaint. I'll name a couple of them. AMC, GameStop, 7 but sometimes very sophisticated resources to value them.
8 Koss, Bed Bath & Beyond, Blackberry, et cetera. 8 In some grand scheme of things, the people with the best
9 You're familiar with those nine stocks; right? 9 information and the best methods would probably come up
10 A. I am. 10 with the best estimate of -- of, you know, true value or
11 Q. I'll just -- I'll just use the term "nine 11 whatever you want to call it of a security, but there's
12 affected stocks" or the nine stocks if that is -- and if 12 no one thing that we would all rely on.
13 you don't understand my use of the term, let me know, but 13 Q. And you didn't perform any tests to try to
14 I'll -- rather than list all nine. 14 estimate the value of any of these nine affected stocks
15 So do you -- is it your opinion that those nine 15 either in the pre-class period or the class period?
16 stocks were overvalued as of close of trading on 16 A. Let me make sure I understand your question.
17 January 27, 2021? 17 So in terms of did I do any tests to try to
18 A. So that is not part of my opinion. It's 18 value? Can you -- can you give me an example of what you
19 related -- the question is obviously related to my 19 might mean?
20 opinion that as of that period of time, I don't believe 20 Q. Well, I don't know. Did you do a discounted
21 they traded in efficient markets. That's my opinion. 21 cash flow analysis of any of the nine stocks?
22 Now whether they were above or below some sort 22 A. I did not.
23 of value, I didn't form an opinion on that. I -- my 23 Q. Did you perform any other analyses in an effort
24 opinion was whatever their value was, it wasn't tethered 24 to try to determine what their fundamental value was at
25 to value-relevant information. 25 any time during the pre-class or class period?
Page 35 Page 37
1 THE REPORTER: Excuse me. Nicholas Lin is 1 A. I did not. My focus was on the prices
2 asking to join the deposition. 2 themselves, or more importantly, the movements of the
3 MR. RYAN: Yes, he is with Robinhood. He's an 3 prices themselves of the -- I think you call the affected
4 inhouse lawyer at Robinhood. 4 stocks, and what was the value relevant information that
5 (Nicholas Lin enters deposition room.) 5 was conveyed at those times. That, of course, was the
6 THE REPORTER: Thank you. 6 substance of my report.
7 MR. RYAN: Thank you. 7 Q. Can you -- do you recall what the specific
8 THE REPORTER: You can continue, Counsel. 8 restrictions were that Robinhood imposed on these nine
9 Q. BY MR. ROSEN: Professor Grenadier, would you 9 stocks on January 28th, 2021?
10 agree that price is typically the best estimate of value 10 A. So I'm happy to answer that with a general
11 for publicly traded stock? 11 conveyance of that information. Of course, there was a
12 A. I'm sorry, I actually didn't hear the -- I 12 table with my specific understanding about literally
13 didn't quite hear the end of your sentence. I don't hear 13 which stocks, which time of day.
14 everything crystal clear. I hear everything pretty 14 But my understanding is they changed over time,
15 darned good, but I didn't get that one. 15 but there are these so-called PCO restrictions from
16 MR. ROSEN: Let me close my window because it 16 Robinhood.
17 could be noise from the outside. 17 Quick question: My understanding is you said
18 Q. Would you agree that typically price is the best 18 Robinhood restrictions; is that correct, in your
19 estimate of value for publicly traded stocks? 19 question?
20 A. So in the context -- if I believe for these 20 Q. Yeah, yeah. I was just asking about Robinhood.
21 stocks, they are traded in an efficient market, which is 21 A. That was my recollection, but before I went on
22 often the case, then yes, I would agree with you. 22 and on, I wanted to make sure.
23 Q. Okay. And for stocks that are not traded in an 23 Yes. And those restrictions are essentially
24 efficient market, what is the best estimate of value if 24 sell only, no buy. And then over time, they changed.
25 not price? 25 But in general they weakened to things such as limits on
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1 how much you could buy rather than zero. And they moved 1 principles of finance and economics and belief in
2 over time. 2 investors' profit motive to arbitrage away simple
3 Q. And there were also some restrictions on -- I 3 profits.
4 think, on options or did they not have -- or they can -- 4 Q. So it's a theoretical opinion?
5 they cancelled purchase orders of stocks; right? 5 MR. RYAN: Objection to form.
6 MR. RYAN: Objection to form. 6 Q. BY MR. ROSEN: It's an opinion based on theory
7 Q. BY MR. ROSEN: Also? 7 rather than empirical evidence?
8 A. I don't recall that. It's possible I read that. 8 A. So I would argue no. There is ample empirical
9 I was focused mostly upon the restrictions on purchases 9 evidence of those principles I just said, and that is
10 of equities. So whether it was zero or some small 10 clear and obvious public kinds of arbitrage opportunities
11 positive number. Also, my understanding is there were 11 don't last for long. We would all -- if it was obvious
12 some margin requirements that were changing, too. 12 that somebody could say, I am going to institute
13 Q. And do you know -- could you tell me why 13 something that impacts a small segment of retail
14 Robinhood submitted those restrictions, the purchase 14 investors," and hypothetically assume for a moment's time
15 restrictions? 15 that impacted the price, say it lowered price, that is
16 A. Did you say why Robinhood like used those 16 low-hanging fruit. And investors would see that, and it
17 purchase restrictions; is that your question? 17 would not last very long at all. They would rush to
18 Q. Yeah, why they implemented those restrictions. 18 arbitrage that and purchase it if it was at too low a
19 A. Sure. 19 price.
20 So my understanding is that Robinhood did this 20 And there's -- just to finish up. Sorry.
21 because of regulatory requirements about sort of their 21 There's a lot of empirical evidence that such arbitrage
22 own margin that they had put down on these stocks which 22 opportunities, to the extent they ever exist, are much --
23 had high VARs. And so they were very expensive for 23 are very fleeting.
24 Robinhood the post these amounts, and these were the 24 Q. So is it your opinion that the restrictions
25 stocks -- generally the ones that are at issue in this 25 imposed by Robinhood had no impact on the price of the
Page 39 Page 41
1 case are ones with the very highest VARs. 1 nine affected stocks in any way?
2 Q. Now there were also some restrictions on options 2 A. I don't have -- I don't have that opinion either
3 trading. Now I know interactive brokers, for example, 3 way. There is -- I don't form an opinion in my reports
4 had some restrictions in options trading on the 28th; is 4 about causation. I have an opinion that I talk about
5 that right? 5 that there is not an efficient market in these nine
6 A. I don't remember. 6 at-issue securities during the period of time that I
7 Q. Uh-huh. Do you have any opinion as to whether 7 analyzed, which is one week prior to the class period and
8 restrictions on options trading would affect the prices 8 the class period itself.
9 of the nine stocks? 9 I also related to your question do say -- and
10 A. I -- I can't answer that. I have not been -- I 10 I'll be slightly repetitive because I said this a moment
11 have not looked into that in this case. It's a fair 11 ago -- that if we believe that the stocks traded in an
12 question, but it's not something that I was asked to look 12 efficient market during the class period, then it is
13 at so I really can't answer that question. 13 fundamentally inconsistent with that assumption to
14 Q. Now the Complaint also alleges that Robinhood 14 believe that a restriction on a subset of retail
15 cancelled buy orders that it already had placed. 15 investors would cause the price to change.
16 Do you have any opinion as to whether 16 So that's my opinion, but I don't vary from that
17 cancellation of buy orders already placed would affect 17 and assume what could happen in an inefficient market and
18 the value of stock, the nine stocks? 18 what caused the price to decline. I -- I was not asked
19 A. So I do to the extent that what I say in my 19 to do that in these reports.
20 report is in terms of the sort of behavior, that in an 20 Q. Okay. Have you ever heard the term, quote,
21 efficient market, restrictions on a subset of retail 21 assumption of reliance on an efficient market free of
22 investors should not impact the stock price. 22 manipulation, unquote?
23 Q. Do you have any empirical evidence to back up 23 A. I believe I have, yes.
24 that opinion? 24 Q. It's -- it's in the Court's opinion as an
25 A. I would say I would base this on fundamental 25 element of one of the plaintiff's claims that is the
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1 10(b) claim? 1 And also, "manipulation" has both, too. So I'm not going
2 A. I -- that's my recollection. It may even show 2 to be an expert of defining what act would constitute
3 up in one of by reports, probably as a quote or 3 legal manipulation. So with those caveats, let me do my
4 reflection of that. 4 best to answer your question.
5 Q. And what is your understanding of what that 5 So an efficient market has an -- obviously a
6 means, that term? 6 strong meaning in economics. So the assumption of an
7 A. Can you assist me by isolating that term again 7 efficient markets and reliance -- I'm going to just --
8 for me? 8 for purpose of my answer, I'm going to talk about
9 Q. Assumption of reliance on an efficient market 9 reliance not as my understanding as a legal term. So
10 free of manipulation. I can show you the Court opinion 10 reliance will be sort of something that you believe to be
11 if it helps. 11 true as an individual or class of individuals.
12 A. Sure. I might even be able to find it in my 12 So in the assumption of an efficient market. So
13 report. 13 in my report I define what economists define as an
14 Q. It's page 38 of the Court opinion. 14 efficient market. But broadly speaking, an efficient
15 A. Is that something you're sharing with me. 15 market is where prices of securities react quickly and
16 MR. ROSEN: I could. Hang on a second. Give me 16 fully to new value-relevant information.
17 one second. I don't think I've introduced it before so 17 And then the last part of this phrase is "free
18 it will be Exhibit 177. 18 of manipulation." So generally speaking, in sort of an
19 (Exhibit 177, Court Order, was marked for 19 economist meaning, I would view a manipulation as
20 identification by counsel electronically.) 20 something that would make a market that is efficient not
21 Q. BY MR. ROSEN: Okay. So if you go -- you should 21 efficient.
22 be able to see it now. It's in Exhibit Share. 22 So it would mean that if a market had
23 A. I do. 23 manipulation that was effective in impacting the stock
24 Q. Go to page 38. 38, second paragraph. The 24 prices, then that price would no longer be under the
25 Court's -- the elements of a market manipulation claim in 25 definition of an efficient market that I just defined.
Page 43 Page 45
1 element number 3. 1 Q. Are you offering any opinion in this case as to
2 A. Sorry, I was absorbed with downloading it. So 2 whether plaintiffs' class are entitled to an assumption
3 can you give me the -- where -- 3 of reliance on an efficient market free of manipulation?
4 Q. It's page 38. 4 MR. RYAN: Objection to form.
5 A. Okay. 5 THE WITNESS: So that is not part of my report.
6 Q. Second paragraph in three. 6 My report focuses, among some other things, on whether as
7 A. Is that the paragraph that begins with "to 7 an economist I believe that these nine affected stocks
8 assert"? Yes. 8 traded in an efficient market during the week prior to
9 Q. Yes. It's item number 3. 9 the class period and the week of the class period.
10 A. Like I said, I was absorbed downloading it so 10 So it was I viewed my role and my opinion as
11 that's why I missed that. Give me one second to just 11 focusing on whether I believed those stocks in reality
12 sort of review that. 12 traded in an efficient market or not. And it's my
13 Q. No problem. 13 opinion that they did not during that time period.
14 A. Okay. And just to be clear -- I'm sorry -- 14 Q. BY MR. ROSEN: All right. Now you've heard the
15 "caused by reliance on an assumption of an efficient 15 term "reliance on the integrity of the market price in a
16 market free of manipulation." That's the phrase at issue 16 efficient market"?
17 in your question? 17 A. I have seen that before.
18 Q. Yes. 18 Q. That's part of the -- well, in my -- my view,
19 A. Okay. 19 it's part of the -- part of the market presumption of
20 Q. And what do you understand that to mean? 20 reliance in the securities class actions -- in the
21 A. Sure. 21 typical security class action misrepresentation case;
22 So obviously, I'm going to be careful about 22 right?
23 legal terms. I'll do my best as an economist. As a 23 So do you -- in your -- in your view, what does
24 common phraseology meaning, it also has a legal term. So 24 it mean for an investor to make their investment
25 I'm not going to be an expert on what "reliance" means. 25 decisions by relying on the integrity of the market price
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1 in an efficient market? 1 So I don't want to -- I don't want to offer
2 MR. RYAN: Objection to form. 2 opinions that are outside my field of expertise, which is
3 THE WITNESS: So I'm going to answer that as I 3 financial economics.
4 always say as an economist, because I do understand some 4 Q. BY MR. ROSEN: All right. So in your rebuttal
5 of that phrase, in particular, reliance involves a legal 5 report -- see if I can find it. It's paragraph 28.
6 concept, and I don't think anyone's interested in 6 A. Approximately what page?
7 Professor Grenadier's legal concept understanding. 7 Q. It would be page 11 of the PDF, page 9 of the
8 When I -- I am certainly well aware of cases 8 report itself on the lower right.
9 where there's fraud on the market, legal construct behind 9 A. Perfect.
10 it. And my role in those cases, just like in this case, 10 Q. Paragraph 28. This is the March 28th rebuttal
11 is to come up with an economist's opinion about whether 11 report you issued.
12 or not the market was efficient or not during a 12 A. Okay. Is that the paragraph that begins with
13 particular time period. 13 the word "furthermore"?
14 So just to be clear in my answer to your 14 Q. Yes.
15 question, all that I am offering here in my reports is my 15 A. Okay.
16 opinion about whether or not I believe these nine stocks 16 Q. So there's a sentence in there that says,
17 traded in an efficient market during those time periods. 17 "Therefore, during the proposed class period to the
18 That's my contribution to it. 18 extent that putative class members were aware of
19 Then my understanding is the trier of fact can 19 Robinhood's restrictions and what plaintiffs allege were
20 use that to formulate her opinion. But it's I don't go 20 'artificially distorted' prices, they would have
21 beyond that and make any legal ramifications on that. 21 transacted based on their own individual information or
22 I'm simply acting as an economist to give my opinion, in 22 preferences without trusting the integrity of the market
23 this case, that these nine stocks did not trade in 23 prices."
24 efficient markets during that two-week period. 24 A. Yes.
25 Q. BY MR. ROSEN: Now do you understand there to be 25 Q. So I'm going to ask you some questions about
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1 a difference between an assumption of reliance on an 1 that sentence.
2 efficient market free of manipulation -- 2 What do you mean when you say "they would have
3 THE REPORTER: Excuse me. Can you repeat, 3 transacted based on their own individual information or
4 Counsel? You cut out there at the end. 4 preferences? What does it mean to have -- to be
5 Q. BY MR. ROSEN: -- as the Court wrote in page 38 5 transacting based on one's own individual information or
6 of his opinion and the term "a reliance on the integrity 6 preferences?
7 of the market price in an efficient market"? 7 A. Sure. I will most certainly answer that.
8 MR. RYAN: Objection. Calls for a legal 8 I'm just going to read that. While you were
9 conclusion. 9 talking, I did not read the sentence. I'm just going to
10 THE WITNESS: Are you -- are you quoting from 10 read that now.
11 page 38, Mr. Rosen? 11 Q. Go ahead.
12 MR. ROSEN: The first one, I was quoting from 12 A. And if for some reason I forget, just prod me to
13 page 38, you know. Well, we can go back to it, if I can 13 answer your actual question.
14 find it here. "Reliance on an assumption of an efficient 14 Okay. So to answer that, it's important to read
15 market free of manipulation." 15 earlier on in 28. Because I am saying that if we suppose
16 THE WITNESS: Yes, that's still on my screen. 16 something, then the markets would be inefficient.
17 Q. BY MR. ROSEN: All right. So you don't have an 17 So in context to your question, I am now
18 opinion or an understanding one way whether it's the same 18 assuming that the markets were not efficient during this
19 or different from reliance on the integrity of the market 19 period. And when the markets are not efficient, then an
20 price? 20 earlier question you asked me, what is -- in an efficient
21 MR. RYAN: Same objection. 21 market, I said the best estimate of a stock price's value
22 THE WITNESS: Yeah. That sounds like a legal 22 is the stock price's value.
23 opinion. I don't. I'm an expert on what an efficient 23 In fact, the best estimate of a stock price's
24 market is, and that's my opinion. I am not an expert on 24 value one minute from now in an efficient market is
25 reliance and things like that. 25 essentially -- is a stock value.
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1 When we leave the assumption of an efficient 1 without efficiency, I need some model. And it could be
2 market, which is what I'm getting at in this paragraph 2 MPV, it could be momentum, it could be mean reversion. I
3 here, then as I said earlier, all bets are off. And in 3 don't know, but every investor is going to have to have
4 fact, what investors will make their beliefs -- will form 4 some sort of model, and that is vastly more complicated
5 their beliefs for what to do, whether to buy or sell or 5 than in a world where everybody would agree that the best
6 hold, it's going to be subject to their own personal 6 estimate of the value is today's stock price.
7 preferences and knowledge. 7 Q. Well, what about fear? What about investors'
8 And I know that sounds vague, but that's what 8 fear if they think there's an inefficient market or if
9 happens. If you can't take the current stock price as 9 there is an inefficient market and -- and they don't have
10 its best estimate of its value, then all bets are off, 10 a basis to value the stock all the sudden. Wouldn't that
11 and I don't know what you're going to do and you don't 11 fear enter into their analysis trading decision?
12 know what I'm going to do because we have different 12 MR. RYAN: Objection to form.
13 beliefs, we have different liquidity preference and the 13 THE WITNESS: So in your -- in your -- your
14 like. 14 question, were you assuming an inefficient market?
15 And basically what I'm saying here is if there 15 Q. BY MR. ROSEN: Yeah.
16 are not efficient markets, then investors will make their 16 A. So let me rephrase it to make sure I understand,
17 decisions like buying and selling and holding on 17 that you're asking me in inefficient market, would an
18 idiosyncratic rationale. 18 investor's degree of fear influence their trading?
19 Q. Well, don't they do that, anyway, even in an 19 Q. You said "inefficient market"?
20 efficient market? Why does it change -- why does their 20 A. Correct.
21 decision making change when the market becomes 21 Q. Yeah, yeah, that was my question.
22 inefficient? 22 A. Sure.
23 A. Sure. 23 So in an inefficient market, a investor's fear
24 The major issue is the -- while investors in an 24 certainly could influence their trading behavior. And
25 efficient market will make buy and sell decisions based 25 fear I would put into the general category of
Page 51 Page 53
1 on some idiosyncratic understandings, it's way more 1 preferences.
2 involved in an inefficient market. 2 Q. And could -- and let's say in an efficient
3 So what I mean is: In an efficient market, you 3 market, couldn't fear also play a role in their
4 may have liquidity preference and the like, but it's 4 preferences? How would it differ in an efficient market,
5 still going to be based on an understanding that the 5 in an efficient market?
6 current value is the true value. 6 A. Sure.
7 On the other hand, when markets are not 7 So preferences would influence an investor's
8 efficient, not only are you making decisions based on 8 behavior also in an efficient market, but that would be
9 liquidity and preferences, but you're making decisions 9 entirely separate from any concern the investor has over
10 based on what you think the value is divorced from what 10 the difference between the market price of the stock and
11 you're seeing in the stock market page. 11 what they think its value was.
12 It's way more involved and much more complicated 12 And so all of that kind of calculus becomes much
13 to figure out what an investor would do in an inefficient 13 more meaningful and complicated in an inefficient market.
14 market. Because they have nothing to base their 14 Because, for example, in your question, the amount of
15 valuation decisions on that's publicly available. What 15 fear you have is going to be a function of how much faith
16 they have to do as an investor is essentially do 16 you have on the market value being a fair value.
17 something that you asked me to do earlier: Did you value 17 If you don't have any faith in the market value
18 the stock? 18 being a fair value, your fear would be manifested much
19 And I said how? 19 more highly.
20 And you said maybe an MPV analysis or maybe I'm 20 Q. Okay. So let's -- in paragraph 28 in your
21 a momentum trader. I don't know, but that's the kind of 21 rebuttal report, there's another sentence that begins --
22 things investors would do. 22 I think it's the last sentence, that begins, "As a
23 Just to be very clear on this, without an 23 financial economist, I am not aware of a class-wide
24 efficient market, any decisions that I make that embodies 24 approach to determine which putative class members
25 a view of the value of the stock compared to its price, 25 believe that prices were efficient when transacting in
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1 the at-issue stocks and which believed the prices were 1 Trying to come up with a market value in a world
2 artificially distorted without asking each putative class 2 where some investors believe in efficient market and some
3 member individually." 3 investors don't believe in efficient market is quite a
4 What -- what is your definition of "artificially 4 complicated endeavor.
5 distorted"? 5 You would have to -- to come up with that
6 A. So I believe when I used that phrase I was 6 but-for stock price, look at the interactions of those
7 quoting from earlier in the paragraph. So in the -- so 7 subsets of investors, and in particular, for the subset
8 because remember here the premise here is an assumption, 8 that do not believe in efficient market, try to ascertain
9 not my opinion. In other words, what I'm saying is like 9 what they used to motivate their trading restrictions,
10 a "what if" or a hypothetical, as you might call it. 10 which would, of course, involve their estimate of what
11 If plaintiffs were able to show that the alleged 11 the value of the stock would be.
12 manipulation, these trading restrictions that you asked 12 MR. ROSEN: We've been going about an hour and a
13 me earlier about, resulted in artificially distorted 13 half. Do you guys want to take a break, a short break?
14 stock prices and inefficient markets. 14 MR. RYAN: Sure. Makes sense.
15 So what I mean by that, artificially distorted 15 MR. ROSEN: So you guys are all on Pacific time;
16 would be prices that deviated from their efficient market 16 is that right?
17 values. 17 THE REPORTER: Off the record, Counsel?
18 Q. Okay. Does somebody -- does a class member or 18 MR. ROSEN: Yeah, go off the record.
19 investor have to consciously believe that they're trading 19 (Recess.)
20 in an efficient market to be permitted to rely on the 20 Q. BY MR. ROSEN: So prior to the break, we were
21 integrity of the market price? 21 looking at paragraph 28, that last sentence of your
22 MR. RYAN: Objection. Calls for a legal 22 rebuttal report, and I want to focus on that a little bit
23 conclusion. 23 more, you know, particularly the clause that says, "I am
24 THE WITNESS: I don't know the answer to your 24 not aware of a class-wide approach to determine which
25 question. Because in particular, it uses the word 25 putative class members believe that prices were efficient
Page 55 Page 57
1 "reliance," and in my understanding, that's a legal term. 1 when transacting the at-issue stocks."
2 Q. BY MR. ROSEN: Well, that last sentence in 2 Is it your opinion, Professor Grenadier, that if
3 paragraph 28 says, "I'm not aware of a class-wide 3 somebody believed the prices were distorted by the
4 approach to determine which putative class members 4 restrictions, the purchase restrictions, that means
5 believed that prices were efficient when transacting the 5 they're not allowed -- that means that they knew the
6 at-issue stocks." 6 market was not efficient?
7 I'm just wondering why that's important to your 7 A. So was your question if somebody -- actually,
8 opinion or important enough to make that statement. 8 maybe it's more efficient if you just ask it again for
9 A. Sorry, I don't quite understand your question. 9 me, please. The last part of your question.
10 Q. Well, the sentence you wrote in that report 10 Q. Is it your opinion that if -- if an investor
11 says, "I am not aware of a class-wide approach to 11 during the class period believed that the prices were
12 determine which putative class members believed that 12 distorted because of the purchase restrictions on the
13 prices were efficient." 13 nine affected stocks, that means they knew the market for
14 Why is it important or even relevant that a 14 the stocks was not efficient at that time?
15 class member believe that prices were efficient? 15 A. So I want to distinguish between my
16 A. So it certainly could be important if we have a 16 determination of what's an efficient market and what
17 world where the markets are not efficient, and 17 might be in a investor's head. So I'm not contending
18 Dr. Werner, for example, is coming up with an approach to 18 that an individual investor literally uses the phrase
19 estimating but-for stock prices. 19 "efficient" versus "non-efficient."
20 So hypothetically, if he was trying to estimate 20 What I'm saying is if an investor believed that
21 what a stock price of GameStop would be in a world 21 there was an artificial distortion, meaning that the
22 without these trade restrictions, but with trade 22 price of the stock was not that which would be an
23 restrictions of E*TRADE, for example, he would have to 23 efficient market, where prices are tethered to
24 come up with the market value in such a world. We talked 24 value-relevant information, if that investor no longer
25 about that earlier. 25 believed that the market price was not the best estimate
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1 of its value, then they would be trading in a world where 1 news, doesn't go to social media, lives in his own little
2 it was not an efficient market. 2 world.
3 As an economist, I would say if an investor 3 Another retail investor is addicted to social
4 trades in a world that's not an efficient market, as I 4 media and the news and The Wall Street Journal and
5 said earlier, all bets are off. They will make their 5 financial media, and that investor believes the prices
6 decisions based on some belief of what value is versus 6 were distorted.
7 what price is. 7 And then the third investor also has equal
8 Q. Well, what about an investor that's engaged in 8 access to news media, looks at Reddit nonstop, looks at
9 program trading or high-frequency trading. Suppose that 9 The Wall Street Journal, all the financial news media,
10 investor has no -- I mean, these programs, I assume these 10 but that investor doesn't necessarily take a view as to
11 programs aren't reading the news, necessarily, and 11 whether the prices are distorted. Maybe that investor's
12 learning about Robinhood's restrictions. 12 just confused, unsure, doesn't really take a position.
13 I mean, would a stock sale that was implemented 13 So the first person who's completely ignorant of
14 because of a programmed trade, would such an investor be 14 anything other than what he looks at when he sees the
15 aware of distorted prices? 15 price, just sees that the price has changed, but doesn't
16 MR. RYAN: Objection to form. 16 know -- have any view as to why or how or what. When
17 THE WITNESS: So the nature of the kind of 17 that person transacts and sells, would that person
18 investments that I'm talking about in this case are very 18 presumably believe that the prices were efficient when
19 different than what you would think about with people who 19 transacting?
20 use computer programs to trade over tick-by-tick prices. 20 MR. RYAN: Objection to form.
21 So those are not even essentially statistically 21 Q. BY MR. ROSEN: Or would have no reason to
22 distinguishable. 22 believe otherwise, at least?
23 So, for example, the firms that trade intraday 23 A. So in a normal circumstance, it doesn't matter.
24 tick by tick are trying to make money on very small basic 24 What I mean is, in a normal circumstance, we mostly think
25 points. So that's -- it's not something that I'm even 25 of stock markets as efficient. And so in most markets
Page 59 Page 61
1 picking up in this. 1 that I believe are efficient, there are undoubtedly
2 So I understand the nature of your question, but 2 traders that do all sorts of things. But that doesn't
3 that's -- that's a very different world that these 3 impact the price. And the reason it doesn't is because
4 high-frequency traders are trading not on dollar 4 we have institutional investors and arbitrageurs --
5 differences but like penny differences. And I'm not -- 5 excuse me -- who ensure that the market price is tethered
6 that's like nothing I'm talking about in this case. I'm 6 to value-relevant information. And so the actions of
7 talking about, you know, meaningful differences in 7 individual traders that are a small section of the market
8 values. 8 generally don't matter.
9 So when stock prices move, for example, on costs 9 And so in an efficient market, I never believe
10 and they move up a thousand percent in a week, that's a 10 that every investor is this super-intelligent person that
11 world that's totally disconnected from what your question 11 just floats with the market. All sorts of investors
12 is talking about. 12 exist in the real world in efficient markets.
13 So I'm not really concerning myself with 13 What the point of my paragraph 28 in my opinion
14 microfractions of a dollar. I'm talking about what 14 is, in a world, which is what I believe is the case for
15 happens in a market that's no longer efficient in a 15 these two weeks for these nine stocks, the markets were
16 world, as in this case, where prices, for example, in the 16 no longer tethered to value-relevant information.
17 week prior to the class period, went up by GameStop by 17 That's a very special world. It's the normal
18 something like 700 percent. It's just orders of 18 one, but it's the one that I truly believe existed at
19 magnitude difference. 19 that time for this set of stocks. That's where it does
20 So my answer is I don't even think about that 20 matter.
21 tick-by-tick kind of trading. I'm talking about these 21 And the reason is because for those three
22 sort of 700 percent, thousand percent price rises. 22 investors that you talked about, I can imagine them
23 Q. BY MR. ROSEN: Well, okay. What about two 23 having different reactions to what happened after, for
24 retail investors. Three -- let's say there's three types 24 example, costs went up a thousand percent in a week.
25 of retail investors. One retail investor never reads the 25 One of them may decide that that's a trend and
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1 will buy; another may believe that it's overvalued and 1 literature, noise traders, information that causes them
2 would sell. That is because they no longer -- these 2 to trade is what we call sort of idiosyncratic, meaning
3 investors now matter because the arbitrageurs aren't 3 that it's not correlated across investors so that if you
4 making sure that the price is connected to value-relevant 4 and I were noise traders, you may have an unexpected
5 information. 5 shock that makes you want to buy a week ago, but that's
6 So your question is relevant to me only in the 6 not correlated with mine. Mine might have an unexpected
7 notion of a market that's inefficient. And my point is, 7 shock to sell two weeks from now.
8 basically from your question is that I would care about 8 But in both of our cases as noise traders, it's
9 the distinction between those three investors only in 9 something unrelated to fundamentals or things that drive
10 an -- in, I-N, an efficient market. 10 the earnings of stocks. So that's what a noise trader
11 Q. You've used the term "noise trader" in your 11 is.
12 report in paragraph 109 in your opening report. Could 12 Q. Well, what about somebody, an investor who goes
13 you define the term "noise trader"? 13 to the supermarket, and he buys some Naked juice, and he
14 A. Sure. 14 really likes the taste and says, "Wow, what a great
15 I'll just be quick. I'm just going to go to 15 product, I'm going to buy this stock," based on his
16 that paragraph, and then I have an answer for you. Can 16 belief that it's a nice product, that he likes the juice.
17 you tell me the page on the PDF for that? 17 Would that be a noise trader trade?
18 Q. Oh, wow. It may take me a second to figure it 18 A. I think -- so it depends, but I would say yes.
19 out. Paragraph 109. 19 And keep in mind this is, you know, similar to questions
20 A. I think I found it. So it looks like it says 20 you've asked me earlier, I don't doubt there are
21 56. My eyes are bad. But it looks like it. 54. 21 investors like this all over the place.
22 MR. RYAN: This is in your opening or your 22 The question is in an efficient market, this
23 rebuttal report, Steve? 23 doesn't matter. It doesn't affect the stock price. As
24 THE WITNESS: Opening. 24 you can imagine intuitively, that investor that you just
25 Q. BY MR. ROSEN: So that's paragraph -- it's page 25 mentioned is not going to dissuade Warren Buffet from
Page 63 Page 65
1 51 of your opening report; right? 1 taking advantage of a mispricing. But in this
2 A. 54. 2 literature, they combine noise traders with frictions.
3 MR. ROSEN: Yeah, 54 of the PDF. 3 So this literature is based on the type of
4 THE WITNESS: Yes. We're on the same wavelength 4 person that you had mentioned before, if there is enough
5 here. 5 of them, and there's frictions that prevent Warren Buffet
6 So I do remember -- your question was asking me 6 and arbitrageurs from being able to take advantage of
7 what a noise trader is? 7 arbitrage opportunities, then you have impacts on prices.
8 Q. BY MR. ROSEN: Yes. 8 So it's combination of significant noise trader
9 A. Sure. 9 activity with frictions. Frictions that I talk about in
10 So a noise trader, there is an academic 10 my report on lending fees and high short interest, those
11 literature that calls some investors noise traders. And 11 are the things in the literature that can impact prices.
12 I'm referring to that, not some sort of real-world 12 Q. Now are all retail investors noise traders?
13 connotation. And in this literature, a noise trader is 13 A. I don't believe so.
14 an investor who trades on what we would call -- makes 14 Q. Do you have any sense of what percentage of
15 decisions based on non-value-related information. 15 retail investors are noise traders?
16 So it's generally undefined, but it could be 16 A. I don't.
17 something idiosyncratic, like a need for liquidity. Like 17 Q. Are the investors who were on Reddit or Wall
18 they get divorced or they're fired or something like 18 Street Bets, B-E-T-S, Wall Street Bets, were they noise
19 that, that causes them to trade. 19 traders?
20 But in general, it's something that motivates a 20 A. So I haven't come to that opinion. My
21 noise trader to trade is not related to the value -- the 21 understanding is there are many individuals chatting
22 underlying value of the company. So that's what "noise 22 about these kinds of stocks, and they're all types, and
23 trader" is. 23 some may be what you consider a noise trader and some may
24 Generally, in that older literature -- so this 24 be considered what you wouldn't believe is a noise
25 is a 1990 paper, and most of that noise trader 25 trader.
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1 Q. Is it true that a noise trader is price 1 Q. Are they always right?
2 insensitive or insensitive to the price of the stock? 2 A. They are not.
3 A. I don't believe that's necessarily the case. 3 Q. Could two different arbitrageurs disagree
4 Q. Is it fair to say that the vast majority of 4 fundamentally on the value of a particular security?
5 Robinhood's customers are retail traders, small guys? 5 A. So, yes, that's true. The question is how
6 A. I'm sorry, you said Robinhood in your question. 6 obvious an arbitrage is. So if an arbitrage was very
7 Q. Yes. Yes. 7 subtle, then I think that would fit the nature of your
8 A. That's my understanding. 8 question. But if an arbitrage is a very obvious one, so
9 Q. Now you also discuss in your report 9 a classic example would be you have gold traded in
10 institutional investors. Could you give some examples of 10 New York and London, the same gold, and it trades at
11 institutional investors? 11 different prices. Subject to transaction costs, that's
12 A. Sure. 12 an obvious arbitrage, and they would not disagree on
13 Hedge funds, active mutual funds, passive mutual 13 that. That's the cleanest example.
14 funds, but I'm more thinking about active mutual funds. 14 As we go away from that, they become less
15 Some of the portfolio managers for pension funds and the 15 obvious arbitrages. So I would never use the argument of
16 like. Investors who are making active decisions with 16 this $100 versus $90, avoid it very quickly for the case
17 lots of resources and capital and well-informed traders 17 of a very subtle arbitrage. That's not my belief.
18 and the like. 18 But for very obvious arbitrages, where prices
19 So those would be examples. Generally, I'm 19 deviate from rational values for no obvious reason other
20 anything about hedge funds and professional investors. 20 than some sort of idiosyncratic event, those are obvious
21 Q. Are arbitrageurs also institutional investors? 21 arbitrages that don't last very long in an efficient
22 A. My understanding is yes, usually. 22 market.
23 Q. And are they a subset of institutional 23 Q. Can institutions be noise traders?
24 investors? 24 A. They can. Generally, there's a belief that
25 A. It's a term of art, but I would say yes. 25 noise traders don't last very long in some sort of
Page 67 Page 69
1 Q. And how would you describe their role as a 1 Darwinian sense in the investment world. It's a very
2 subset of the institutional investor base? 2 competitive world. And people can succeed or fail based
3 A. Sure. 3 on luck in the short run.
4 An arbitrageur is generally focused on 4 But there's a general belief that financial
5 deviations of values from values tethered to 5 markets are very competitive. And if you are trading
6 value-related information. So they're looking for price 6 based on whims and irrational thoughts, generally you're
7 deviations based on nonfundamental information. So I 7 not going to last in the long run.
8 mean, the classic example would be that if there was a 8 And that's what most people believe. It doesn't
9 general -- this is a hypothetical -- a general agreement 9 mean that you can't be successful in the short run. It's
10 that arbitrageurs believe that the stock price's value 10 just we don't think that's sustainable.
11 should be a hundred dollars. 11 Q. Do noise traders' actions or trades offset each
12 And then for some idiosyncratic reason, the 12 other in the market?
13 price falls to 90. And idiosyncratic meaning had nothing 13 A. So the noise traders that you're asking about,
14 to do with the underlying firms -- the underlying firm. 14 as I said, comes from an academic literature, and the
15 So they would see that $10 sitting there, and they would 15 answer is it depends on the model. So broadly speaking,
16 buy it up because they know it's going to go back to ten 16 that the earlier models of noise traders, like the 1990
17 at some point. 17 one that I cite in paragraph 109, those I would say could
18 So they're essentially looking around the 18 offset because they're uncorrelated. Depends on how many
19 market, scouring the market for pricing deviations that 19 there are and their fraction of the market.
20 are not based on rational value-relevant information. 20 There are more modern models, like a paper I
21 And they make their decisions based on that, either 21 cited from Lasse Pedersen from around 2022, where they
22 buying it or selling it to take advantage of that. 22 assume something more akin to what I would call
23 Now arbitrageurs don't necessarily always make 23 coordinated what I would call noise traders. So
24 the money that very instant, but they have confidence 24 investors who trade on sort of non-value-related
25 that in the fullness of time, they will make that money. 25 information. But en masse, together, sort of what the
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1 press and analysts thought was happening with the meme 1 the case at hand that these investors basing their trades
2 stocks. 2 on idiosyncratic information are now working together and
3 That would be non-offsetting noise trader 3 trading similarly. That can move prices much more than
4 behavior, which is a relatively new phenomenon that they 4 if it was idiosyncratic.
5 can coordinate this way through social media. So it's a 5 Q. Some of the literature -- and I don't know if
6 new area. In that case, the answer to your question 6 your report mentions this -- they use the term "stubborn
7 would be no. These kinds of noise traders may not offset 7 investors" in this context of noise traders.
8 it. They may reinforce each other. 8 And is it your opinion that stubborn investors
9 Q. Paragraph 110 uses the term "destabilizing 9 are irrational?
10 speculation of noise traders." 10 A. So that phrase does come out of, I believe, this
11 Is it your opinion that retail traders or noise 11 2022 paper from Lasse Pedersen. He was a student of mine
12 traders destabilize the market? 12 like 25 years ago.
13 A. So no, not necessarily. And to sort of re-say 13 So he uses that phrase. If you're asking me
14 something I said earlier is that in a normal functioning 14 about stubborn investors, that's a -- that's a
15 what I would call as an economist efficient market, noise 15 theoretical model there. Stubborn investors are ones who
16 traders don't matter. 16 have what we call priors. These are sort of initial
17 So as I said, you can name a stock, and I could 17 beliefs that only change those beliefs under lots of
18 analyze it and say, "As of today, I believe it trades in 18 pressure, lots of new information.
19 an efficient market." 19 Now in the real world, there are investors whose
20 And then you ask me, "Do you think there are 20 opinions are more difficult to change. I would never
21 people doing your scenario about Naked Juice?" 21 unilaterally call them rational or irrational. It really
22 And I'd say yes. 22 depends on the circumstances.
23 You'd say, "Are there people trading on looking 23 Q. So in paragraph 112, sums up, it says, "Academic
24 at moving averages?" 24 studies have documented that constraints on arbitrageurs
25 Yes. 25 imposed by 'noisy' retail traders can inhibit competitive
Page 71 Page 73
1 Does it matter? 1 trading activity among investors and lead to departures
2 No. 2 from market efficiency for a temporary period."
3 Because in a normal functioning efficient 3 Is it your opinion that that is what happened
4 market, if any of that affected the stock price, 4 here in the -- in this case for these nine stocks?
5 arbitrageurs would swoop in and correct those prices. 5 A. So I haven't formed that opinion. Let me be
6 So in this research literature that I'm talking 6 clear. My opinion on these nine stocks or one of my
7 about, they are looking at markets that have some sort of 7 opinions is that they did not trade in efficient markets
8 friction that prevents them from being efficient markets. 8 during this two-week period that I laid out in my report.
9 And just to be clear, what paragraph 110 is 9 One week prior to the class period and the class period
10 laying out is -- I find as an academic very interesting, 10 itself.
11 is that there's this -- a movement in the literature to 11 What I'm -- and so that's my opinion. What I'm
12 talk about traditional noise traders that you 12 saying here is that while I generally believe that
13 characterized pretty well about sort of what I would call 13 efficient markets are normal and typical, there are
14 uncorrelated to this modern literature where they are 14 periods where they're not. And what I'm summarizing in
15 correlated. And I think the big word here is 15 this section of my report is there is academic literature
16 "coordination." 16 on this that says, well, how could you have arbitrageurs
17 So in traditional noise traders, these sort of 17 who are trying hard to make money and still not have
18 idiosyncratic, hard-to-explain, random movement of retail 18 efficient markets?
19 investors are essentially one off and idiosyncratic. But 19 And as I said earlier, you mentioned some what I
20 in this modern world, if they can coordinate. And 20 would call sort of noise investor traders, and my
21 coordination are not really simple in the real world. 21 response was in an efficient market, it doesn't matter.
22 It's hard for you and I to coordinate. But if we have 22 And so this literature asks and answers a very
23 social media, there is the potential coordination. 23 interesting question. It says you have these noisy
24 And that's what the Lasse Pedersen paper is 24 traders, and you have arbitrageurs, and normally the
25 getting at, and people believe -- some people believe in 25 noise traders don't affect it.
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1 And what this literature does is isolate what 1 efficient markets that says there is never an impact of
2 frictions can exist in theory but also in practice on 2 noise traders in an efficient market on the price. I
3 these institutional investors that can at least 3 believe that to the extent they do exist, it's unusual
4 temporarily prevent them from what I would call policing 4 and they're fleeting.
5 the market and restoring equilibrium. 5 And so the idea is that these investors can
6 And the examples are, for example, if these 6 influence the price, but without friction it doesn't last
7 noise traders, for example, are -- become a larger or 7 for very long. And, you know, empirically, it would be a
8 more importantly coordinated segment of the market. If 8 matter of an hour or less. It would be very quick.
9 they're coordinated and could potentially have a price 9 Because it -- keep in mind like all of this is
10 impact that's lasting, then it induces a lot of risk on 10 not because these arbitrageurs are trying to save the
11 investors. 11 world or trying to save the integrity of the markets.
12 And so, for example, if temporarily through 12 Maybe they like that. I am just basing it on competition
13 coordination retail investors are noise traders -- not 13 and people trying to make easy money when they can.
14 all retail investors are noise traders -- could proper up 14 Q. Well, you said the effect, the noise trader
15 the price temporarily, and you're an arbitrageur who 15 effect is an hour or less. But what about in the case of
16 wants to correct that for your own profit motives by 16 this Robinhood thing, where stock prices were going up
17 shorting it, in a normal efficient market, the price 17 throughout January, and I believe your report said there
18 would go back down and all would be done. 18 was coordinated trading for some period of time. I mean,
19 But now suppose that there were frictions. And 19 I think it was at least a week.
20 this is not true in every market, but in a particular 20 How long did you say there was coordinated
21 market a friction could be suppose the lending fees are 21 trading going on?
22 relatively high on these stocks. Suppose the amount of 22 A. So I don't opine on that. I certainly cite
23 short selling at the time was relatively high. Suppose 23 other sources. So, for example, the Franklin Allen paper
24 that through coordination there is a risk that while the 24 has some tables that look at the amount of, for example,
25 price may fall in the future, in the short run, it may 25 Reddit and social media conversations about these meme
Page 75 Page 77
1 continue to rise and these arbitrageurs may hit margin 1 stocks, and they were, to my understanding growing
2 calls. 2 rapidly around one week prior to the class period. There
3 All of these sort of frictions that I'm talking 3 is discussion in the literature that there was some of
4 about are ones that could prevent these arbitrageurs from 4 this even before that, but it seemed to heat up about one
5 returning the market quickly to an efficient market. 5 week, around the 21st, I guess, of January 2021.
6 So just to summarize, my point here is that 6 Q. So from January 1st until 27th or -8th is maybe
7 there's an academic literature that address this very 7 six days, maybe, I don't know, four, five, six trading
8 interesting conundrum. You have noise traders that can 8 days. So those noise traders, if you will -- I mean, if
9 temporarily change the stock price from their efficient 9 it's true that those noise traders are what caused the
10 values and arbitrageurs, who we normally think in 10 stock price to go up, the effect lasted at least a week;
11 efficient markets will police this market and return them 11 right?
12 quickly to efficient. 12 A. So let me put it in my own words and, of course,
13 Why -- how is it possible that they may not in 13 you can reask the question if I -- if you have more
14 all cases? And the answer is friction. And those were 14 questions.
15 examples of the frictions I'm talking about. 15 So number one is you may have said January 1st,
16 Q. Now you said the noise traders could temporarily 16 but you probably said January 21st.
17 change the price of the stocks. How lasting an effect 17 Q. I meant January 21st.
18 could noise traders have on the stock price? 18 A. Yeah. And I don't mean that to pick on you.
19 A. So as an empirical matter, in the most case, 19 Like my hearing of you is like 90 percent. I don't think
20 it's very short. And so my answer is very related to my 20 there's anything we can do about it, and so I will always
21 previous one, is that if there aren't large frictions 21 ask that just to be sure.
22 that prevent these arbitrageurs from making like easy 22 So it is my opinion during that, I believe, five
23 money, it won't last long. 23 trading days, in my opinion, these stocks were not
24 So just to preface this, keep in mind that I'm 24 efficient, and I don't opine on why that's the case. But
25 not someone who is so looking for perfection in the 25 to the extent that others, including academics, opine
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1 that at least part of this was due to coordinated 1 Q. Now comes the fun part.
2 trading, we have something that is unusual. 2 Do you believe that markets are efficient?
3 So as I said earlier, in an efficient market, 3 MR. RYAN: Objection to form.
4 even I believe that prices can deviate from efficiency 4 THE WITNESS: That's quite hard to answer
5 for a short period of time, but normally it's not very 5 because you didn't say markets, you didn't say -- that's
6 long lasting, and I said like an hour. 6 quite vague. I'm happy to answer that question, but do I
7 And this is very different here, and it is 7 think all markets are efficient at all moments in time?
8 unusual to have markets become inefficient or what I 8 Q. BY MR. ROSEN: Fair enough.
9 would say, obviously inefficient, for relatively long 9 Do you think stocks traded on the New York Stock
10 period of time, like two weeks in this case. 10 Exchange and the NASDAQ are generally efficient?
11 That's why academics are writing papers on this 11 A. So yes, I think most of the time stocks that are
12 and that's why analysts were talking about this. It is 12 traded on organized exchanges meet the sort of standard
13 unusual, and it's also related to the questions you were 13 weak form notion of market efficiency. Yes, that's the
14 asking previously about the academic literature. 14 normal case.
15 There is an analogy here between what we 15 Obviously, I don't believe it's always true, but
16 normally think about retail investors and their trading 16 that's my general presumption before I start
17 being essentially uncorrelated across them, and having an 17 investigating the facts of it. But yes, generally I do
18 impact, but not necessarily a lasting impact. 18 believe markets are efficient for most traded stock.
19 In a world where retail investors can 19 Q. So you're adhering to the efficient market
20 coordinate -- and by the way, this would be true for 20 hypothesis?
21 institutional investors coordinating, too. But when 21 A. So I believe the efficient market hypothesis is
22 investors can coordinate, it seems to be the case, 22 most of the time empirically true, and I am very careful
23 obviously, that these price impacts could be more 23 when I -- when I teach my students that this is not
24 sustained. 24 religion where you believe "yes" or "no." It's a range.
25 It's sort of a new world we're in; right? So 25 And I put myself in the category that markets are close
Page 79 Page 81
1 normally, like I said, it's hard to coordinate across 1 to the line of efficiency than they are close to the line
2 people. Because we have all different motives and 2 of what we normally think of inefficient markets.
3 incentives and there's lags between how we talk about 3 And in particular for most traded securities,
4 things. But if there's a modern means that investors can 4 because as I said earlier that there are arbitrageurs out
5 coordinate, then this is a new world here, and it's 5 there who are in it for themselves to make money, they
6 possible in that new world where retail investors can 6 are the enforcement mechanism to make markets typically
7 coordinate, it seems quite possible that these can last 7 efficient.
8 longer than traditionally they have. 8 Q. So you've read -- I don't know -- many if not
9 Q. Did you say you don't have an opinion as to what 9 all of Professor Fama's papers on the subject; is that
10 caused the prices of the nine affected stocks to increase 10 correct?
11 during that period of time in January? 11 A. You know, he's an outlier. He's written so many
12 A. Yes. To be clear, I do have an opinion during 12 papers, I don't know if I could even say most of. But I
13 that week that I believe you're referring to, the week 13 have certainly read most of his famous papers, and I have
14 prior to the class period, that the prices of those nine 14 met him on many occasions.
15 stocks were not trading in -- those stocks were not 15 Q. Is there anything specific about his definition
16 trading in efficient markets. 16 of the efficient market hypothesis that you disagree
17 And then I point out what other commentators, 17 with?
18 like academics, stock analysts, and the media posit was 18 A. No. That being said, he's -- in his papers and
19 causal, and I mention that. 19 speeches has come up with different versions of it, and
20 But I have not come to an opinion which one or 20 it depends on the context. But I can't recall -- I mean,
21 what combination of things such as short squeezes, 21 I'm pretty sure I cite him in my report. I believe
22 attempted short squeezes, or retail coordinated trading 22 Dr. Werner probably cites him in his report. In general,
23 caused it. I don't have an opinion on that. I'm just 23 he's quite an authority on the theory of efficient
24 pointing out that to put it in context, this is what 24 markets.
25 other people are saying. 25 Q. So in paragraph 13 of your opening report --
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1 A. Did you say -- did you say my original report? 1 a normal definition of market efficiency. So what I mean
2 Q. Yeah, opening. I said opening report. 2 is in typical finance textbooks, academic articles, and I
3 A. Got it. I just missed that word. Okay. 3 guess I would say I've been at Stanford long enough I've
4 Q. So that would be page 8 of the PDF, page 5 of 4 probably been in thousands of finance seminars over the
5 the report, paragraph 13, you cite -- I think it's 5 years now. When we talk about market efficiency, we say
6 footnote 21, this Fama article from 1970 on efficient 6 "market efficiency," and we don't break it down by
7 capital markets. 7 fundamental and something nonfundamental.
8 And you say, "Widely accepted definition of 8 To the extent somebody -- if I saw an article in
9 efficient market is one in which prices always fully 9 a legitimate academic journal or in a seminar from a --
10 reflect available information." And you took that from 10 from a relatively famous finance professor, and they said
11 the 1970 Fama article listed there in footnote 21. 11 "fundamental market efficiency," I would assume they're
12 A. Yeah. This is his sort of famous original paper 12 talking about market efficiency just like my definition
13 on market efficiency. He has sort of a synopsis and a 13 you just mentioned, the Fama definition.
14 summary of more recent evidence in like a 1991 paper. 14 Q. Right. So would that -- well, if you're saying
15 But yes, this is the classic original Fama market 15 that the efficient market hypothesis assumes all
16 efficiency academic article. 16 value-relevant information, meaning all -- all
17 Q. Next sentence says, "In an efficient market 17 information that could affect stock -- all cash flows
18 prices should rapidly and fully adjust to incorporate new 18 related to the stock in the future, that's -- I mean, if
19 value-relevant information." 19 you're looking at the net present value of future cash
20 Now you don't cite any authority for that 20 flows, that's essentially a fundamental value; right?
21 sentence, and it differs from the prior sentence only in 21 A. I think that's fair to say. So I'm not going to
22 the sense that it uses the term "value relevant" rather 22 make a big deal about what fundamental value means. It's
23 than simply "available information." 23 essentially the present value, the expected present value
24 Where do you draw the modifier value relevant 24 of future cash flows.
25 from for that sentence? 25 It's in the nature of bringing fundamental into
Page 83 Page 85
1 A. Sure. 1 efficiency. That was what I was talking about is that
2 I draw this from a large academic literature 2 it's not a normal term that academics use and they say,
3 when they get more specific about what they mean by 3 "Let's have a discussion about fundamental market
4 "available information." And they're talking about 4 efficiency." They just don't say that.
5 things that are related to the value of the firm itself. 5 They'll say market efficiency. And it implies
6 I believe Dr. Werner in his opening report also 6 what I'm saying here is market efficiency in the academic
7 mentions quotes that talk about things like earnings, 7 or financial literature means what I say it means. It
8 companies, things like that, just so that the reader of 8 means that the prices reflect they will change fully,
9 this report understands that when I say "fully reflect 9 quickly to new value-relevant information.
10 available information," I'm not talking about prices 10 I just think that's ubiquitous. And I'm just
11 reflecting sun spot activity. I'm not talking about 11 being very careful about that. But I don't think there's
12 stock price of IBM reflecting the temperature in Alaska. 12 a sort of a common academic vernacular that would call
13 I'm talking about the stock prices of IBM reflecting 13 that fundamental efficiency. We just mean market
14 market public information about IBM itself. Things that 14 efficiency.
15 are value relevant. 15 MR. ROSEN: I'm going to show you -- I'm going
16 So people who talk about efficient markets, when 16 to introduce as an exhibit, if I can figure out how to do
17 they talk about information, they're referring to 17 this, an article from -- I think it's 1991.
18 information that's relevant to the valuing the present 18 This is going to be Exhibit 178. It is -- it is
19 value of future cash flows of the stock. 19 an article by Professor Fama. In a moment, you should be
20 Q. Is that -- if -- if the price has to or should, 20 able to see it.
21 I should say, if the price should incorporate all 21 (Exhibit 178, Efficient Capital Markets: II, by
22 value-relevant information, would that also mean that the 22 Eugene F. Fama, was marked for identification by
23 stock price is fundamentally efficient? 23 counsel electronically.)
24 A. So that's -- fundamentally efficient, there's 24 Q. BY MR. ROSEN: I think you cited it in one of
25 nothing silly about that expression, but it's -- it's not 25 your -- probably in your rebuttal report. Take a look at
22 (Pages 82 - 85)
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1 it and tell me if you've read it before and you're 1 So what Grossman and Stiglitz were saying in a
2 familiar with it. 2 sort of a very mathematical way, but a very common sense
3 A. I'm still in the process of downloading it. 3 way, obviously there has to be some incentive out there
4 Okay. So I have it downloaded. I'm sorry, when 4 for investors -- some investors to be doing fundamental
5 I download it, it takes up all my concentration. You 5 research to create the efficiency in the first place.
6 referred me somewhere in the article or you asked me -- 6 And so we agree that there has to be some
7 Q. Oh, start with the first page. I'm not going to 7 benefits of being a professional investor or else none of
8 delve too deep into it. 8 us would be.
9 A. Okay. Do you mind if I look at the first page 9 That being said, we also believed -- to put this
10 for a second? 10 in context -- there's a lot of competition out there. So
11 Q. Yeah, look at the first couple of pages. 11 that yes, professional investors have to have some
12 A. All right. 12 ability to make money. If it was too much and there's
13 Q. Actually, look at whatever you feel you need to. 13 free entry into this industry, it would push that down.
14 A. Yes. 14 So we believe that markets are not what we would
15 Okay. 15 call absolutely perfectly efficient at every point in
16 Q. All right. So in this paper -- this is from 16 time or else there would be no incentive to be an
17 doctor -- Professor Eugene Fama, and he sort of updates 17 arbitrageur. So he's putting that out there.
18 his views on research and market efficiencies. 18 And then when he says here about the marginal
19 Is that a fair -- 19 benefit and the marginal cost of being what I would call
20 A. Yeah. 20 being a professional investors, that's what I was getting
21 Q. -- view? Okay. 21 at earlier, is that we generally believe that -- that the
22 So it starts out, the second paragraph, he says, 22 marginal benefits, the sort of arbitrage opportunities
23 "I take the market efficiency hypothesis to be the simple 23 out there, they can't be trivial to trigger arbitrageurs
24 statement that securities prices fully reflect all 24 to enter and fix the price. But to the extent that it's
25 available information." Right? 25 greater than the transaction cost, they will do so. I
Page 87 Page 89
1 He doesn't -- well, okay. So earlier you said 1 think that's sort of noncontroversial.
2 economists in the know don't modify it with fundamental 2 And like a big point that the academic
3 value or fundamental -- okay. Fair enough. 3 literature is making to explain why you might see these
4 And then he says, "A weaker and economically 4 sort of deviations like in the case at hand is if those
5 more sensible version of the efficiency hypothesis says 5 marginal costs are high.
6 that prices reflect information to the point where the 6 So it just as an intuitive matter is that we
7 marginal benefits of acting on information (the profits 7 might believe that there are these arbitraged
8 to be made) do not exceed the marginal costs." 8 opportunities out there, and we say why aren't
9 Is that statement true? I mean, is that his 9 arbitrageurs fixing this?
10 updated view, that second sentence I just read? 10 And the answer that Fama is getting at here is
11 A. Yes. And I -- so I think this is a great -- 11 that if for some reason their marginal costs are high.
12 great statement. It's very -- from an academic 12 And that's why I go through the list. What could
13 standpoint and also connected to the stuff we spoke about 13 possibly be a marginal cost that would be high at a point
14 earlier, it's really a great framing of this here, is 14 in time for an institutional investor? And that would be
15 that -- let me first put this in context. Because he 15 examples that we cite in this case.
16 cites this paper by Grossman and Stiglitz, two very 16 If there is coordinated retail trading activity
17 famous economists. And they initially point out a 17 that props up the price making short selling very risky.
18 conundrum or puzzle. If you believe that stock prices 18 If it's lending fees. Anything that's sort of a marginal
19 are absolutely perfectly on value, then why would there 19 cost increase, that's what he's getting at there.
20 anybody doing any what we would call fundamental research20 And he's saying -- I believe Fama is saying in
21 to create the value. 21 most markets these aren't that big a deal, but don't call
22 If everybody just stared at the stock price and 22 me, you know, taking this too strongly. There's always
23 said it was correct, then nobody would be doing any 23 going to be, you know, a little bit of deviation from
24 research. So it unwinds; right? So we all agree with 24 market values and true values, and it's driven by this
25 that one. 25 marginal cost. And I agree with that.
23 (Pages 86 - 89)
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1 I'm just saying in the case at hand, these 1 long enough now that I actually find it mildly amusing
2 marginal costs may be very high. 2 how anomalies or predictabilities that were very famous
3 Q. The other -- so I guess to shortcut this, in 3 when I became a professor are gone.
4 this paper he admits that -- or acknowledges that there 4 So for the longest time, there was this value
5 has been research by others in the field that shows that 5 effect. Like AQR made its fortune on this, is that there
6 stock prices, future stock returns are predictable from 6 was belief that low PE stocks would outperform. And to
7 past returns; is that right? 7 some extent, they did for decades, and then over the last
8 A. So I don't recall -- so academics call these 8 few decades, it's been the exact opposite.
9 anomalies, which is -- I'm not saying that's like the 9 And so I think Fama's aware, and I'm sure he's
10 greatest term, but I forget -- I can glance through this 10 certainly aware today, that whatever is the nominally at
11 paper -- if he lists some of these anomalies. But this 11 one point in time seems to go away and new anomalies
12 is back, you know, over 20 years ago, and the list of 12 emerge, which makes people like me think that these kinds
13 anomalies has changed. 13 of obvious anomalies are really just what we might may
14 But there is a belief that there are some sort 14 call data mining.
15 of observable variables that may predict future returns 15 If you look -- if I gave you thousands of months
16 more than just by chance, and he may be listing those, 16 of data on thousands of stocks in the past and asked you
17 yes. 17 to find some weird stuff, not in any silly sense. I'm
18 Q. Yeah. I think on page -- well, it's page 3 of 18 just saying find stuff that sort of repeats itself, you
19 the document, page 1577 and 78, 79, he goes into some of 19 would find it.
20 the studies? French and Roll and -- 20 And you could run almost any statistical test on
21 A. Yes. 21 it, and you'd say, wow, this seems real. And the
22 Q. How there's -- you call them anomalies, but 22 ultimate test, of course, is does it actually work ten
23 there are, I guess, positive auto-correlation and other 23 years from now.
24 instances where you can predict future returns from past 24 And for most of the part of things that he talks
25 returns. 25 about here, they don't last.
Page 91 Page 93
1 So but that doesn't necessarily change his view 1 Q. But you said AQR made some money for a while;
2 on the efficiency of markets; is that right? 2 isn't that right?
3 A. So that's true. And I just wanted to say 3 A. They did. They made a lot of money. And I
4 briefly about these what I call anomalies, but like the 4 think they're doing really well now again. But there was
5 example he gives is the January effect, which I haven't 5 a period of time, if you read the press reports on them,
6 looked at it in years. And the reason why I'll give you 6 is, wow, these guys are -- everything they're doing is
7 in a second is the reason is if you buy stocks almost at 7 wrong. Because the quintessential non-value stock would
8 random, at the end of the calendar year and then sell 8 be something like Facebook and Google. And that's where
9 them at the beginning of the year, you make abnormal 9 most of the returns in the last two decades have been in
10 returns. 10 those two stocks. So it makes that value approach not
11 It was a sort of belief about investors taking 11 look so good, even though the value approach for many
12 advantage of tax losses. Like there's nothing unusual 12 decades earlier did look good.
13 about these stocks, but they sell at the end of the year 13 So my point is I'm not saying anything good
14 because if they have losses, they want to realize them by 14 about or bad about any of these anomalies. It's just
15 the end of the tax year, and then they buy them back. 15 that I think Fama realizes that -- then and now, that you
16 So there was this January effect. That was a 16 can always find some trading strategy that worked in the
17 typical story. There was other things like that. There 17 past, but that doesn't necessarily prove that markets are
18 was a day-of-the-week effect. I forget if Monday was the 18 inefficient.
19 best day. These things basically aren't around, anymore. 19 Q. Now you cite a book by Andrei Shleifer. Is
20 So I think Fama was well aware of the fact that 20 that -- am I pronouncing his name right?
21 there are these what I call anomalies, but empirical 21 A. Yes, exactly.
22 studies that demonstrate some of these effects, but I'm 22 MR. ROSEN: And I'm going to introduce this book
23 sure he's aware that these things probably, if they are 23 for the record.
24 true, go away, and they do. 24 (Exhibit 179, Inefficient Markets, by Andrei
25 And I find it -- because I've been in finance 25 Shleifer, was marked for identification by
24 (Pages 90 - 93)
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1 counsel electronically.) 1 that's -- the market price is the best forecast of its
2 MR. ROSEN: It's Exhibit 179 now. It's going to 2 true price. Or another way of saying it it's the best
3 take a moment to download. 3 forecast of its price in the next few moments.
4 THE WITNESS: Okay. I have it on my screen. 4 Q. Now I put that book in front of you, the
5 Q. BY MR. ROSEN: Before I ask you questions about, 5 Professor Shleifer's book, because in part you cited it
6 is it Professor Shleifer? I don't know. 6 in paragraph 64 of your opening report. And --
7 A. Yeah, he's a very famous Harvard economics 7 A. I also -- since my page is there, on page 5 I
8 professor. 8 cite it there, too, but that's fine.
9 Q. Before I ask you questions about Professor 9 Q. Oh, yeah. And in paragraph 64, somewhere in
10 Shleifer, I just remembered there's a couple questions I 10 there you say you -- ah, yes, it's towards the bottom of
11 wanted to ask you generally -- 11 page 29 of the PDF. It says, "As summarized in a
12 A. Okay. 12 prominent finance textbook examining potential deviations
13 Q. -- about the market. 13 from efficiency in financial markets, 'Since the
14 So who or what is the best arbiter of a stock's 14 securities price must be equal to its value, prices
15 fundamental value? 15 should not move without any news about the value of the
16 A. So you asked me this earlier in some sense. In 16 security. That is, prices should not react to changes in
17 an efficient market, the price. In a market that's not 17 demand or supply of the security that are not accompanied
18 efficient, that's very hard to answer. We all are going 18 by news about its fundamental value.'"
19 to have different opinions. Even sophisticated investors 19 So that comes from Professor Shleifer's book?
20 will have different opinions. 20 A. Correct.
21 Q. Have you ever heard of the term "price 21 Q. Okay. Now does -- now that -- and that's also
22 discovery"? 22 an inference from work on the -- you know, surrounding
23 A. Yes. 23 the efficient market hypothesis. That's not actually
24 Q. What does that mean? 24 part of the efficient market hypothesis, is it?
25 A. So it really is contextually dependent, but it's 25 MR. RYAN: Objection to form.
Page 95 Page 97
1 a process of obtaining inferred prices from observing 1 THE WITNESS: So it really -- so we're --
2 prices. So let me give you an example. 2 obviously I'm talking about the academic context of
3 So an example would be if I am trying to figure 3 efficient market hypothesis. It -- so the efficient
4 out -- this is not quite a price, but it's very 4 market hypothesis, as you've probably seen, is described
5 similar -- if I want to figure out what the market thinks 5 in more than one way. I have citations in my report.
6 the volatility of Apple stock's going to be over the next 6 Dr. Werner has citations in his report. They're all very
7 month. Okay? A very useful way of doing that is to be 7 similar.
8 observing options trading on Apple. And since there is 8 I would say this is more of an implication of
9 very good empirical support that the value of options is 9 the efficient market hypothesis typically as opposed to a
10 related to a formula called Black-Scholes, you 10 definition. So I would not have necessarily disagreement
11 essentially reverse engineer it. 11 if this was part of the definition of an efficient
12 It's actually a simple concept, but it's -- it's 12 market, that it doesn't move based on -- it doesn't move
13 amazingly -- it's amazing that we actually can do that. 13 significantly in the face of non-value-relevant
14 So you can look at the stock market -- sorry -- the 14 information.
15 option price on Apple and from that trading price, back 15 Q. BY MR. ROSEN: But for example, let's say, I --
16 out what the market is inferring Apple's volatility is 16 I could identify a hundred days during a year when
17 over the future. 17 General Motors' stock moved statistically significantly
18 So that's an example of what we call -- even 18 without there being value-relevant news.
19 though it's not a market price, it's a price discovery. 19 Would you say that means General Motors stock is
20 It's essentially using market prices to learn what's in 20 not traded in an efficient market?
21 the market's mind. 21 A. So let me -- because you gave me a hypothetical.
22 So obviously, in the most rudimentary 22 I'm not picking on you. But that's -- if it's -- if
23 application of this, in an efficient market -- it's 23 it -- if a stock moved significantly a hundred days,
24 almost definitional -- the -- you can infer the value of 24 that's almost half of the trading days of the year.
25 Apple stock from observing its market price because 25 So I would be shocked if half of the trading --
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1 every other day a stock moved by a statistically 1 day, I can say the stock on that day doesn't trade in
2 significant amount. Because in the fullness of time, 2 efficient markets. And when they're correlated across
3 statistical significance means that it should happen one 3 stocks over a period of a week, I can say that more
4 out of 20 times. 4 strongly.
5 So just on the face of it, if you told me a 5 So it really depend on the context. And this is
6 stock had statistically significant moves on half of the 6 a case where we see something that's -- I don't know what
7 trading days, I would ask, one, is there something wrong 7 to say. It's so unusual. I'm not faced with cases very
8 with your model, and two, I think there is something 8 much where a stock like Koss goes up by a thousand
9 fishy going on here. 9 percent in a week. I'm not faced with cases where
10 Q. Okay. 10 something like GameStop goes something -- I'm sorry --
11 A. Again, I'm not picking on you, but it -- 11 like 700 percent in a week.
12 Q. I'll give you a better -- you make a fair point, 12 And so I'm not such a stickler on efficient
13 and I miss -- I misspoke. I didn't frame my question 13 markets that I say, oh, on one day GameStop didn't have
14 properly. 14 value -- potential value-relevant information and it went
15 So suppose there are trading days when the stock 15 up; therefore, it's not efficient. I would never do
16 price moves a statistically significant amount, but only 16 that.
17 half of them are associated with value-relevant news. So 17 What I'm saying is when I look at all the facts
18 50 percent of the time is moving in response to 18 together here, and I'm conveying that to GameStop moving
19 value-relevant news, and half the time, it's not. 19 up 700 percent in a week, and I'm looking at the
20 Does that mean the market for the stock is 20 information that was conveyed to the market on those
21 inefficient? 21 days, and I don't see anything even marginally close to
22 MR. RYAN: Objection to the hypothetical. 22 being a value-relevant explanation for that.
23 THE WITNESS: So let me -- let me try to put it 23 I'm trying really hard to find it. If I found
24 this way. There is no what we would call sort of 24 some information that said, GameStop -- you know, we now
25 bright-line rule that tells you exactly the fraction of 25 expect its earnings to go up by 50 -- 50 times in the
Page 99 Page 101
1 days where the stock moves by a statistically significant 1 next five years, that would help me. But I'm not finding
2 amount that should be accompanied by value-relevant 2 anything like that. And that's why I can be so confident
3 information. Obviously, it should typically be the case. 3 in my opinion that these stocks are not trading in an
4 To answer that question, one has to also apply 4 efficient market during this period of time.
5 common economic sense. And so I would never say, for 5 Q. BY MR. ROSEN: So I introduced an Exhibit Number
6 example, that if a stock moved by on a day a 6 117 previously, and I'd like to -- I don't know how to
7 statistically significant amount, and I could not discern 7 show it to you without having to remark it.
8 on that one day value-relevant information, then I would 8 A. Can I ask you -- I deleted -- I didn't keep one
9 say I can tell you in my opinion I'm confident that it 9 of them up. But can you tell me which one it is, which
10 doesn't trade in an efficient market. 10 article?
11 However, I certainly don't do that in this case. 11 Q. This is a Richard Roll article from The Journal
12 And just, you know, not to belabor the point what I'm 12 of Finance from 1987 which I had introduced in Professor
13 looking at in this case is I'm not going to rely on that 13 Fischel's deposition. And I wonder if I could --
14 bright-line rule. I'm looking at nine stocks that have 14 MR. RYAN: What we can do, I think, Larry, is we
15 not just unusual -- let's just do the week before the 15 can go back to the different folder, which is the Daniel
16 class period -- not just unusual increases, but historic 16 Fischel deposition folder.
17 increases. 17 MR. ROSEN: Yeah, that's where I am. I'm
18 Like it's fair to say I'll show you numbers that 18 reviewing to figure out.
19 they're like one out of a million movements. The highest 19 MR. RYAN: And then it says Marked Exhibits, and
20 movement of any stock that day. The highest movement in 20 then we can go to 117. So I'm pulling up the --
21 any -- their whole trading history. 21 THE WITNESS: I do have the article in front of
22 And so I'm not talking about a 5 percent 22 me if --
23 statistical significance. I'm talking about stocks that 23 MR. RYAN: Yeah, I'm just pulling it up.
24 move up 800 percent in a week, 100 percent in a day. In 24 MR. ROSEN: I just didn't know how to put it
25 the absence of value-relevant information, for that one 25 up -- put it up on Professor Grenadier's screen.
26 (Pages 98 - 101)
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1 THE WITNESS: I'm good. 1 lots of volatility on that third component.
2 Q. BY MR. ROSEN: Anyway, I assume you've seen this 2 There's nothing weird about that. And in
3 article by Richard Roll in The Journal of Finance, 1987, 3 particular, companies -- and then I'll finish the analogy
4 which is Exhibit 117? 4 in a second -- that have -- that are very sort of product
5 A. I do remember seeing this as a grad student. 5 or field specific or industry specific and not
6 It's like the orange juice paper. Very interesting. 6 diversified could have very high idiosyncratic
7 Q. Among other things. 7 volatility.
8 So I find this article interesting because I 8 So in the old days, GE -- so GE is a very
9 think -- I think his finding is that only like maybe -- 9 different company now -- GE was basically like a mutual
10 so there's -- I think it starts with the premises there 10 fund. And I would bet because of all their subs that the
11 are three things that could affect, you know, cause and 11 idiosyncratic component of GE stock was relatively small.
12 effect and impact stock price. One is market factors, 12 Then if you look at something like an orange
13 the other is an industry factor, and the third is 13 juice future, where it's just product specific, it would
14 idiosyncratic firm-specific factor. 14 not surprise me today to see that it has a very large
15 Am I getting that right? 15 residual standard error.
16 A. So I don't recall that. Let me just say that 16 So I personally am not sure how much you can
17 that -- factorization is not just implicit, but explicit 17 infer from that other than orange juice stocks, orange
18 when I do what I call a regression study. I have a -- I 18 juice futures have a lot of company-specific information
19 decompose a return of a stock into market movements, 19 or product-specific information.
20 industry movement, and what I would call firm-specific 20 Q. I don't know if this is the orange juice paper,
21 movement, and what you said is consistent with that. 21 actually.
22 That's sort of a way of conceptualizing information. 22 A. I'm sorry. Excuse me.
23 Q. Okay. All right. 23 Q. I think that may be a different paper. But if
24 Now you may need a few minutes to answer this 24 I'm not mistaken, I just didn't -- I mean, unless you're
25 question, but do you disagree with the proposition that 25 stating it better than I did, but I'm pretty sure this is
Page 103 Page 105
1 Professor Roll found that only about 30 percent of 1 not the orange juice paper. Let me see. Because I think
2 statistically significant stock price movements were 2 Shleifer -- Shleifer -- Shleifer, he does talk about that
3 caused by these -- by one of these three factors? 3 paper, but I don't know if this is the same one.
4 MR. RYAN: Objection to form. 4 A. I think you're right so thank you for pointing
5 THE WITNESS: So I don't recall if he uses the 5 that out.
6 word "cause." If he did -- that's -- I have like -- 6 Q. And I think this is just dealing with stock
7 Q. BY MR. ROSEN: Shall we say "associated with"? 7 returns.
8 A. I have -- so Richard Roll, I have a lot of 8 A. So looking at the abstract, he does seem to be
9 respect for. He's written some very famous papers. He 9 talking about what I said earlier, just the residual
10 actually was a real rocket scientist. He actually worked 10 standard error being relatively high.
11 on rockets. And so hopefully, I didn't use the word 11 Q. Yeah. No, I'm not disagreeing with that. I'm
12 "causation." 12 not disagreeing with that. He's looking at stock price
13 This is a statistical phenomenon. I don't know 13 returns if you look at the charts.
14 exactly how you would -- I don't think I personally in 14 But I guess what I really want to get -- as we
15 this day and age would translate these sort of fractions 15 say, get down to brass tacks. I'm not sure what that
16 as to even implying anything causal. Not that he is. 16 means. Maybe if you're a carpet installer, you know what
17 I'm not -- I don't understand what we learn 17 it means.
18 other than empirical. There's an empirical phenomenon. 18 But what -- I mean, your sense, is there some
19 Let me put it this way. What we do nowadays is 19 range, in your mind, is there some range of the
20 we do decompose stock returns -- and I think these must 20 percentage of statistically significant stock price
21 be futures, but I'm making an analog to stocks -- that 21 movements that should be explained by value-relevant
22 they move according to those three factors. 22 information, like between 20 and 80 percent, or I don't
23 And the third factor, which we call company 23 know, something, some minimum?
24 specific, depending upon the stock, may have a very large 24 A. So I view this as a similar question you asked
25 what we call standard error. Just think about there's 25 earlier, and I don't have a number of that. It's a fair
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1 question, but it doesn't -- I don't have an answer 1 Q. Kahneman, Professor Kahneman would -- has a
2 because it really depends on magnitudes. And that's why 2 number of articles on that concept. Is that what you're
3 I was talking about the case at hand. 3 referring to?
4 In another case, if you had, for example, a 4 A. Precisely. So there's -- there's two
5 stock price that went up by 5 percent, and let's suppose 5 components. One is a list of these sort of behavioral
6 that was on one day. And let's suppose that was 6 regularities that people like Tversky and Kahneman find
7 statistically significant, meaning that on average, that 7 and describing them. Like there's just so many
8 price return or higher only occurs on less than one out 8 classic -- and they're all really fascinating, you know.
9 of 20 trading days. And then I looked at that day and I 9 And then there is a question about whether those
10 could not find any evidence of value-relative 10 types of observable behavioral biases manifest themselves
11 information. And maybe that was true for a third of the 11 in markets. And I'm being broadly in markets.
12 days. 12 Then in terms of behavioral finance, there's a
13 I don't know. There is no statistical test for 13 question of how those behavioral biases, to the extent
14 that that's in academic journals. So that would be 14 they exist, manifest themselves in finance.
15 tricky. And that's why I point out, and I know it's not 15 So, for example, one of the papers I cite -- I'm
16 a -- it's just a very obvious point when I approach the 16 forgetting -- oh, by Terry Odean, he has a stream of
17 case at hand here, is that we're not talking about 17 papers on behavioral biases manifesting themselves in
18 5 percent. We're talking about unexplainably rare 18 trading behavior.
19 events. And that's why I have so much confidence here. 19 So like one example he does is he looks at --
20 If the facts were different in this case, this 20 this is a -- in answer to your question, this is a
21 would be a very hard job to be able to look at these 21 classic behavioral finance paper -- of he looks at
22 residual statistically significant returns and map them 22 trading activity of men versus women in what is now known
23 onto the absence of value-relevant information. It 23 as Schwab, Charles Schwab data. And he shows that men
24 becomes an easy job in this case because of the extreme 24 trade way more often than women, and after fees have
25 magnitudes of the returns and the extreme lack of 25 lower returns. And he attributes this to overconfidence.
Page 107 Page 109
1 value-relevant information coming out. 1 So that's a classic example of behavioral
2 So that's why I can do that. Your question is, 2 finance. So that's an area of it.
3 is there a rule of thumb for this? There isn't. It 3 Now the area of that try to then move that over
4 really depends on the facts at hand. 4 and try to explain pricing is much more controversial and
5 Q. Now Professor Shleifer wrote this book which I 5 not as powerful simply because of you and I may be biased
6 put in front of you as Exhibit -- Exhibit 179. It's 6 and like to buy stocks that start with the letter B, but
7 titled "Inefficient Markets: An Introduction to 7 that doesn't mean we're going to impact prices.
8 Behavioral Finance." 8 So the literature about behavioral biases is
9 Have you -- did you read the whole book at one 9 pretty strong and influential in explaining mistakes that
10 point in time? 10 people make, like selling their winners and hanging onto
11 A. No. 11 their losers. That's a behavioral bias that we observe.
12 Q. Really? I won't tell him. Don't worry. 12 That's a mistake. It has tax consequences.
13 A. He was one of my professors when I was a Ph.D. 13 That's different than behavioral literature
14 student, too. 14 explaining what happens to stock prices. Not that it
15 Q. I think I read this once. I don't remember it 15 doesn't exist. It's just sort of two strands in the
16 too well. 16 literature.
17 But so, generally, what is behavioral economics? 17 Q. And what is the premise of this particular book,
18 A. Sure. 18 Professor Shleifer Inefficient Markets?
19 So behavioral economics is a field of study 19 A. It's an overview, a broad overview for the sort
20 where they look at -- there's a host of them -- sort of 20 of the maybe un -- you know, undergraduate or graduate
21 what they believe is empirical or laboratory-tested 21 student in behavioral finance.
22 individual behavior categories. 22 Q. And isn't the premise that the efficient market
23 So, for example, individuals have shown a 23 hypothesis is not 100 percent correct all the time; that
24 psychological effect of sort of not admitting mistakes 24 there are inefficiencies present in the market for many
25 sort of kind of different types of biases. 25 stocks?
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1 MR. RYAN: Objection to form. 1 responds to information that is not necessarily value
2 THE WITNESS: So I don't -- that was not my 2 relevant but price relevant?
3 reading of it. I think he's exploring those issues. I'm 3 MR. RYAN: Objection to form.
4 not sure he comes to the conclusion that many stocks are 4 THE WITNESS: I'm not sure what you mean by
5 trading in inefficient markets. 5 "price relevant."
6 But the story of recognizing that market stocks 6 Q. BY MR. ROSEN: Okay. I'll -- maybe I'm assuming
7 may trade in inefficient markets in some cases is 7 something, and I'll -- I'll start from the beginning,
8 ubiquitous. It's been around -- it was -- I noticed it 8 then.
9 in the Roll paper you showed me. He called it occasional 9 So let's go to say -- let's look at Dr. --
10 frenzy. That sounds like inefficient market. 10 Professor Shleifer's book. Let's look at some of the
11 So yes. I just don't know -- you're asking a 11 stuff he talks about, some of his -- some of the papers.
12 legitimate question. I don't know if I would 12 He mentions a number of papers. Let's say go to page 17
13 characterize Shleifer's book as saying that markets are 13 of his book.
14 generally efficient. 14 So, for example, in the middle of that page,
15 Q. BY MR. ROSEN: Well, I didn't say that his -- 15 there's a -- he cites the De Bondt -- I'm not pronouncing
16 the premises that the markets are in -- for these stocks 16 that correctly, probably -- and Thaler's 1985 article or
17 are inefficient markets, but there are inefficiencies 17 study comparing the performance of two groups of
18 present in the market at times. 18 companies' extreme losers and extreme winners. And it
19 Is that not two different things? Can a market 19 shows that for quite some period of time, if you, you
20 be generally efficient but there be an inefficiency 20 know, are selecting stocks that had been losers for a
21 present for -- that doesn't really affect its -- the 21 while, they'll end up becoming winners and you'll make
22 efficiency of it much but still be present? 22 above average return.
23 MR. RYAN: Objection to form. 23 And some -- and conversely, if you sold short a
24 THE WITNESS: So we've talked about this 24 selection -- a winner portfolio, you'd get -- you'd
25 earlier. So I never foreclose the possibility that in a 25 actually also do well because a winner portfolio went
Page 111 Page 113
1 generally efficient market, that there can be temporary 1 down. So he has that graph, for example.
2 instances of prices deviating -- deviating and moving 2 So that would be an example of an investment
3 based on non-value-relevant news. But they're very 3 strategy that is successful for a period -- long period
4 temporary and small. 4 of time. It doesn't necessarily mean that stock -- those
5 And the reason I'm saying that is that of course 5 stocks are inefficient, but it's still possible to have a
6 life is complicated and the world's are not perfect 6 successful -- a successful strategy that's not based on
7 according to any paradigm, but it's notion of 7 fundamental value; right?
8 arbitrageurs seeking easy money that prevents those 8 MR. RYAN: Objection to form.
9 things in general from being large and significant. That 9 THE WITNESS: So I do remember reading this
10 is the general view of most finance professors. 10 paper, the De Bondt and Thaler. You pronounced it
11 Not that markets are always at every point in 11 correctly.
12 time perfectly efficient. There would be a minority of 12 So the -- the basic -- my basic recollection of
13 finance professors. But the belief that those things 13 this, it shows that over I think a three-year period, if
14 could be large and lasting is very rare. 14 you buy the worst-performing stock over the previous
15 Again, I wouldn't belabor but be very brief, is 15 three years and short the ones that had the highest
16 that while we might -- it wouldn't shock me for a stock 16 returns, you would on net make what you would consider
17 to move for some non-value relevant reason at a point in 17 above-average returns.
18 time. But it would shock me if it was a thousand percent 18 So that's -- that's interesting. And we would
19 return over a whole week with no new news. That -- that 19 call that -- sometimes we call that mean a version.
20 would shock me. 20 Earlier you asked about momentum. It's the exact
21 So I don't -- I never want to be accused of 21 opposite.
22 being a stickler and saying that markets are very 22 This is an old paper. My understanding over
23 efficient at every trading second. 23 time is that not that this phenomenon didn't exist, but
24 Q. BY MR. ROSEN: Now is a stock necessarily 24 we don't normally cite as much anymore for various
25 inefficient or its market inefficient if its price 25 reasons. One is this effect seems to have gone away. So
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1 it would be in this sort of anomaly that was just data 1 Ph.D.s, that are scouring the world for stuff just like
2 mining. I'm not imputing their motives, but it just 2 this that's not published.
3 doesn't exist. 3 But your story about these being self-defeating
4 Also, when you get into three-year returns, and 4 I agree with.
5 also, a lot of these winners and losers are the most 5 MR. RYAN: So we've been going, Larry, for about
6 idiosyncratic highest volatility stocks and also the 6 an hour and 40 minutes.
7 hardest to trade. Because a lot of them make up -- 7 MR. ROSEN: Oh, do you guys want to take lunch?
8 they're sort of like small cap stocks, that this is 8 THE REPORTER: Off the record, Counsel?
9 really not as implementable as they made it sound. 9 MR. ROSEN: Okay. Off the record.
10 If you take into account the transaction costs 10 (Recess.)
11 and also the standard errors of this, it really is on the 11 THE REPORTER: Back on the record.
12 borderline of even being statistically significant. Even 12 Q. BY MR. ROSEN: Professor Grenadier, can you go
13 though the magnitude looks big. 13 back to that Andrew Shleifer article or, I'm sorry, book
14 But the longer the horizon for these kinds of -- 14 that I had marked as an exhibit previously.
15 this sort of pre -- the mean version effect really 15 A. I have it.
16 doesn't really satisfy statistical significance. 16 Q. I wanted to address one other issue.
17 So this paper is interesting, and it was very 17 So if you go to page 20 of the book, page 29 of
18 early on in this, but it's not really cited much any more 18 the PDF, the first full paragraph in the middle of the
19 in terms of something that's real. 19 page, it begins, "Finally," with the basic proposition
20 So I'm not saying there aren't -- what you're 20 that stock prices do not react to non-information.
21 talking about here is similar to stuff we talked about 21 A. Yeah.
22 earlier when I mentioned weekend effect, January effect, 22 Q. Just take a quick look at that paragraph and
23 day of the week effect, and this is sort of winners 23 I'll ask you about it.
24 versus losers or meaner version. There's a host of 24 A. Okay.
25 these. 25 Q. So Professor Shleifer mentions a few different
Page 115 Page 117
1 What becomes the one that's predictive now is 1 events for this proposition that stock prices actually do
2 going to be different than the ones that are predicted in 2 react to things that are not value-relevant information.
3 five years. 3 And so he has -- he has three -- he mentions three
4 So I never know what to make of these studies. 4 examples.
5 Most finance professors view them as interesting 5 One is the crash of -- the stock market crash of
6 anecdotes, and in this case, a very well done one, but 6 1987. I think they call Black Monday, October 19, 1987,
7 not something that we would use to prove or disprove the 7 where the market drops 22.6 percent, the largest one-day
8 efficient markets we're talking about. 8 drop in history, without any apparent news.
9 Q. BY MR. ROSEN: Well, is it possible that they 9 And so that was one example he gave; right?
10 don't last that long because once professional traders 10 MR. RYAN: Objection to form.
11 learn about them, they implement them, and then the 11 Q. BY MR. ROSEN: And then he gives another
12 competition drives down the returns from them? 12 example, there's, I guess, a paper by Cutler 1991, where
13 A. It is possible. And I would call that a version 13 he examines the 50 largest one-day stock price movements
14 of what I talked about earlier about arbitrageurs in 14 in the US after World War 2 and found that many of them
15 efficient markets. So it's certainly the case that there 15 came on days of no major announcements.
16 is probably -- at this moment in time, there's some 16 So how -- I mean, that seems to rebut your --
17 exploitable phenomenon that exists that we're not aware 17 your earlier statement that stock prices did not react to
18 of, and if an academic finds it and publishes it and it's 18 non-information; does it not?
19 new, it's not going to last long. 19 A. I don't believe it does. But let me talk about
20 And question is always are there these 20 the cite that I know more about, and that is the 1987
21 unpublished phenomenon, anomalies that exist that we 21 crash.
22 don't know about or traders know about. 22 So at one point -- it's been while -- I used to
23 I don't know the answer, but I suspect that 23 teach about this to my students. I believe it was a
24 there's a reason why hedge funds hire people not just 24 Richard Roll paper that discussed this, and it's a clever
25 finance Ph.D.s, but physics Ph.D.s and computer science 25 paper and comes to a conclusion like this, is that a lot
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1 of people in retrospect viewed that there was some very 1 it gets included in the S&P 500 index. And looks like
2 important information on that day, but it was unusual 2 it's accompanied by a 3.5 percent on average
3 because it was a -- an issue with market-wide 3 permanence -- permanence price -- I'm sorry -- permanent
4 illiquidity. 4 abnormal return. It's page 22. There's a graph.
5 And what I mean was there was lots of trading on 5 So my question -- well, take a second and just
6 that day, and what we learned is some markets that we 6 take a look at that. I don't want to make you answer a
7 thought, like the US market, we thought was able to 7 question if you haven't read -- read that. I just want
8 accomplish very large amount of trades in a short period 8 to make sure.
9 of time if needed, and they couldn't. It literally is a 9 Are you familiar with that -- that phenomenon?
10 technical matter, the US market could not keep up with 10 A. Yeah, that's a -- that's an Andrei Shleifer
11 the number of trades. 11 paper. The author of this book wrote this paper that I
12 And that's an important information because it's 12 believe he's citing here.
13 information about the ability to trade stocks in the US, 13 Q. Yeah, I see. Shleifer 1986.
14 and that was new information. 14 And it says, "These increases are relatively
15 There was also new information in that time 15 permanent and have become larger as the relative share of
16 about I believe in a House Committee in the US Congress 16 the market-held index funds has increased."
17 was going to do some sort of anti-takeover litigation. 17 So do you have any fundamental disagreement with
18 That was news. So there was news. 18 that research about the S&P 500?
19 I just think that some people didn't believe 19 A. So I'm familiar with that paper. I'm not an
20 that that news was important enough on an international 20 expert in that paper, but two points I'll make. One is I
21 scale, but I think in retrospect, a lot of us believe 21 don't believe it's without controversy that being added
22 that something that's going to impact the US market is 22 to the S&P 500 index is without information.
23 highly likely to impact other markets. 23 There is -- my understanding is, at least at
24 So if, for example, it was a surprise to the 24 that time, there's discretion of which stocks the S&P may
25 market that you were going to a Court -- curtail 25 allow in.
Page 119 Page 121
1 takeovers, in general that's considered a bad thing for 1 I mean, there was some issue recently, I
2 markets because most takeovers are value increasing. Not 2 believe, when Tesla wasn't added, even though technically
3 all of them. And if you take away from the economy the 3 they were one of the largest 500 stocks. They have some
4 ability to do those value-increasing transactions on a 4 discretion in there.
5 long-term basis, that could have large economic 5 And so it's not clear that the inclusion in the
6 ramifications. 6 S&P 500 is a purely mechanical thing. It could be based
7 So it is not my opinion that the 1987 crash was 7 on other types of information.
8 without value-relevant news. There was a lot of 8 So I've certainly heard finance professors argue
9 value-relevant news. And I don't believe that there's a 9 that this -- they don't agree that it has no information
10 strong consensus with that statement there that Professor 10 content.
11 Shleifer lists. I think a lot of us believe that there 11 And the other thing I'll say is: I have no idea
12 was important and large value-relevant news preceding 12 if this is a persistent thing today, but I have to say in
13 that crash. 13 my answer that a three-percent increase in a price is a
14 Q. BY MR. ROSEN: What about the Cutler paper? Are 14 very different phenomenon than a thousand percent
15 you familiar with that or? 15 increase in price.
16 A. Just vaguely. I -- I read that probably around 16 And so I may not be shocked if you'd come up
17 1991 so that's a long time ago. And my recollection is 17 with examples of something going up by 3 percent that's
18 that dealt with the overall market, the whole stock 18 it's hard to nail --
19 market, not stock by stock. It's a little different kind 19 Q. Three and a half. Three and a half.
20 of issue. 20 A. Three and a half. Thank you. A three and a
21 But I -- I have not revisited that in a long 21 half percent increase without obvious value-relevant
22 time so I just don't have a strong recollection of that 22 information is very different than a thousand percent.
23 one. 23 And I just -- I just think that can't be lost in
24 Q. Okay. Now he also on the next page, page 21, he 24 this case. I do not want to be characterized as a straw
25 mentions the phenomenon of what happens to a stock when 25 man that would say three and a half percent unexplained
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1 increase is powerful evidence of a lack of efficiency. 1 would anybody cite or care about this paper? The reason
2 That would be a straw man and a caricature that I don't 2 this paper is shown to us and the reason it's cited so
3 think would be fair to say to me. 3 many times is it's essentially the exact opposite. Its
4 I'm opining in this case about these stocks for 4 whatever it's called, that proves the rule. It's the
5 a two-week period. I'm not saying over the life of these 5 exception that proves the rule.
6 stocks. I'm not saying all stocks. 6 It's an unusual thing that I -- that we have a
7 I'm saying this is a very monumental and 7 hard time explaining, but not it's ubiquitous or else it
8 unexpected phenomenon, and as I wrote in my report, 8 wouldn't be a very interesting paper.
9 there's three ways of making this clear. One is for most 9 If every time there was some sort of demand
10 of them, it was either the highest increase during this 10 shock, like a restriction on demand or an increase in
11 week they've ever had in their history, if not first, 11 demand that exogenous, and we saw this, why would anybody
12 maybe second; it was among the very highest of all stock 12 care about this paper?
13 movement like one, two, three, and four, of any stock 13 It's a very unusual phenomenon, and as I said,
14 traded in an organized exchange in the US during the 14 the -- we were talking about a -- you were careful about
15 time. And if you go through a 20-year history and try to 15 saying a three and a half percent, a three and a half
16 randomly select portfolios that perform like these meme 16 percent, that is surprising to finance academics and
17 stocks, it is a one our of a million event. 17 that's why we're taking about it.
18 So I just want to make clear: I am not arguing 18 Instead of saying a three and a half percent, it
19 against this graph that there's a three and a half 19 said a thousand percent, this would be the most cited
20 percent puzzle. I don't try to explain every three and a 20 paper in history if this was normal.
21 half percent puzzle in the world. 21 Q. I mean, couldn't that sharp price increase in
22 I wish I could because this is very interesting, 22 these nine affected stocks be caused by a demand
23 but a three and a half percent puzzle is a very tricky 23 increasing the demand for the stocks by the retail
24 one. But a thousand percent puzzle over one week is more 24 investors or whoever else was interested in purchasing
25 than tricky; it's impossible to explain with a rationale 25 the stocks?
Page 123 Page 125
1 efficient market argument. 1 A. So as I -- as I said earlier, even if I said
2 Q. Well, Professor Shleifer -- Shleifer refers to I 2 hypothetically that was true, I don't know. As I said
3 believe something called a demand shock. And he says 3 earlier, I'm not as ascribing causation to the price
4 that he suggests that these price increases are resulting 4 run-up.
5 from increase in demand. 5 But just for argument's sake, suppose due to
6 Is that right? 6 this increase in demand by retail investors, and in
7 A. That's -- that's my understanding of his 7 this -- in this hypothetical that I'm offering, it's not
8 explanation. 8 based on anything that's dealing with cash flow. It's
9 Q. Are you familiar with any other academic 9 based on something, but not based on forecasts of cash
10 research that talks about demand shocks causing price 10 flows.
11 changes in securities? 11 If it did increase, and it was not based on
12 A. So I have some recollection of some papers 12 forecasts of cash flows, then this price would be above
13 finding examples of this. But the reason -- I bet this 13 its efficient value and arbitrageurs would swoop in and
14 paper has many, many cites. And why do I think this 14 short it.
15 paper, this Shleifer paper on this demand effect, has so 15 And the fact that we did not see that is
16 many cites? 16 consistent with the type of evidence that people offer,
17 Because A, it's a very obvious thing that we all 17 and to some extent, I offered some empirical evidence on
18 knew anyway, or B, it's a very rare event that's 18 this, that there were frictions to shorting during this
19 fascinating. And it's B. 19 period of time. In particular, there was very high short
20 So, yes, there probably are other papers that 20 interest in some of these stocks, and there was very high
21 talk about demand shocks having a price impact. 21 borrowing and lending fees on these stocks.
22 Hypothetically, someone could have something that is 22 So the fact that if demand pressure unrelated to
23 added to the Wilshire 5000 and showing no noticeable 23 value-related information caused the stock price to go
24 effect. That's possible. 24 up, which I'm not contending. But if it did, then this
25 But if this was the normal state of affairs, why 25 would be the classic examples for arbitrageurs to come in
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1 and profit from this and short it. 1 sort of social media circles moving up unprecedented
2 And the fact that we don't see evidence of the 2 amount in a period of one week with some of them having
3 price going back down based on some arbitrage activity 3 very large short interest.
4 makes me suspicious that there are impediments to 4 I'm just saying facts as I understand that.
5 shorting during this time, and I document some of that. 5 These are very unusual facts. And I can't think of any
6 Q. Well, I mean, certainly there were a lot of 6 analogous discussion that you and I have had today that
7 people going short on these stocks during this time 7 is anything remotely resembling this.
8 frame; right? 8 That's why, again, I don't easily claim a stock
9 MR. RYAN: Objection to form. 9 trade in a market that's not efficient. I don't do that
10 THE WITNESS: So I don't know, as I sit here, 10 easily. It's the facts of this case.
11 how many people were shorting it. I do know that there 11 If it was a normal case, I wouldn't be so cold.
12 was very high short interest. Could be by one or two 12 Just the facts in this case, as you know, are
13 institutions or many. I literally do not know. But some 13 unbelievably unusual. And that's why I can say with such
14 of these stocks, of course, did have very high short 14 confidence that that one week run-up is not tethered to
15 interest. I think GameStop at some point had more than 15 value-relevant information.
16 100 percent short interest. 16 Q. Okay. You've made that point, and you know, I'm
17 Q. BY MR. ROSEN: Yes. So -- so if a stock's got 17 asking about this because I'm interested in understanding
18 123 percent short interest, doesn't that mean that's 18 a couple of things. One is why an increase in demand for
19 there's no impediment to shorting the stock? 19 a stock, for whatever reason, whether it be
20 A. I think if you asked the people who were 20 value-relevant information or simply investor sentiment
21 shorting it and asked them if they had an impediment to 21 should necessarily mean that a stock is not being priced
22 shorting this stock, they would say yes. 22 in a reasonable fashion, that it's not a fair price, a
23 Q. How much more than 123 percent do you want to go 23 fair market value price, where buyers and sellers are
24 for short interest? 24 satisfied that this is a fair price if they want to
25 A. I have no desire to go above or below that. 25 transact that.
Page 127 Page 129
1 What I'm saying is there was obviously pressure on these 1 MR. RYAN: Objection to form.
2 people who were shorting it. One was it was getting 2 THE WITNESS: So it's important when I answer
3 expensive to short it because there were so many shorting 3 this question to be clear on what motivated a demand
4 it. 4 increase. So if counter to what I believe your
5 The fact that many were shorting it, all that 5 assumption was in your question, that a demand increase
6 tells me is that there were many bearish investors. I 6 for stock X, because the market perceived that there was
7 don't know what else to glean from that. The people who 7 information, value-relevant news that dividends would --
8 were shorting it were bearish. 8 or earnings would be permanently increased for this firm,
9 And the fact that there were at this time the 9 that would increase demand, and that would increase
10 transaction costs of shorting, and importantly, to the 10 price.
11 extent that others say that there was coordinated retail 11 There's nothing unusual about it whatsoever.
12 trading activity pushing up the price, that puts margin 12 That makes sense. Because there's nothing for an
13 pressure on those short, making -- on those shorts, 13 arbitrageur to take away because that price increase was
14 making their position very risky. 14 connected and driven by value-relevant information.
15 Q. Well, yeah. I mean, investing's risky. 15 There was no money machine there. It moved up for good
16 A. Investing is risky. Trying to undo some sort of 16 reason, good value-relevant information reason.
17 phenomenon, which I don't know the cause of, that causes 17 Alternatively, as I said, the converse would be
18 cost to go up 1000 percent in one week, is a very unusual 18 the demand went up for something that was not value
19 amount of risk. 19 relevant. Let's just say it went up because they were in
20 So, yes, investing is risky, but -- and I see 20 a happy mood that day. The price goes up, and it has
21 risk all the time. I don't see what I see in this 21 nothing to do with future dividends.
22 current case, often at all. As I said, it's a 22 That price has increased for no rational
23 one-of-a-million phenomenon. 23 value-relevant reason. That's when arbitrageurs come in
24 So I don't know that I've seen anything quite 24 and would short it in this case. Because they know that
25 like this, of nine stocks often talked about in the same 25 that price is not a price that investors are going to
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1 live with because it's a money machine. It's too good. 1 A. I don't use that phrase. I know what you mean
2 It means that -- it's too high and that 2 by it. I try not to use that phrase I just say whether
3 investors are going to be getting lower yield on those 3 it's an efficient market or inefficient market.
4 stocks and not be happy with it in the long run and the 4 Q. So couldn't arbitrageurs who were unable or
5 price will go down. 5 unwilling to pay the cost of selling -- going short,
6 So prices that move because of demand that is 6 could they have just bought put options and constructed
7 unrelated to anything to do with the fundamentals of the 7 an equivalent portfolio to arbitrage away these perceived
8 stock, value-relevant information, are going to be 8 inefficiencies?
9 arbitraged away. 9 A. So it is my understanding that an alternative to
10 And yes, demand went up. But if demand goes up 10 shorting can be purchase a put option. It's also the
11 for reasons unrelated to the future cash flows of the 11 case that in typical times when there are high costs of
12 stock, those will be arbitraged away. 12 shorting, there can also be high cost of going in put
13 So I'm not saying demand doesn't matter. I'm 13 options. And what would I mean by that? There could be
14 saying if demand goes up or goes down based on 14 very large bid-ask spreads for put options.
15 non-value-relevant information, then in an efficient 15 I haven't looked into this here, but typically
16 market, that should have no impact on the price. 16 it's the case that put options themselves at times can be
17 Q. BY MR. ROSEN: You say it should not have an 17 illiquid and there could be high bid-ask spreads. There
18 impact? 18 could be all sorts of reasons why put options are not
19 A. Yeah. 19 without frictions, also.
20 Q. Theoretically. 20 Q. Now there was an interview with Mr. Peterffy. I
21 A. Well, it should not theoretically have an impact 21 can't recall his first name. The guy who owns
22 on the price. And unless we believe that there are all 22 Interactive Brokers.
23 these fantastic arbitrage opportunities as an empirical 23 Do you familiar with him?
24 matter that are just sitting there, then I also would say 24 A. I don't recall his name.
25 as an empirical matter, these easy pickings aren't 25 Q. His name is Peterffy, and he was -- he was
Page 131 Page 133
1 available that long. 1 interviewed, I believe, on CNBC. In fact, I think --
2 Q. So put options on these nine stocks. During the 2 anyway, he -- he went so far as to say that he thought
3 pre-class period, was there any limit to the number of 3 that because there were so many call options written on
4 put options that could be written on these nine stocks? 4 GameStop on the 26th and 27th, he thought that because
5 A. I haven't looked into that. I have not -- I'm 5 those call options were in the money and people were
6 not aware of reading a limit on the put options. I just 6 going to have to buy shares to cover the call options
7 don't know the answer to your question. 7 they had written, that if those restrictions hadn't been
8 Q. And I think the SEC report said there was quite 8 put into place, the price of GameStop would have gone
9 a bit of options activity on these stocks. 9 over a thousand because people would have had to -- there
10 Are put options a close substitute for going -- 10 would have been additional demand in the market for those
11 selling short to these nine affected stocks? 11 shares.
12 A. They -- a put option onto itself does have 12 And does -- does that -- if that were true,
13 similarities with shorts. Because in both cases as the 13 would that mean the stock for GameStop was inefficient
14 underlying stock price falls, the values go up. Shorting 14 because the price was rising based on that demand?
15 value goes up as the stock price falls and a put option 15 MR. RYAN: Objection to form.
16 goes up as the stock price falls. So they have that 16 THE WITNESS: So I'm a finance professor and a
17 similarity. 17 finance expert, but I could not put all that together in
18 Q. So if somebody, an arbitrageur who wanted to 18 my mind in real time to be able to understand it. I was
19 make a short position but was finding it hard to borrow 19 not blaming you. It's a relatively complicated example.
20 the stock for whatever reason, not available or borrowing 20 That would be kind of one, it would helpful if we go
21 costs were high, they could have bought a put option and 21 really slow or you put it on the screen, but that had a
22 arbitraged away these what you believe to be the rational 22 lot of moving parts.
23 prices. 23 Q. BY MR. ROSEN: I would have to replay -- I guess
24 Am I putting words in your mouth when I say 24 I could get this at a break, but the essence of it is
25 rational price? 25 that Peterffy, who runs Interactive Brokers, he's, you
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1 know, I don't know, the guy's worth 25 billion or 1 markets were wildly inefficient and at the same time
2 something. So he's obviously smarter than me. I won't 2 would see prices deviating from put-call parity.
3 say he's smarter than you. But he knows the markets; 3 Also, by the way, the Franklin Allen paper, as a
4 right? He runs -- he runs a pretty successful brokerage 4 test of market efficiency, does something similar to the
5 firm. 5 quote you're talking about, and looks at the connection
6 And his belief is that there were many call 6 between option prices and stock prices.
7 options written, and the number of call options that were 7 And my recollection is the Franklin Allen paper
8 written meant that there was going to be tremendous 8 shows this is evidence of market inefficiency in these
9 demand for these GameStop shares and that those -- price 9 meme stocks during this period of time, that the
10 of the GameStop shares would have risen over a thousand 10 connection between options and the underlying stock, for
11 had those restrictions on the 28th not be put into place 11 whatever reason, broke down.
12 because people would have had to purchase -- the people 12 And the Franklin Allen paper used this as
13 who wrote the options would have to purchase those 13 evidence of market inefficiency in this time. The --
14 shares, and that was one of the causes for the increase 14 also the paper -- I'm almost finished here -- the Jones
15 in price for the -- based on the demand -- the demand 15 paper also called this some sort of bubble, too.
16 by -- for the shares by those call options. 16 So the Jones paper that Dr. Werner mentioned is
17 So the question -- the question is: If that 17 also aware of the sort of non-efficient market story
18 were true, would that necessarily mean the market was 18 going on during this time. And as sort of part and
19 inefficient simply because the demand resulting from the 19 parcel to this, there was something unusual going on
20 call options caused the stock price increase? 20 between options and the stock. I just, as I sit here,
21 MR. RYAN: Objection to form. 21 haven't looked at it enough to be able to disentangle
22 THE WITNESS: So the connection between call 22 what caused what, whether the options caused the stock or
23 options and the underlying stocks is sort of a well-known 23 the stock caused the options.
24 topic area. And more than just a call, but if you look 24 All I know is there's some empirical evidence by
25 at calls and puts in the underlying stock at the same 25 some researchers that the normal, non-arbitrage
Page 135 Page 137
1 time, there's a -- there's a well-known concept called 1 relationship between these things broke down for these
2 put-call parity that exists. It's not the same thing as 2 stocks during that time.
3 talking about market efficiency, but it's very close. 3 Q. Do you know who Professor Gabaix is?
4 And so I haven't -- I don't know exactly what to 4 A. A little bit. G-A-B-A-I-X?
5 make of his explanation or description, but I do know 5 Q. Yeah.
6 that people have looked at GameStop and others during 6 A. He's -- yes, he's a -- I forget if he's at NYU.
7 this time and noted deviations from put-call parity, that 7 But yes, I'm aware of him. He's a relatively famous
8 is, normally there's a very close formula that connects 8 economics professor.
9 stock price and its option prices. Because if it 9 Q. All right. And are you aware of a paper he
10 deviates from that, there would be an arbitrage 10 wrote with a guy named Koijen in 2022. I'll show it to
11 opportunity. 11 you. Well, I don't know.
12 So a lot of times in the real world when you 12 Have you -- the name of the paper -- let's see.
13 test this, it's not perfect, but it's really good. 13 It's called "In Search of the Origins of Financial
14 I believe one of the studies that noticed 14 Fluctuations: The Inelastic Markets Hypothesis."
15 oddness in the valuation of options relative to the stock 15 A. No.
16 price at this time was one of the papers cited by 16 Q. Have you ever read it?
17 Dr. Werner in his rebuttal report. It was a working 17 A. I haven't.
18 paper from a few years ago. I think one of the authors 18 Q. Well, it's only 123 pages long. How long do you
19 was Jones. 19 think it would take you to read it?
20 And if you look at that paper, it discusses 20 A. Longer than most people. It takes me a long
21 anomalous behavior in the volatility of options, which 21 time to read articles.
22 is -- we talked about earlier, the function of the price 22 Q. All right. Let's talk about coordinated
23 of options. 23 trading.
24 So, again, I haven't looked into this, but it 24 What is your definition of "investor
25 would not shock me during a time in which I would say 25 sentiments"?
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1 A. Investor sentiments? 1 Q. You used the term "coordinated trading" in your
2 Q. Yes. I see that in the literature here and 2 reports. What is your definition of "coordinated
3 there. Is there like an accepted definition of it? 3 trading"?
4 A. So I certainly do know -- I have definitely seen 4 A. Sure.
5 the phrase used in academic literature. I don't have a 5 So it's finding a mechanism for multiple
6 great definition of it other than it usually occurs in 6 investors to trade in concert in some way. And keep in
7 papers. Because obviously on the face of it, investor 7 mind, I'm talking as an economist. I'm not talking
8 sentiment could be anything that investors believe. 8 anything about conspiracies or anything about the law.
9 But my recollection is the context of the papers 9 It's just a mechanism for coordinated trading,
10 that cite it are usually getting at something akin to 10 for people to trade together in a certain way, for
11 noise traders. Investor sentiment is usually given that 11 whatever reason they may have for that.
12 sort of meaning of something that's not driven by sort of 12 Q. Well, so there were people -- a large number of
13 value-relevant information. But that may not be the only 13 people who -- well, you heard of this term "diamond
14 standard paper. But that's my general reading of that 14 hands" on social media on January 21 in the context of
15 phrase. 15 the nine affected stocks; right?
16 Q. Did the investor discussions on Reddit and Wall 16 A. So yes, I have. I don't know what it means,
17 Street Bets and other social media in January 2021 17 though. I know it and I've seen it. I did not Google it
18 concerning the nine affected stocks, in your opinion, 18 to figure out what "diamond hands" means. I can honestly
19 represent widespread investor sentiments? 19 say I don't know what "diamond hands" means.
20 A. I don't know if I've come to that conclusion. I 20 Q. All right. I can represent to you that I
21 certainly -- I mean, I don't have that conclusion. I 21 actually believe someone testified to this, one of the
22 certainly could find possibly others that may have that 22 plaintiffs, but I'll -- my understanding is that it means
23 belief. I'm sure there are many. But I haven't come to 23 I'm holding the stock forever for, you know, the long
24 that conclusion. 24 haul. I'm not -- I'm not in this for the short term.
25 Q. What conclusions did you come to about the 25 I'm going the hold this and not -- not let go of it. I'm
Page 139 Page 141
1 investor discussions on Reddit and other social media in 1 going to hold it and not let go, ever.
2 January 2021 about the nine affected stocks? 2 A. Buy and hold investor. Okay?
3 A. Sure. Just a few. So in the context, this came 3 Q. Yeah. And so there were those -- you know,
4 up when I mentioned that I have an opinion that the 4 there were a large contingent who were diamond hands
5 market for these nine stocks during this two-week period 5 people, and then there was also people who were talking
6 that we've spoken about were not traded in efficient 6 about short squeeze.
7 markets. 7 And like I guess to me, the -- the idea of
8 And then to put that in context, I wanted to 8 making money with a short squeeze is you're going to hold
9 mention other people. So I mean academics, stock 9 it until it gets up -- goes up, and then you're going to
10 analysts, and the media in general commented at length 10 sell it before, you know, before the shorts cover it;
11 about this, and many of the comments talked about social 11 right? Before it goes back down; right?
12 media and Reddit and the like. And they had all sorts of 12 Is that a fair analysis of how you make money on
13 discussions about that. 13 a short squeeze?
14 So this is, I would say, contextual. I do not 14 A. So that strikes me as a way of doing it. Of
15 have an opinion one way or another about the content of 15 course, it's easier said than done. But yes, the idea of
16 these other than the fact that I'm aware as an empirical 16 a short squeeze is to ride it up as it puts pressure on
17 matter that there is an association between the level of 17 the shorts to end up buying back the stock, which feeds
18 activity of social media mentions of the meme stocks and 18 on itself and makes it go up even higher. And then
19 their price activity. So I'm aware of that. 19 generally people believe, for various reasons, the price
20 It's in academic articles. It's in a couple of 20 goes back down. In that time, you want to be out of the
21 Bank of America analysts reports. It's in a Lasse 21 stock. But the timing of it is always very tricky.
22 Pedersen recent paper. That's all interesting and I 22 Q. So would you agree that these would be two very
23 think provides interesting context and important context 23 different investment strategies? The diamond hands,
24 for this. But I don't have an opinion one way or another 24 long-term investors would be having a very different
25 about the underlying discussions on Reddit. 25 investment strategy than the more short term, short
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1 squeeze investors? 1 think we're in a bubble and I suggest this bubble is here
2 A. So I'm just accepting as given the premise of 2 to stay for a while, why don't you ride the bubble and
3 your question. I have no reason to doubt your -- your 3 buy it and hang onto it for a while, and therefore, I'm
4 definitions. 4 going to say it's a strong buy," I would call that
5 So yes, I think definitionally an investor who I 5 non-value relevant information.
6 would call buy and hold -- I think you called that 6 I'm not going to judge the recommendation unto
7 diamond hands -- a buy-and-hold investor and investor 7 itself as value relevant or not, but the basis for that
8 who's trading based on some timing mechanism is very 8 recommendation.
9 different. 9 Q. But if an analyst's recommendation is based on
10 And I kind of think if I was teaching a class on 10 his changed view of the cash flows, but that changed view
11 portfolio or investment strategies, I would probably 11 is not a function of any new news coming from the company
12 start with the difference between buy-and-hold investors 12 or any other source as to the nature of those cash flows,
13 and short-term investors. That's like where I would 13 why should that new view impact the price of the stock?
14 start as very different strategies. 14 A. So analysts in general -- I'm not going to say
15 Q. Is it your opinion that the people who were 15 any one analyst in particular -- provide value in at
16 engaging in coordinated trading on social media were in 16 least two ways. I'm thinking about it as two ways
17 some way manipulating the prices of the nine affected 17 fundamentally: One is uncovering information that's
18 stocks? 18 value relevant; but two, and sometimes more common, is
19 A. I don't have an opinion on that. 19 interpreting -- interpreting new value-relevant
20 Q. Is it your opinion that the people who were 20 information.
21 coordinating trading on social media for the nine 21 So as an obvious example, a firm could have an
22 affected stocks were somehow distorting the prices of the 22 earnings announcement on a day. Generally, that's at
23 nine affected stocks? 23 least fodder for value-relevant information. And the
24 MR. RYAN: Objection to form. 24 fact that two analysts both mentioned that would not be
25 THE WITNESS: I don't have an opinion on 25 very interesting. You wouldn't be paid for that.
Page 143 Page 145
1 causation of what caused what I would consider the 1 However, one analyst might say, "This
2 incredible run-up in prices during that period. I don't 2 foreshadows more of the same because I believe there's
3 have an opinion on causation, whether it's coordinated 3 barriers to entering this industry." And then the other
4 trading or short squeezes. 4 analyst says, "Don't be fooled by this. This is an
5 Q. BY MR. ROSEN: Okay. Now in your report, you 5 accounting trick because they had a temporary, you know,
6 mention analysts. There's a section on analysts, I 6 increase in, you know, goodwill or something like that."
7 believe, somewhere. And you discuss -- let's see if I 7 All I'm saying is that analysts also interpret
8 can find it. I guess it's on page 66. Let's see. 8 that information, and if one analyst interprets that
9 I'll withdraw that question. 9 information in a way that changes the recommendation, and
10 So do analysts' recommendations -- would you 10 it's based on their interpretation of value-relevant
11 consider analyst recommendations to buy, sell, or hold 11 information, like in my hypothetical, then I would
12 the stock to be value-relevant news that could impact the 12 consider that potentially value-relevant news.
13 price of stock, move the price of stock? 13 Q. So in paragraph 109 of your report, you say that
14 A. It -- it depends on why they make such a 14 academic research has recognized that noise traders can
15 decision. So here's what I mean. A recommendation is 15 pose risks to arbitrageurs.
16 not in and of itself information. It is sort of a 16 A. I have the right page. I just want to see where
17 summary of information in how they base an overall 17 you got that from. Was that a quote or was that like a
18 decision based on underlying information. 18 summary, what you just said? I couldn't find it.
19 So if -- I'm just making a hypothetical here to 19 MR. RYAN: I think it's at the end of the second
20 make my point. If an analyst said, "I have updated my 20 sentence.
21 opinion that stock A dividends or cash flows are going to 21 THE WITNESS: Okay. Thank you.
22 increase much more than I anticipated, or much more than 22 Okay. I see it.
23 other investors think; therefore, I'm raising my rating," 23 Q. BY MR. ROSEN: So do you think that the retail
24 I would call that in its totality value relevant. 24 traders in these nine affected stocks posed a risk to the
25 If on the other hand, the investor said, "I 25 arbitrageurs who were selling short these nine affected
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1 stocks? 1 So it's something that we know is possible. I
2 A. Did you say retail? Because that one word, I 2 personally wasn't aware how -- that I thought this was a
3 didn't hear. I think you said retail. 3 very rare event, and maybe it is. But I'm certainly
4 Q. Yes, retail. Yes. 4 aware of GameStop, for example, at times having shorts
5 A. So I don't have an opinion on that. That's a 5 over 100 percent, which is a surprising number.
6 causal story. I certainly am aware that some people have 6 Q. In paragraph 26 -- let me see which report this
7 the opinion that there was -- that these retail investors 7 is. Yeah, it's your opening report.
8 either purposefully or non-purposefully coordinated 8 On paragraph 26, you say, "My own analysis of
9 driving up the price, putting pressure on these short 9 data from the stock lending market also provides evidence
10 sellers. 10 to the strengths that may have inhibited the ability of
11 That's a story that's out there. It's obviously 11 arbitrageurs and other market participants to sell short
12 in the Franklin Allen paper and others. I don't have an 12 certain at issue stocks."
13 opinion on that. It's a story that is definitely 13 Now you used the term "may have inhibited,"
14 credible to me, but I haven't formed an opinion on that 14 which is uncertain. It implies some level of
15 one way or the other. 15 uncertainty; is that right?
16 Q. Well, wouldn't the flip side of that story be 16 A. So what I would view this as -- I'm not
17 that the short sellers were ganging up against these nine 17 necessarily disagreeing with your characterization. What
18 affected stocks to drive the price down so they could 18 I'm saying is I have not formed an opinion in this case
19 profit? 19 about causality.
20 A. So I don't know if either of those stories are 20 So as I said earlier, I've come to the
21 true, in fact. All I'm convinced of is that those 21 conclusion that these stocks were not traded in efficient
22 markets were not efficient during that period of time. 22 markets during this two-week period. There are stories
23 Whether you believe it's possible that the line of 23 about short squeezes and coordinated retail trading that
24 causation goes from retail investors to the stock price, 24 are out there.
25 or alternatively, you believe the line of directionality 25 To the extent we're talking for the moment in
Page 147 Page 149
1 goes from the short sellers to the stock price, it 1 this paragraph about short squeezes or attempted short
2 doesn't change my opinion. 2 squeezes, what I point out is I am showing in this report
3 I would just say that when I read the academic 3 some empirical evidence of constraints to short selling.
4 articles and the analyst reports, they mostly subscribe 4 But because I don't have an opinion about whether, or if
5 to the hypothesis that the directionality goes from 5 so, how much of the price increase was due to short
6 retail investors causing the prices to go up beyond 6 selling -- short squeezes, I do not say as a factual
7 efficient values, putting pressures on short sellers to 7 matter it caused it. I'm saying it may have caused it.
8 even exacerbate the price run-up itself. 8 That's the story there. I don't have a
9 That's -- I don't have an opinion on that. I'm 9 conclusion about causality.
10 just saying that's what I view as the common narrative 10 Q. So in paragraph 132 of your opening report, it
11 from the academic articles, for example. 11 says, "In sum, risks and constraints on an arbitrageurs'
12 Q. Is there limit to how many shares of a company's 12 ability to sell stock short -- whether due to sharply
13 stock can be sold short? 13 rising stock prices, high costs, or limited supply for
14 A. That's an interesting question because most 14 borrowing stocks, or risks due to the possibility of loan
15 people are surprised that short interest can go above 15 recall or changes in the borrow rate -- can present
16 100 percent. So I don't know if there's a limit. There 16 impediments to trading that inhibit the incorporation of
17 may not be. 17 new, value-relevant information."
18 So it is unusual to have short interest go over 18 Do you have any evidence that there was a
19 100 percent because that would mean more than the number 19 limited supply for borrowings these nine affected stocks,
20 of shares outstanding are shorted, and there's a 20 more limited than any other company, I mean, that was
21 technical reason why that is the case, is that one person 21 traded on the market?
22 borrows stocks from another, and then that person itself 22 A. So the empirical evidence that I showed was
23 lends it to another person. So it gets turned around 23 certainly not -- in this report, was not directly that
24 twice. It's shorted twice, the same shares. And it can 24 variable. I believe I showed borrowing costs and short
25 be done even more. 25 interest. I believe other papers have touched on that.
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1 I think the Franklin Allen paper does discuss that, and I 1 Q. Could you give me an example the other
2 can't recall it, but I would be -- I think it's quite 2 definitions?
3 possible that that paper does shed some light empirically 3 A. I'd have to go through it, but I'm sure the
4 on the amount of shares available to be shorted during 4 Franklin Allen paper has a definition of a short squeeze
5 that time. 5 in there.
6 But I didn't independently do that, but there's 6 Q. I see.
7 ample discussion about short-selling constraints and 7 What are the risks and constraints a short
8 potential short squeezes during that time that are based 8 seller might face that would constitute or contribute to
9 on that. 9 a squeeze?
10 Q. Do you have -- do you know of any specific 10 A. Sure.
11 instances in which an arbitrageur was prevented from 11 So there are several. This may be not all
12 taking either a long or short position in the nine 12 inclusive. There may be more. So one is borrowing
13 affected stocks during the pre-class period or class 13 costs. So when you're shorting, you borrow stock until
14 period? 14 you unwind the position. Not only are you paying
15 A. I do not have any sort of information about any 15 interest while you borrow the stock, but that interest
16 individual arbitrageur. All of my statements are in the 16 rate could go up. And that's a risk.
17 context of what I see in the market itself. 17 Another very sort of simple technical risk is
18 Q. Do you have any opinion as to whether there 18 that the stock may be recalled and you have to quickly
19 actually was a short squeeze in any of the nine affected 19 find another source for that stock to be able to short
20 stocks during the pre-class period? 20 it. You have to borrow somewhere else.
21 A. So I don't have an opinion on that. I do cite 21 In normal circumstances, it may be very easy to
22 the Franklin Allen paper, where he and his coauthors, I 22 find another stock, but when over 100 percent of the
23 believe, I think was it seven of their stocks? So maybe 23 stock is being shorted, it may be very difficult.
24 that's five. 24 Another example, and probably the primary risk
25 Q. Five. 25 at issue at this time here, is that the stock could keep
Page 151 Page 153
1 A. Five of the stocks. 1 going up in value. And while it goes up in value, you
2 Q. Five of the nine, seven of the thirteen, 2 are going to -- the shorter is going to have to increase
3 probably. 3 their collateral and come up with more money to meet
4 A. Yes. But I certainly cite that as an academic's 4 those margin requirements. And if they do not meet those
5 opinion of that. But again, of course, that's -- I'm 5 margin requirements, they will be forced to sell those at
6 providing that as -- as context for my opinion that these 6 a price that most likely is above what they sold them for
7 stocks did not trade in efficient markets during this 7 initially and lose money on the position.
8 two-week period. 8 So it's the combination of borrowing costs, the
9 Q. Do you know how one might go about performing a 9 scurrying to find new shares if they're recalled, and the
10 test to determine if there was a short squeeze in any of 10 risk that even though you might have initially believed
11 these nine stocks? 11 that the stock prices were too high, they can become
12 A. Well, the Franklin Allen paper is a method of 12 higher. And even though in the fullness of time you
13 doing that, but I haven't considered doing that research 13 might be fine, but they don't have unlimited capital, and
14 myself. 14 they can be hit by margin calls or may simply say "I
15 Q. So in paragraph 128, you define -- I don't know 15 cannot bear this risk, anymore."
16 if it's a definition, but you say -- you say, "A 'short 16 So it's capital constraints, limited horizons,
17 squeeze' is a situation where short sellers are forced to 17 and those sort of frictions that make short selling very
18 close out their positions due to the risk and constraints 18 risky in these kinds of markets.
19 they face." 19 Q. If there was an attempted short squeeze but not
20 Is that the definition of a short -- of a short 20 an actual short squeeze, would that have an impact on a
21 squeeze that you base your opinion on in this case? 21 stock's price?
22 A. Not necessarily. That is one definition, and 22 A. So that's a very semantic-driven question. It's
23 obviously I cite it from this D'Avolio academic article. 23 obviously a fair question, but when an attempted short
24 There are other definitions of short squeezes that are 24 squeeze, we all can imagine what I mean by that and
25 similar, but not exactly the same. 25 others mean by that. It could be something that is
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1 intentional, such as coordinated retail trading to push 1 these strict efficient market conditions. I'm a firm
2 up the stock, put pressure on existing short sellers. 2 believer in efficient markets as being the normal course
3 Now if it's attempted but not successful, yes. 3 of events, and I wouldn't rule that out so strongly as I
4 It depends. But if it's attempted and it pushes the 4 do in this case unless I was really convinced.
5 stock price up into inefficient market territory, that 5 And as I said, a one-in-a-million event when
6 certainly in and of itself can make the market 6 many of these stocks had no value-relevant information.
7 inefficient and cause the stock price to be higher than 7 Like I forget the ones, but it could have been Trivago,
8 it should be otherwise. 8 for example. I forget. But Trivago may not have had
9 If the attempt could be you and I try to attempt 9 any -- I couldn't find any value-relevant information
10 to engender a short squeeze on Apple stock, we might 10 going on, yet this was an unusually good performing stock
11 really try to do it hard, but I guarantee you we couldn't 11 during this time.
12 do it. 12 So I'm not being unbelievably loose in my
13 So what I mean by attempted short squeeze is to 13 definition of deviation from an efficient market. I am
14 make sure I'm clear that the fact that some people claim 14 just saying that this is so extreme there is no way a
15 that investors, retail investors on Reddit, were 15 finance professor could look at the facts of those nine
16 coordinating to do a short squeeze. I'm sure you can 16 stocks during this two-week period, just this two-week
17 find quotes of people trying to do that. I'm not 17 period, could come away and saying these stock price
18 accepting that as evidence that they caused a short 18 increases during the first one-week period are justified
19 squeeze. 19 in any way by value-relevant information.
20 So I'm putting that in the category of attempted 20 Q. Is it your opinion that the supposed or alleged
21 short squeezes to say that could also cause the stock 21 short squeeze for these nine stocks was illegal
22 price to go up, probably not as much as a successful 22 manipulation?
23 short squeeze, though. 23 A. I have no opinion about the legality or lack of
24 Q. Is there a minimum amount of short interest 24 legality of that sort of behavior.
25 required for there to be a short squeeze? 25 Q. Are you offering any opinion in this case as to
Page 155 Page 157
1 A. I'm not aware of a number for that. I do not 1 what caused investors to sell their shares after the PCO
2 know one. 2 restrictions were imposed by Robinhood?
3 Q. What level of certainty is required for you to 3 A. I am not.
4 give an opinion that the market for a stock is 4 Q. Do you offer any opinion as to whether investors
5 inefficient? 5 were aware of fraud or manipulation as a result of the
6 A. I don't have a precise answer. What I would say 6 restrictions Robinhood imposed or that others imposed on
7 is I'm not -- it's not my general nature as an academic 7 these nine affected stocks?
8 or an expert to argue that a stock is clearly not trading 8 MR. RYAN: Objection to form.
9 in an efficient market for a period of time. 9 THE WITNESS: So I do not, and I don't have an
10 So I need a lot -- I need some facts of a case 10 opinion that even of what would constitute fraud or
11 to be very extreme, and I know it's a bit of a broken 11 manipulation in a particular case.
12 record, but just to be clear, this is not your normal 12 Q. BY MR. ROSEN: Did the purchase restrictions and
13 case. 13 subsequent price decline in the nine affected stocks
14 Q. You know, they're charging you by the word in 14 induce investors to sell shares to the nine affected
15 this transcript. 15 stocks during the class period?
16 A. That's okay. This is not your normal case, and 16 MR. RYAN: Objection to form.
17 so I'm not exaggerating. I demonstrate to -- in my -- in 17 THE WITNESS: So that's, again, what I would put
18 my report that this is really a one-in-a-million event. 18 in the category of causality. I don't have an opinion on
19 So this one week for these nine affected stocks, the 19 that. Other than during that period, the class period, I
20 portfolio of them increased by more than a random drawing 20 have an opinion that those nine stocks did not trade in
21 of nine other stocks over a 25-year period. A million of 21 an efficient market.
22 them. And not only did it outperform them; it 22 Q. BY MR. ROSEN: What information did investors
23 outperformed them by a lot. 23 have on beginning January 28th, 2021, about the
24 So, again, I feel like your question insinuates 24 restrictions; do you know?
25 that I am being characterized as somebody who's imposing 25 A. So I don't know a lot about this. I do
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1 recall -- I believe I have a footnote from a deposition 1 So that's what I did. I didn't call it an event
2 of one of, I guess, the named plaintiffs, and my 2 study. If you want to call it an event study, that's
3 recollection is that -- I believe it was a "he" -- 3 fine.
4 mentioned that his app showed a restriction. And then he 4 Q. I don't want to call it an event study. I want
5 went to the website and found that there was a 5 to call it a reverse event study.
6 restriction. 6 A. Okay.
7 That's my recollection, and we could go through 7 Q. Is that okay?
8 that. But that was -- I cited that as a footnote in my 8 MR. RYAN: Objection to form.
9 report. So that would be an example of what one 9 THE WITNESS: If you ask me a question about
10 investor, I believe, in deposition testimony said. 10 reverse event study, I'm happy to answer questions about
11 Q. Now did you do an analysis of the Cammer and 11 it.
12 Krogman factors -- well, you know what the Cammer and 12 Q. BY MR. ROSEN: Well, you know, this is -- this
13 Krogman factors are? 13 is my issue with the way you did your event study.
14 A. I do. I don't have them memorized. I am 14 So you, at the time you -- you first -- before
15 broadly familiar with them, and I know most of them, but 15 you selected event study, you did your regression and
16 I'm familiar with them. 16 found out what dates during the pre-class period and
17 Q. So you know there's five Cammer factors, the 17 class period were statistically significant; right?
18 fifth being price moving in response to news? 18 A. I'm not sure I agree with that statement.
19 A. Yes. The fifth is the sort of empirical 19 Q. Well, what was the design? Explain the design
20 cause-and-effect relationship. 20 of your event study, then.
21 Q. So did you do an analysis of the first four 21 A. Sure.
22 factors? 22 So for -- unless you disagree, for purposes of
23 A. I did not. I certainly had commentary on them, 23 my answers in this section, it's easier if I just talk
24 particularly in my rebuttal report, but commentary to the 24 about the one week prior to the class period. Because
25 extent of comments on Dr. Werner's treatment of them. 25 there's --
Page 159 Page 161
1 Q. And did you do an analysis of the Krogman 1 Q. Yeah.
2 factors? 2 A. -- three different ones. And that's obviously
3 A. I -- if I did, it would only be to the extent 3 the period under study by Dr. Werner, also. Okay.
4 that I commented on Dr. Werner's report. And I don't 4 So this is -- actually, if you don't mind,
5 believe I mentioned them. I think I mentioned in my 5 there's a footnote in the appendix that I'm going to be
6 rebuttal report Cammer 2, 3, and 5. That's my 6 referring to because that answers directly your question.
7 recollection. 7 Let me see if I can find this.
8 Q. Did you do an event study in this matter? 8 A. So if you're interested, on the PDF --
9 A. I would say you could call it that. I don't 9 MR. ROSEN: I can't hear you all the sudden.
10 want to fiddle over semantics. But yes, I did -- in 10 Something happened to your voice, to your mic.
11 my -- I think they were appendices E and F. I did 11 THE WITNESS: How about now? Can you hear me
12 something very close to what you would call an event 12 okay?
13 study. 13 MR. ROSEN: It's still changed. It's not as
14 Q. And why do you call it -- why do you say it's 14 strong.
15 close to an event study, but not an event study? 15 THE WITNESS: If it keeps going, I can talk
16 A. Sure. 16 louder. But I will --
17 I have no problem with calling it an event 17 Q. BY MR. ROSEN: Now I hear better. Now I hear
18 study. Generally speaking, what I did was technically a 18 better.
19 regression, a regression with two right-hand side 19 A. Okay. I moved for a second.
20 variables, an industry and a market factor that we talked 20 But I'm on page 117 of my PDF.
21 about earlier. And then I looked at on all of the days 21 Q. Okay.
22 for these at-issue stocks for this one-week period prior 22 A. And just it helps me recall.
23 to the class period and then the class period itself, I 23 What I would argue is my methodology of the
24 looked if I could find any value-relevant information 24 event study is summarized in the footnotes on this page,
25 there. 25 largely.
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1 So there's two things that are done, and the 1 footnote, I do not include as value-relevant information
2 first is a regression. So you can feel free to ask me 2 information that deals with things such as short
3 more about regression, but I'm just going to briefly 3 squeezes, because that has nothing to do with the firm
4 describe that part of process. And that's not in the 4 itself, its earnings. I don't deal with what's going on
5 footnotes here. That's talked about elsewhere. And I -- 5 with coordinated retail investors. I don't -- and
6 I think footnote 2 mentions that. 6 lastly, I don't include information of commentary by
7 So I run a regression over, my recollection is a 7 analysts that, in my words, would say these stocks are
8 120-day estimation period that goes up, I think it ends 8 inefficient.
9 at just before January 2021. So it doesn't go quite up 9 If an analyst says this stock is trading in an
10 against the class period and the week before. 10 inefficient market, I wouldn't call that value-relevant
11 And that regression is a statistical technique 11 information.
12 that is not unlike what you described the Roll paper as 12 Q. Why wouldn't it be?
13 earlier. So one regressor for all of these at-issue 13 A. Why would an analyst saying that the stock
14 stocks is the market portfolio, and another regressor is 14 doesn't trade in an efficient market?
15 an industry regressor, which you're welcome to ask me 15 Q. He's saying the stock is overvalued or
16 questions about the details of that, but I'll leave that 16 undervalued; right? Isn't that value relevant?
17 out for the moment. 17 A. So I'm defining value relevant as -- because I'm
18 And so that regression is run. And those -- a 18 doing this on purpose because I'm connecting it to the
19 regression is run means it estimates those parameters, 19 earlier discussions you and I have had about what an
20 what are called a slow co-efficient on the market and the 20 efficient market is.
21 slow co-efficient on the industry. And each day the 21 An efficient market is that the prices quickly
22 difference between those values and what's predicted is 22 and fully reflect new information that I say is value
23 called the residual for the company-specific return. 23 relevant. So if a stock price quickly and fully reflects
24 So the regression is run. And then as an output 24 new information about earnings, that's fine. That's what
25 of that, besides those parameter values, you can 25 I'm looking for in an efficient market.
Page 163 Page 165
1 determine for each stock and each of those five trading 1 If on the other hand, a stock price quickly and
2 days whether or not the return was statistically 2 fully reflects information about sun spot activity, that
3 significant, say it's a 5 percent level significance. So 3 is not value relevant. I'm not saying that's a great or
4 that's one part of it. 4 bad thing, but no finance professor would consider that
5 I'm not calling it step one because -- you're 5 value relevant.
6 welcome to ask me about the timing of this, but I'm just 6 And so as an extreme case, and as I point out in
7 saying that's one aspect of this. 7 my rebuttal report, ironically, quite a bit of the
8 And the other aspect which is much more detailed 8 information that Dr. Werner uses as news is commentary by
9 in the footnotes at hand here is a search for potentially 9 an analyst, for example, or a market commentator that
10 value-relevant information about these stocks on these 10 says, "This stock" -- is in my words -- "this stock is
11 days. 11 untethered from anything value relevant." And the fact
12 And so first part of that is where do we search 12 that it's mentioned, he uses that as evidence that it's
13 for this value-relevant information. And what I list 13 trading inefficiency.
14 there is press releases by the companies, SEC filings, 14 So under his approach, just briefly, if
15 equity analyst reports, and then I also include debt 15 everybody on a day said GameStop is clearly trading in an
16 rating agencies' changes. So those are the sources that 16 inefficient market, and GameStop stock moved, he would
17 I look at. 17 use that as evidence that GameStop trades in an efficient
18 And then based on those sources, I determine 18 market. That's extremely ironic.
19 whether or not on a stock on a given day, there is 19 So I am looking at -- so that's my procedure.
20 potentially value-relevant information. And what I mean 20 And then I look at this in its totality and try to come
21 by value-relevant information is the stuff we talked 21 to my opinion, which was quite easy in this case because
22 about earlier, stuff that deals eventually with the cash 22 of the nature of the facts, that is there a reasonable
23 flows of the firm. Things to do with the firm's earnings 23 basis for me to come to the conclusion or to be able to
24 and costs and customers and things like that. 24 support what Dr. Werner is saying, that these unusual
25 But explicitly, as I've put in there in the 25 statistically significant stock price changes of these
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1 at-issue stocks for these trading days is reasonably 1 and I'll be even more brief not to count up -- add up
2 related to the potentially value-relevant information. 2 your word count, but the extreme evidence was the
3 And my answer is no. It's not even a close 3 unprecedented increase in these individual stock prices
4 call. So that's how I did this event study. 4 during that one-week period combined with the lack of
5 Q. Well, January 21 to January 27th is a very short 5 concomitantly important potential value-related
6 time frame. It's five trading days; right? 6 information about those stocks during that period.
7 A. It is. 7 It was so clear to me that I could find no
8 Q. Why didn't you look earlier than that? 8 rational basis to be able to explain those extreme stock
9 A. So first of all, I am looking at this period 9 price movements, in that case, increases, based on the
10 right before the class period as the most relevant one. 10 value -- potentially value-relevant information that I
11 For example, this is what was going on if -- if, for 11 was able to obtain.
12 example, as I do find that the stocks were not traded 12 I couldn't even imagine trying to come up with a
13 efficiently during the class period, it's useful to have 13 story based on what I found in terms of information
14 some context about, well, did that just start on that day 14 during those days to explain why costs went up a thousand
15 or was it a continuation? And obviously, I find that 15 percent.
16 it's a continuation. 16 I -- I don't see Dr. Werner even attempting to
17 I did not want to look at the class period as a 17 do that. It's impossible.
18 snapshot unto itself. I think it's really important -- 18 So you might explain it by other things. Of
19 especially since I believe your expert believes that that 19 course, everything has an explanation. But my job was to
20 January 27th price after Koss went up a thousand percent 20 see if I could potentially explain it by value-relevant
21 with some fair price, you need context. Where did that 21 information, and I could not.
22 price come from? So that's why I do the one week just 22 And if you can't explain extreme stock movements
23 prior to it. 23 for nine stocks over a week of trading by anything
24 On the other hand, if I went back far, again, 24 approximating value-relevant information, then you have
25 like Dr. Werner does and looks a year in advance at the 25 to come to the conclusion you would reject a null
Page 167 Page 169
1 class period, that's not of interest to me. I am not 1 hypothesis of market efficiency.
2 shocked if somebody -- if somebody would show me that one 2 Q. Have you ever performed an event study in the
3 year before the class period, that some of these stocks 3 same manner that you performed this event study?
4 traded in an efficient market. I didn't look at that, 4 A. I think all of my event studies are the same. I
5 but that wouldn't shock me, nor is it relevant to this 5 have a regression that's quite similar. Usually has the
6 case. 6 market industry effect. I calculate the -- whether or
7 We're talking about a meme stock event where 7 not the stock price was significant, and then on the day
8 there was lots of discussion about these stocks and 8 of the event study, I look at information on that day and
9 unusual short interest. 9 try to discern whether there's any causal relationship
10 The Franklin Allen paper has figures that show 10 between the two.
11 when the discussions on social media started heating up, 11 MR. RYAN: I think we've been going about an
12 and it was roughly that one week period prior. So that's 12 hour and a half again, Larry. Is now a good time for a
13 another reason why I did that one week prior. 13 break?
14 Q. So do you have any opinion as to whether the 14 MR. ROSEN: Yeah, that's fine. Ten minutes. So
15 market for these nine affected stocks was efficient prior 15 come back at 6 o'clock. 13 minutes, 6 o'clock.
16 to that, to the January 21st? 16 MR. RYAN: Sounds good.
17 A. I have not looked at it so I don't have an 17 MR. ROSEN: 3 o'clock your time.
18 opinion. 18 MR. RYAN: All right. Thanks.
19 Q. What hypothesis did you test in your event study 19 (Recess.)
20 for these nine affected stocks? 20 THE REPORTER: Back on the record.
21 A. So the way I viewed it as, I would start with a 21 Q. BY MR. ROSEN: Okay. Dr. Grenadier, before our
22 null hypothesis that these stocks traded in an efficient 22 break we were talking about your event study, and you
23 market. And what that means is that I need extreme 23 said it was found in appendix E and F of your report.
24 evidence to demonstrate that it did not. 24 Now are you aware that -- so in appendix E, you
25 So and the extreme evidence speaks for itself, 25 selected news and determined whether it was value
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1 relevant to the nine stocks; is that right? 1 going to be one and the same. We have different sources
2 MR. RYAN: Objection to form. 2 of potential value-relevant information.
3 THE WITNESS: So I characterize it as 3 Q. BY MR. ROSEN: Okay. Let's take a look at your
4 potentially value relevant. So I'm trying to err on the 4 rebuttal report. Let's go to Exhibit 1A, which is page
5 side of being generous to including news that's 5 58 of the PDF.
6 potentially value relevant. 6 A. Okay, sorry. It took me a while trying to
7 Q. BY MR. ROSEN: Now you're aware that Professor 7 remember what this was. Now I certainly do remember it,
8 Fischel went through the news on those days as well, and 8 yes.
9 he selected potentially value-relevant news for the nine 9 Q. So you did some sort of news/no news analysis in
10 stocks. And he selected -- and the two of you didn't 10 Exhibit 1A, 1B, and 1C; is that right?
11 disagree -- the two of you didn't agree as to what was 11 A. That is correct.
12 potentially value-relevant news. 12 Q. And 1A, there's a news/no news test using just
13 You're aware of that? 13 earnings and guidance releases; is that right?
14 A. So I'm aware that the days that -- at least over 14 A. Yes. Let me briefly explain what I'm doing
15 the period that I covered, and he covered the same -- the 15 here. So he has what I'll call a technique that he uses
16 days that I found potentially value-relevant news did not 16 in his report that compares the -- I'll use as much as I
17 perfectly overlap with his. But, of course, we used 17 can his phraseology for this.
18 different data sources. I used primarily analyst 18 He looks at -- to come up with high information
19 reports, and my understanding is that Mr. Fischel used 19 flow days, what he does is use that public press reports
20 public press. 20 and looks in the headings of the names or ticker symbols
21 So they're different sources. So clearly there 21 of each one of these nine at-issue stocks, and the
22 will not be perfect overlap between our two 22 days -- the 10 percent of days with the most mentions in
23 determinations. 23 the headings, he calls high-information flow days, and
24 Q. So you didn't look at the press, the media 24 the remaining 90 percent he calls low-information flow
25 articles? 25 days. So that's what he does in his report.
Page 171 Page 173
1 A. So I did look at public press articles for 1 What I point out is in these three exhibits that
2 context, and I mentioned that earlier in my report. But 2 you mentioned is that when I look at earlier reports that
3 in terms of the determination of value relevant -- 3 are in the public domain by Dr. Feinstein, he uses
4 potentially value-relevant information, I did not use 4 alternative definitions of news days, widely construed.
5 popular press articles. I used what's listed in that 5 So in the one here is in some of his expert
6 footnote 1 that we talked about. 6 reports in the past, it was like five or six of them that
7 Press releases, specific SEC filings, 7 I had seen. He counts as a news day when there is
8 importantly to my answer here, analyst reports, and then 8 basically an earnings announcement, but he also counts a
9 lastly, debt rating agency changes. 9 guidance release.
10 Q. Do you know for sure whether the only 10 And so what I did is did everything that he did
11 differences between your view of potential value-relevant 11 with the exception -- try to replicate it, with the
12 news and Fischel's view of potential value-relevant news 12 exception of rather than search through headings of news
13 was press articles that were not press releases? 13 articles by mentions, doing the technique they did in the
14 MR. RYAN: Objection to form. 14 past by including as news days that occurred on earnings
15 THE WITNESS: So I'm not an expert on his 15 or guidance releases.
16 methodology. It's my understanding that he did not use 16 And so with that one change, I replicated his
17 analyst reports, while I used analyst reports, and he 17 analysis. And then if you look at the far right-hand
18 used presses -- or press -- not press releases, but news 18 column, what he would call significant would be any of
19 articles, and I did not use news articles in that 19 those numbers that's below 5 percent.
20 section. 20 And so in this case, we see one, two, three
21 So we're using different data sources, and I 21 stocks that would be a statistically significant
22 chose mine for my reasons, and he chose his for his 22 difference between high-information flow days and
23 reasons. And so because to some extent he is using 23 low-information flow days.
24 public press release -- not -- public press articles, 24 So I think he found seven. Using a technique
25 news articles, and I'm using analyst reports, they're not 25 that he used in many of his previous reports, only three
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1 of them would survive. 1 did in previous reports, which is exactly what I did in
2 And so what I do in these tables one by one is I 2 these three exhibits.
3 replicate, just like here, using his previous expert 3 Q. What he did in previous reports isn't relevant
4 reports that I had found publicly available, and redid 4 to this case. It's what he did in previous reports
5 it. And I think you find much less, like three, two, or 5 relevant to different cases with different facts and
6 only one stock survives this test. 6 circumstances; right?
7 And I'm just pointing out that this -- which 7 MR. RYAN: Objection to form.
8 I've already criticized, his defining of news by mentions 8 THE WITNESS: So that -- that sounds like your
9 in the popular press. If we use it -- the definition of 9 opinion. What I'm trying to say is, number one, as I
10 news he uses in previous matters, we get much weaker 10 make very clear, I do not agree at all with his
11 results. 11 definition of what news is and not news. Because it
12 MR. RYAN: You said Feinstein, but I think you 12 ignores any conception of value relevance.
13 may have meant Werner. 13 So if, for example, on a given day many reports
14 THE WITNESS: Sorry. Hopefully, that's the 14 come upon GameStop's unusual short interest and the stock
15 first time I did that. My apologies to Dr. Werner. 15 price jumps, or just ignoring the stock price jumping, if
16 Q. BY MR. ROSEN: Now Exhibit 1B, you do a similar 16 they're commenting on unusual short interest, that's
17 test, but you use Form 8-K and 6-K? 17 clearly not value relevant by my definition. He doesn't
18 A. Yes. 18 seem to care either way what they're saying as long as
19 Q. And then Exhibit 1C, you do the similar test 19 they're saying something.
20 using just press releases? 20 So he's not in his approach even what the news
21 A. Yes. And as you see in this last one, only two 21 is. He's literally only counting mentions.
22 of them, Blackberry and Bed Bath & Beyond. I'm sorry. 22 So I don't know of a finance or economics
23 Just -- it looks like just Bed Bath & Beyond would 23 textbook that says what should drive the value of a stock
24 survive this test. 24 is a number of mentions it gets in the press, regardless
25 So rather, when he uses this counting mentions 25 of what they're saying. Whether they're saying good
Page 175 Page 177
1 in press -- in the popular press, when he finds, I think, 1 things, bad things, important things, or irrelevant
2 seven of them survive this test, when you do his older 2 things.
3 approach in other reports of press releases, only Bed 3 He includes mentions of such things as reporting
4 Bath & Beyond survive that. 4 on what happened to the stock price the day before. Why
5 My point is: It makes a huge difference for the 5 in an efficient market does he even consider that
6 particular statistical test that he's using that I'm not 6 important news to buttress the opinion of a market
7 advocating, but his definition of what includes for high 7 efficiency? He's literally not looking at the
8 news and low news days matters a lot. 8 information. He's ignoring it.
9 So there's something very unusual about his 9 He's just counting cites. And counting cites,
10 definition of news days and non news days in this case 10 just mentions, is orthogonal to any measure of what is
11 that seems to really matter. 11 value relevant. It takes some work to notice whether
12 Q. Okay. And did it occur to you that maybe you 12 it's value relevant or not. But just counting tickers or
13 should just combine all of the events that you selected 13 names in a headline is not looking at whether that
14 for Exhibits 1A, 1B, and 1C into a single test and just 14 information is value relevant or not.
15 call -- uses high information flow days all the earnings 15 So in that context, that's my critique. What he
16 and guidance releases, and all the 8-Ks and 6-Ks and all 16 does in previous reports is different, but at least it
17 the press releases? 17 has some nexus between information flow and value
18 A. I don't believe so. Because the way I'm 18 relevance.
19 thinking about what I'm doing is I find in sight 19 So, for example, earnings announcements. We
20 previously publicly available expert reports, Dr. Werner, 20 could all say that that's at least broadly related to
21 and I'm trying to replicate that definition with the data 21 something that's value relevant. I do not know why he
22 at hand. So it's a replication. 22 would not look at earnings announcements in this case.
23 So to the extent I was trying to replicate some 23 If in other cases he looked at company
24 sort of agglomeration of those previous tests, that might 24 revelations through SEC documents, why is that not
25 have occurred to me. But I'm trying to replicate what he 25 relevant in this case? What is it -- in your question,
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1 what is special about this case that would make him not 1 Number 2.
2 care about earnings announcements but now interested in 2 A. What page? This is the rebuttal report two?
3 just mentions in the popular press. 3 Q. No.
4 I don't see any reason, any sort of scientific 4 A. Okay.
5 reason for doing so. 5 Q. Let's see. It's page -- it begins on page 75 or
6 Q. BY MR. ROSEN: So you think that he was bound to 6 78 of the PDF, your first report.
7 do the same type of study in every single case he gets 7 So in Opinion 2, paragraph 149, it says that:
8 hired to work on? 8 "If plaintiffs' allegations were true and Robinhood's
9 MR. RYAN: Objection to form. 9 restrictions impacted the prices of the at-issue stocks
10 THE WITNESS: Of course not. I do think it's 10 'artificially' throughout the proposed class period, that
11 fair to wonder when someone changes their technique for a 11 would be inconsistent with market efficiency."
12 particular case, why? Is there -- is there a reason why 12 A. I'm sorry, where --
13 you changed it? And I -- I have not asked him that 13 Q. Why is that?
14 question and I don't know the answer to it. 14 A. Where are you -- is this paragraph 149?
15 What I'm pointing out is I don't know why he 15 Q. Yeah. It's -- I don't know. It's the last
16 changed it. It's not obvious to me what is it about this 16 sentence --
17 case, though in previous cases would make him focus on 17 A. Yep. Give me just one second just to make sure
18 earnings announcements but not here. 18 I just read that full sentence.
19 And what I wanted to show is for that 19 Okay. Feel free to ask it again, please.
20 unexplained reason, what I do note is it matters. That 20 Q. So what is the basis for that sentence?
21 is, if he had used his previous approach, his results 21 A. Sure.
22 would have been significantly weakened. 22 What I'm trying to say is the notion of market
23 And I'm not insinuating whether -- what his 23 efficiency and the notion that a restriction on demand of
24 reason was, whether it was data scooping or not. I'm not 24 a subset of retail investors impacting the stock price
25 saying anything like that. I'm saying he changed his 25 are fundamentally inconsistent. It's the combination.
Page 179 Page 181
1 approach here from the publicly available ones that I've 1 I want to be clear on this because in
2 seen. He doesn't say in his report why he does that, and 2 Dr. Werner's rebuttal report, he quotes this, like with
3 it matters. That's all I'm saying. 3 quotation marks, but leaves out the part about "under the
4 Q. BY MR. ROSEN: Okay. Now if you had done one 4 assumption of market efficiency."
5 single news/no news test for -- and combined all of the 5 He would say, for example, if you look at the --
6 events in Exhibits 1A, 1B, 1C, and that unitary or 6 the -- he says -- let me find a good example. If you
7 combined test had shown the nine stocks or -- to be -- to 7 look at the heading right above 149, he puts in quotes, I
8 have a statistically significant difference between 8 believe, something to the effect of one would not expect
9 high-information flow days and low-information flow days, 9 Robinhood's trading restrictions to have allegedly
10 would that change your opinion about this? 10 'artificially distorted' prices. And he mentions that a
11 MR. RYAN: Objection to the hypothetical. 11 lot in his report. And it's -- I'm trying to explain why
12 THE WITNESS: So my opinion wouldn't change 12 that's an important misquote.
13 because what I'm trying to show is if I look at his 13 I am saying if the stocks traded in an efficient
14 techniques in the previous reports, and I've identified 14 market, then the allegation that these restrictions on
15 three, and my opinion is if you do the techniques that he 15 demand of a substantive retail investor would impact the
16 did in those -- those three techniques in previous 16 stock price are inconsistent.
17 reports, you get strongly different results. 17 I'm making a very simple point. But to take off
18 That opinion doesn't change based on the 18 the part about if one assumes that they trade in an
19 hypothetical you gave me. Because I'm unaware of a 19 efficient market is a really strong mischaracterization.
20 previous report that he did what you're insinuating. 20 And he goes on to say that Grenadier contends
21 I'm simply saying if he did the techniques that 21 that -- that some sort of causality, that these
22 he did in previous reports to the data -- applied it to 22 restrictions could not have impacted stock price. And I
23 the data in this case, his results would be dramatically 23 never said that. I just wanted to point out here because
24 different. 24 this is literally -- your question here is about that
25 Q. BY MR. ROSEN: Let's go to your Opinion 25 sentence, and you fairly asked me to explain it. I'm
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1 just saying that I was surprised that he put quotation 1 So if, for example, arbitrageurs of very large
2 marks around a fraction of my sentence over and over 2 transaction costs and risks their capital, they are not
3 again, which gives a very misleading inference for my 3 able to perform their duty to enforce an efficient
4 statement. And I was very surprised by that. 4 market. So that can happen here.
5 I don't know if I've ever seen that in a report, 5 But all I'm saying is that, one, that these
6 someone putting quotations around half of my sentence. 6 markets are not efficient during -- before and during the
7 Q. Well, so when you say -- you preface that 7 class period, and two, if you want to assume that they
8 sentence with "assuming the stock is trading in an 8 are efficient during the class period, you can't have at
9 efficient market," but is it possible that the stock was 9 the same time the belief that the restriction on demand
10 trading in an efficient market and then the restrictions 10 of a subset of retail investors would impact the stock
11 come into place, and as a result of the restrictions, the 11 price.
12 market is no longer efficient? 12 Q. BY MR. ROSEN: All right. So let me ask you
13 MR. RYAN: Objection to form. 13 another hypothetical question.
14 THE WITNESS: If the market is not efficient -- 14 So instead of Robinhood being the only firm that
15 so I'm just simply saying that if the market is 15 was PCO only for the entire day on the 28th, I think
16 efficient, you would not find that a restriction on a 16 there was one firm that was PCO only for a couple of --
17 subset of retail investors would impact the stock price. 17 for a few stocks later in the date, like at 2 p.m.
18 If you're saying if the market is not efficient, could 18 But let's say 90 percent of the stockbrokers in
19 other things happen, yes. 19 America went PCO only that day for these nine stocks.
20 If markets are not efficient, lots of things can 20 Could that reduction in ability of people to purchase the
21 happen that are very difficult to explain. In 21 stock cause the prices -- cause the prices of the stocks
22 particular, causality, and in particular, what a but-for 22 to be distorted or -- and decline?
23 stock price would be. 23 MR. RYAN: Objection to form.
24 So that's -- that's exactly my point is I'm very 24 THE WITNESS: So I don't know. Obviously, as
25 limited here in this expression here. I'm just saying 25 you change the facts, you get -- you have to think about
Page 183 Page 185
1 that you can't say two things at the same time: One, 1 it. That's why, of course, when I mentioned this here,
2 that these stocks traded in an efficient market; and two, 2 there's two things that I think are important.
3 a restriction on a subset of retail investors would 3 One is these restrictions. As far as I know, do
4 impact the stock price. You could say other things, but 4 not impinge on institutional investors. And two, the
5 not that. 5 Robinhood segment of the market, for example, during the
6 It's a very sort of I think relatively 6 one week prior to the PCO restrictions was a relatively
7 non-controversial point that I would think almost 7 small part of the market. I think I show their net buy
8 everybody would agree with. But if you cut off half of 8 behavior was like a couple percent of the market.
9 my sentence, then it becomes controversial. 9 So I'm saying that I don't know the answer to
10 Q. BY MR. ROSEN: All right. Don't -- you're 10 your question because it depends on magnitude. But I
11 getting so sensitive about that quotation. I -- you 11 certainly took into account magnitude in my answer. As I
12 know, you can ask Mr. Ryan to grill Dr. Werner about 12 said, one is that Robinhood seemed to be relatively --
13 that, plans for that if you like next week or the week 13 its investors seemed to be relatively small part of the
14 after. But I'm just trying to understand your opinion 14 buy side of the market just prior to the restriction, and
15 here. 15 two, institutional investors, as we talked about earlier,
16 And is it possible -- I mean, is it possible for 16 have other ways of trading than through Robinhood.
17 someone to manipulate an efficient market? 17 So in the facts of the case as I understand it,
18 MR. RYAN: Objection to form. 18 it would not be the case in an efficient market that the
19 THE WITNESS: So "manipulate" sounds like a 19 restrictions on Robinhood would impact the market.
20 legal term. So I don't know what that is. I've 20 If you ask me to add on other types of
21 certainly said in my report examples from the academic 21 restrictions, I would have to look at it.
22 literature about friction. I'm not -- I'm not 22 Q. BY MR. ROSEN: Well, but then you're admitting
23 attributing any motives on that, but there are frictions 23 it is a matter of degree. At some point if you put
24 that can make arbitrageurs have an inability to create 24 enough restrictions on purchasing, it's going to affect
25 efficient markets. 25 the price; right?
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1 A. If you restrict, for example, all retail and all 1 THE WITNESS: So I don't see it that way. Let's
2 institutional investors, yes. But not if you restrict a 2 look at why I do the net buy just prior to it, which is
3 subset of just retail investors. I don't know how to 3 the most important number.
4 answer your question without some empirical -- 4 So the net buy -- and you could look at the week
5 Q. Where do you draw the line? What -- what how 5 before or the 27th itself. This is the demand. When I
6 much demand do you have to cut off before it will have an 6 look at the net demand of Robinhood investors, that's
7 effect in an efficient market? Do you have any idea? 7 relevant because under my understanding of this case, the
8 A. There is no one number for that one. What I was 8 issue is the restriction on demand for those investors,
9 trying to say is: It's important in your hypothetical to 9 the Robinhood investors.
10 also tell me what the restriction is on demand for 10 So just moments prior to the restrictions,
11 institutional investors. 11 roughly speaking, the net buy of Robinhood customers was
12 So -- and also, what fraction of -- if there's 12 about 1 percent. And then the restrictions come into
13 any way -- so if there's any way of getting around those 13 play. And if they were totally successful, we're talking
14 restrictions. 14 about stopping something that was accounting for, just
15 So one of the articles that's mentioned by 15 before they came on, 1 percent of the net buy.
16 Dr. Werner is this Jones paper, which says there was lots 16 That's the most important number here. Not how
17 of activity trading of options. You got at that earlier. 17 it changed after the restrictions, but what they were
18 So it's a simple answer to your question about 18 restricting. And in principle, that strikes me as a very
19 the facts matter. But in this case, the facts, as I 19 low number.
20 understand that, is that these restrictions were not 20 I'm not saying that's a good or bad thing. I'm
21 placed at all on institutional investors. 21 not opining on that at all. I'm putting that in context.
22 AQR, for example, did not trade through 22 Because in the first question you asked me about this
23 Robinhood. That would be my best guess. And AQR could 23 section, which is the relevant concept, is I mention a
24 buy if it wanted to. AQR could sell if it wanted to. 24 subset of retail investors. And I didn't want to be
25 And also, Robinhood investors, by the data that 25 accused of saying a subset of retail investors when it
Page 187 Page 189
1 I've shown in my report, was a very small fraction of the 1 maybe accounted for 99 percent of retail investors. That
2 market in terms of the buy side the week before for these 2 would be -- that would be a mischaracterization.
3 traded stocks. 3 And so when I put it in context, when I say a
4 So that is just used to provide a grounding of 4 restriction on a subset -- a demand restriction on a
5 my statement about a -- when I say a subset of retail 5 subset of retail investors, I bring these numbers into
6 investors, I put some data behind it and show that 6 context. And I think the most relevant one is this
7 Robinhood was a subset of investors. It was relatively 7 1 percent of net buy of these stocks in the week prior to
8 small subset of investors. 8 the restrictions.
9 Q. Did it come up with percentage points of the net 9 Q. BY MR. ROSEN: Do you have any support in the
10 buy? 10 academic literature for what the effect would be if you
11 A. I'm sorry, I didn't quite hear you. 11 reduced the demand for a stock by 1 percent, what effect
12 Q. You said Robinhood investors represented about 12 it would have on its price?
13 2 percent of the net buy, something like that? 13 A. So if that reduce in demand was driven by
14 A. Yeah. It's on the next page. 14 non-value-relevant information, as my understanding here,
15 So the net buy, what I have is this 1 percent of 15 then the academic literature would probably be quite
16 the total volume across all the at-issue stocks. And 16 universal in saying it would have a de minimus effect on
17 during the class period, it was 2.2 percent of the net 17 the price.
18 sell. 18 1 percent would not -- would be very easily
19 Oh, sorry. Of the net sell, it was .6 of 19 overcome by an institutional investor.
20 1 percent. Those are very tiny numbers. 20 Q. Do you know what caused these nine affected
21 I'm not opining -- 21 stock prices to decline dramatically on January 28th when
22 Q. Right. But if you look at the change, the 22 the restrictions were in place?
23 change is 1.6 percent; right? So there's a 1.6 percent 23 A. Just to be sure, you said that these nine
24 reduction in demand for the stocks; right? 24 affected stocks?
25 MR. RYAN: Objection to form. 25 Q. Yes.
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1 A. I don't have an opinion on causality. 1 What he seems to be deeming a fair price is that
2 MR. ROSEN: I'll go to your third opinion. 2 price that I've mentioned many times today, for example,
3 MR. RYAN: I'm sorry, I didn't catch that, 3 Koss was a thousand percent run up without any sort of
4 Larry. 4 reasonable value-related news, he calls that the fair
5 MR. ROSEN: Let's go to your third opinion. 5 price.
6 MR. RYAN: Thank you. 6 He's saying that GameStop without any
7 Q. BY MR. ROSEN: What do you believe is the 7 value-relevant news, in my opinion, during that previous
8 plaintiffs' theory of liability here? 8 period, went up something like 700 percent. And he
9 A. So what I'm addressing in paragraph 161 of the 9 starts there and he says that's a fair price.
10 report is that in terms of my commenting on a methodology 10 And so when you put that in context with this --
11 for calculating damages, that's consistent with the 11 this is right at the end of that extreme period that I've
12 theory and applicable on a class-wide basis. 12 talked about many times today. He looks at that extreme
13 I am looking at this. One is: What is the 13 run-up and says that's the fair price.
14 but-for price -- prices of these securities? And as I 14 Why? I don't see how you can say that Koss
15 put here as the but-for price would be all else constant, 15 going up a thousand percent leads to a fair price. Why?
16 but-for the restrictions of Robinhood. 16 You have to have at least some story as to why a stock
17 That means it includes the price run-up prior to 17 had an unprecedented week's movement, and he doesn't, he
18 it and the restrictions on other firms such as E*TRADE 18 just accepts it.
19 would continue. 19 And so that's another reason why it's relevant
20 So they would normally try to find the damages 20 here. To the extent he wants to use the price at the end
21 by the difference in actual price versus the but-for 21 of the week prior to the class period as a fair price, I
22 price. And I've explained what my assumption was for the 22 think it's worth pointing out that I've already shown
23 but-for price. 23 that it's far from efficient, and that price is nowhere
24 Q. BY MR. ROSEN: And why is the price rise prior 24 grounded in value-relevant information.
25 to the class period relevant to the but-for price during 25 Q. Now let's assume we have an expert. Plaintiffs
Page 191 Page 193
1 the class period? 1 hire an expert. That expert does a regression analysis
2 A. Sure. 2 and shows that the but-for price at each point during the
3 So when I did my report, it was to try to 3 class period is a certain price that's, let's say,
4 explain that the fact that I find it not efficient for 4 10 percent higher than it was on January 27th, that if
5 the class period is obviously also consistent with how I 5 had there been no restrictions by Robinhood, that the
6 found it prior to the class period. 6 prices would have stayed somewhat above -- somewhat above
7 It would be odd to find differences, and I don't 7 where they were on the 27th and stayed there during the
8 find -- I find just as much justification for claiming 8 class period based on a regression analysis. And it's
9 it's a non-efficient market before the one week prior and 9 able to disaggregate the restrictions that other firms
10 the class period itself. 10 may have implemented during this class period.
11 So to the extent chaud in many of my cases when 11 Why couldn't that serve as a model for a but-for
12 I look at these and I try to opine on market efficiency, 12 price in damages in this case?
13 it's usually focused on the class period. 13 MR. RYAN: Objection to form.
14 In this case for various reasons, Dr. Werner 14 THE WITNESS: So the point of a good segment of
15 doesn't do any analysis during the class period. I 15 this section of mine is a difficulty of doing such an
16 assume he is just assuming that it's not efficient and 16 analysis in a market that's not efficient. So when you
17 focuses on the prior class period. I'm not 100 percent 17 do a typical event study, information that's under the
18 sure why, then. But I show it's not efficient during the 18 presumption of an efficient market.
19 class period, and for extra measure, that it's not 19 If you can't do that inference, I'm not sure how
20 efficient for the one week prior to the class period. 20 that regression study would tell me anything.
21 In addition, to the extent it appears to me that 21 Remember, in an inefficient market, as we said
22 Dr. Werner is saying that the price as of the end of the 22 earlier, the best predictor of tomorrow's price is not
23 27th of January, 2021, was what I think he called a fair 23 the market price. It's what's in the minds and hearts of
24 price, my analysis during the prior period puts that in 24 all the individual investors, and I don't know what it
25 context. 25 is.
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1 But the kind of analysis that you're insinuating 1 Q. I just said assume the Judge accepts that it is
2 doesn't work in a market that's not efficient. You're 2 efficient.
3 trying to look at the data and figure out how the market 3 A. Unless I misheard you, your assumption
4 price would respond to that. But doing that has some 4 hypothetical was that a Judge determined that the market
5 presumption of rationality on the prices that's tethered 5 was efficient in the pre-class period. You did not say
6 to value-relevant information. 6 during the class period. So that's what I'm speaking of
7 You can do stuff like that sometimes if you 7 now, and you can change your hypothetical, obviously.
8 believe in an efficient market. But that's why in your 8 But let me just first respond.
9 very standard cases, like you called the stock drop 9 If you're doing an analysis of an event study or
10 cases, why people first want to show that the market 10 regression for damages during the class period, you have
11 during the class period is efficient so that they can do 11 to have the presumption of market efficiency to do that.
12 that sort of event study. That's why they do that so 12 It doesn't change. That's, again, why I say in most
13 it's meaningful. 13 cases that I'm involved in as an expert witness, the side
14 But if you don't have market efficiency, those 14 asserting damages and explaining how they calculate them
15 sort of standard techniques don't work. You don't see in 15 first tries to assert that during the class period when
16 the literature about using event studies that this is a 16 damages are calculated, that the market is efficient, and
17 great technique, markets are not efficient. The whole 17 then they run things akin to your regression/event study.
18 premise of an event study is to infer from the impact of 18 But if you don't presume that the market is
19 value-relevant information on the market price. But if 19 efficient during the period you're running that event
20 markets are not efficient, there is no connection between 20 study, you're violating the same attribute of causality
21 those two. 21 between value-relevant information and prices. They're
22 So that's my main point of the first section of 22 unable to do that unless you have a market -- an
23 this section is that when you don't have an efficient 23 efficient market.
24 market, the standard techniques like one person's net 24 Q. So in that scenario, it would be impossible to
25 present value analysis or an event study, they just don't 25 compute damages if someone manipulates the market to the
Page 195 Page 197
1 work. 1 point where it's not efficient during the class period?
2 And I'm not saying it's impossible, but he 2 MR. RYAN: Objection to form to the extent it
3 doesn't offer me any idea -- Dr. Werner doesn't offer any 3 calls for a legal conclusion.
4 idea of what is he even thinking of? What is the 4 THE WITNESS: So I never said in my report that
5 technique you use to get but-for values in an inefficient 5 it's impossible to calculate damages in an inefficient
6 market? 6 market.
7 Q. BY MR. ROSEN: Well, let's assume the Court 7 What I'm saying is: It's a difficult problem.
8 disagrees with you and determines the market in the 8 I haven't been tasked with doing that. But to the extent
9 pre-class -- the one-year period is efficient and that's 9 that Dr. Werner is asserting that this is something he
10 enough to permit a regression analysis that's reliable 10 can do, I am saying it's a difficult task. I am not as I
11 enough for damages, and the regression analysis is 11 sit here aware of a model that accomplishes that.
12 able -- shows the -- the but-for price of the stocks, and 12 Because as you just mentioned, the standard
13 it's 10 percent above the January 27th price during the 13 models that you normally see done, such as net present
14 class period. 14 value and event studies, will not work in a market that's
15 Why isn't that sufficient to infer the but-for 15 not efficient.
16 price to calculate damages? 16 So I'm not saying it's impossible. Of course
17 MR. RYAN: Objection. 17 not. I'm saying it's difficult, and I don't believe he
18 THE WITNESS: So for the same reason I said 18 has explained what model he's going to use to accomplish
19 earlier, that in most typical cases I'm involved in, the 19 this difficult task.
20 expert trying to set up a methodology for damages first 20 Q. BY MR. ROSEN: So you say in your report that
21 tries to prove that during the class period, the market 21 plaintiffs would need to propose a methodology that could
22 was efficient. So they can do that. 22 identify whether and how market participants, both
23 Q. BY MR. ROSEN: But we just took that off the 23 Robinhood investors and others, would have traded, taking
24 table; right? 24 into account that the restrictions imposed by other
25 A. No, no. 25 brokers.
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1 I'm just -- are you suggesting that as part of 1 restrictions of other brokers such as E*TRADE, what would
2 their damages analysis, plaintiffs have to show how 2 have been the prices in that inefficient market in that
3 market participants would have acted, what trades they 3 state of the world.
4 would have made, had there been no restrictions imposed? 4 And I'm pointing out that that's difficult.
5 A. I might have lost you a bit because I thought 5 Because if it's an inefficient market and you change the
6 you mentioned Robinhood, and then I thought for a moment 6 parameters, such as take out restrictions of investors,
7 you said something about other like investment platforms. 7 there is no simple way of say ah-ha, here's what the
8 I just heard the later. 8 prices would have been.
9 Q. Other brokers. 9 Because when you take out those restrictions in
10 A. So I'm confused by the question. I see that as 10 an inefficient market, you have to look at individual
11 two different things. Can you try that again on me, 11 calculus -- calculi.
12 please? 12 So what would an individual investor have done
13 Q. All right. So this is paragraph 162, page 82 of 13 in that but-for world where Robinhood got rid of the
14 the PDF of your initial report. At -- it says, "As 14 restrictions but E*TRADE did not.
15 discussed in Section 8 below, plaintiffs would need to 15 So in an efficient market, that could be an
16 propose a methodology that could identify whether and how 16 story, but in an inefficient market, that's very
17 market participants (both Robinhood investors and others) 17 difficult. Because you'd have to get into that -- what
18 would have traded and the evolution of trading and prices 18 was the model in that but-for world that that investor
19 in the counterfactual scenario, taking into account that 19 would have used. We know the model is not reliant on the
20 the restrictions imposed by other brokers would have 20 market price in an economic sense because it's not an
21 still existed." 21 efficient market. They'd have to use some model to do
22 And so what I'm trying to understand from that 22 that, and I don't know what it is.
23 is: Do you believe that in their damage analysis 23 I'm not saying it's impossible to come up with,
24 plaintiffs must show how market participants would have 24 but I haven't been told or even hinted at that what that
25 traded? In other words, whether -- whether certain 25 model might be.
Page 199 Page 201
1 people would have traded or not have traded or would have 1 Q. BY MR. ROSEN: Dr. Grenadier, I think that the
2 traded different days or bought more, sold less, sold 2 thing that I'm not understanding is I understand why you
3 more, bought less, in order to show damages? 3 believe that in creating a damages model, plaintiffs
4 MR. RYAN: Objection to form. 4 should -- should attempt to show what the but-for price
5 THE WITNESS: So what I'm trying to say here is 5 would -- what the price would have been; right?
6 in a world during this damage period, where there is 6 But what I'm -- what I don't understand and what
7 not -- 7 I'd like you to explain better is why you think a
8 (Interruption in proceedings.) 8 plaintiff has to explain on an individual level whether
9 THE WITNESS: Sorry about that. I don't know 9 they would have traded the same amount had there been no
10 what that is. 10 alleged manipulation by Robinhood.
11 So what I'm trying to say is that in a world 11 A. Yes. And I'll repeat what I said, but hopefully
12 without efficient markets during this class period, which 12 in a way that conveys it to you better.
13 my understanding is Dr. Werner is agreeing that it's not 13 That what I'm speaking about here is how you
14 efficient -- he can answer that himself, but it sounds 14 would come up with but-for prices. As you just
15 like he's also saying it's not efficient -- I'm 15 acknowledged, you agree we have to come up with but-for
16 mentioning in those sentences the difficulty of coming up 16 prices or Dr. Werner would need to come up with but-for
17 with a but-for price. 17 prices, but in a market that's not efficient.
18 So you can't do a simple statistical 18 And so usually in these matters, we come up with
19 relationship that relies on market efficiency to do this. 19 but-for prices in an efficient market, and we've seen the
20 What you need to look at is in a but-for world, where 20 kind of techniques that are often used.
21 people are making individual decisions without focusing 21 Now we're in different territory here. So I
22 on just the market price, you introduce lots of 22 haven't been involved in the case where a but-for price
23 complexity. 23 was to be calculated in an inefficient market. You may
24 So if we have a change in behavior that says 24 have -- obviously you've been involved in many more cases
25 without the restrictions of Robinhood, but with the 25 than I have. I'm just saying as an expert, I've never
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1 seen an other expert contemplate but-for prices in a 1 in particular, you would have to ask questions, all
2 market where seemingly they admit it's not subject to 2 right, if these investors can now trade in -- with
3 market efficiency. 3 Robinhood, well, what fraction of them were trading,
4 And so what would be a value in a market where 4 anyway, by going to E*Trade or using, as you said, call
5 you changed something such as a restriction on demand for 5 options.
6 Robinhood investors? How would that -- what would that 6 So that's the problem. We have to ask these
7 translate into an actual price in that world when markets 7 complicated questions. When you change a but-for, such
8 are not efficient? 8 as you opened up the spigots and allow Robinhood
9 So that's the problem I'm defining. And I think 9 investors to buy, to come up with the difference in some
10 I am confident that that's the problem that he would need 10 non-efficient market stock price, you have to ask the
11 to solve if the market was deemed, as I say it is, not 11 question: How does that change things for them? Were
12 efficient during that period. 12 they still buying by going to E*TRADE? Were they what
13 So he's tasked with calculating a market price 13 you called, investors who were buying and hold? All
14 in an inefficient market where you changed some variables 14 these questions are relevant to know the impact on the
15 such as a demand restriction on some investors but not 15 market price in an inefficient market.
16 other investors. 16 Q. Did you make any effort to come up with a
17 So where would you -- what model would you use? 17 methodology for determining damages in this case?
18 So if you think about yourself in a Ph.D. program, and 18 A. No. I wasn't asked to do that in this case.
19 they say find the value of a stock in a world without 19 Q. Did you make any efforts to disentangle
20 efficiency, and you change some assumption. 20 potential non-fraud-related or allegedly fraud-related
21 That's a fair question. I don't know what -- I 21 impact on Robinhood's stock price?
22 don't know what paper you would do. It would be a very 22 Sorry. Let me rephrase that. I'll withdraw
23 complicated analysis. 23 that question.
24 And all I'm saying is that since there's no 24 Did you make any effort to disentangle the
25 simple way of doing that, where in an efficient market we 25 potential other factors that could have caused the
Page 203 Page 205
1 take prices as a fair reflection of the best guess of 1 non-affected stock prices to decline during the class
2 tomorrow's price. When you throw that out, you're in the 2 period?
3 world of complicated models. 3 A. As I said earlier, I determined that, in my
4 And it's possible that Dr. Werner could find 4 opinion, the class period these nine stocks did not trade
5 some complicated models. I mean, complicated doesn't 5 in efficient markets. But I didn't look at causality of
6 mean bad. It's possible he could find a model. I 6 the prices. I didn't look at what caused them to fall,
7 just -- I don't know. I don't teach a class where I have 7 just that whatever happened, it was not an efficient
8 such a complicated model to do that. But it's very 8 market.
9 difficult because when you have an inefficient market, 9 Q. Now the Jones paper you mentioned earlier found
10 it's driven by what motivates those investors to buy and 10 that the PCO restrictions caused large and negative
11 sell when it's not an efficient market. And that is 11 return effects on these nine affected stocks.
12 very, very difficult to come up with. 12 Do you have any reason to believe that the Jones
13 Q. Why are the investor's motivations to buy and 13 paper is inaccurate or in that respect?
14 sell relevant to their damages in the seller class? 14 MR. RYAN: Objection to the characterization of
15 A. So the main reason is because not just the 15 the Jones paper.
16 people involved here, but all of the investors, what 16 THE WITNESS: So I don't agree with how you
17 would their -- what would determine the price in the 17 characterize it.
18 market when it's not efficient. 18 Q. BY MR. ROSEN: Okay. I'll ask you again.
19 So it's not just these investors; it's the 19 Do you -- do you have any criticisms of the
20 agglomeration of all investors. How would all investors 20 Jones paper?
21 interact in a market, determine a price, in a market 21 A. So I have comments on it in the relevance to
22 that's not efficient. 22 this case. So first of all, the paper certainly doesn't
23 So it's not just these investors. It's all 23 ascribe causality. It ascribes association.
24 investors would -- would face a different world if you 24 Secondly, there's a footnote in Dr. Werner's
25 changed the but-for assumption. But for these investors 25 rebuttal report which cites some statistics that I
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1 believe you may have in mind in your question. Those are 1 presumption of reliance is available to --
2 statistics when you pool all of the stocks together, in a 2 A. You know, I didn't hear you.
3 table or exhibit farther back in their paper, they show 3 Q. All right. Are you offering any opinion as to
4 that -- unless I'm missing one of them, for none of the 4 whether the class is entitled to a presumption of
5 individual stocks were the PCO restrictions statistically 5 reliance under the affiliated Ute case?
6 significant. 6 A. That sounds squarely in the realm of legal
7 So from a -- you know, obviously in academic 7 opinions, and obviously, I'm not going to render any
8 papers, you don't just look at directionality and signs; 8 legal opinion.
9 you look at statistical significance. And my 9 MR. RYAN: It's so clearly a legal opinion, I
10 recollection is not for a single one of the stocks at 10 didn't even object on that basis.
11 issue in this case were the PCO restrictions 11 (Discussion off the record.)
12 statistically significant. 12 MR. ROSEN: Okay. I don't have any other
13 And then another issue with that paper is that 13 questions, Professor. Thank you very much for your time.
14 some of the discussions are very hard to understand just 14 THE WITNESS: Thank you.
15 from a technical standpoint. How they did their 15 MR. RYAN: I have no questions at this time.
16 regressions and statistical analysis? It's missing lots 16 Thank you.
17 of information, and I don't know why that is. 17 (Time noted: 4:10 p.m. Pacific Daylight Time.)
18 I think you may not know that one of the main 18 --oOo--
19 authors has passed away from that paper. So that could 19
20 explain some of this. So it may have been work in 20
21 progress. I literally don't know, but it's a sad thing 21
22 that a relatively young guy died. 22
23 There's also a discussion about the meme stock 23
24 effect that they talk about, which is an alternative 24
25 hypothesis to the PCO restrictions. And the results 25
Page 207 Page 209
1 there literally make no sense. They are talking that the 1 STATE OF CALIFORNIA ) ss:
2 stocks that they list in their paper, which are a big 2 COUNTY OF MARIN )
3 overlap with the nine at-issue stocks in this case, 3
4 they're basically saying those stocks are rarely 4 I, LESLIE ROCKWOOD ROSAS, RPR, CSR NO. 3452, do
5 discussed on social media. 5 hereby certify:
6 So what they said is that only two of the stocks 6 That the foregoing deposition testimony was
7 that they're looking at, AMC and GameStop, are in the top 7 taken before me at the time and place therein set forth
8 20 most mentioned stocks in the internet like Reddit. 8 and at which time the witness was administered the oath;
9 That testimony of the witness and all objections
9 I have no idea what -- that makes no sense that
10 made by counsel at the time of the examination were
10 Bed Bath & Beyond and Tootsie Roll and all other stocks
11 recorded stenographically by me, and were thereafter
11 here, Blackberry, they're not even mentioned in the top
12 transcribed under my direction and supervision, and that
12 20 of most talked about stocks during this period.
13 the foregoing pages contain a full, true and accurate
13 So there's something wrong. They did a mistake
14 record of all proceedings and testimony to the best of my
14 there. And we all make mistakes. It's a working paper.
15 skill and ability.
15 But I don't know how to rely on that paper at all.
16 I further certify that I am neither counsel for
16 So those are the sort of off the top of my head
17 any party to said action, nor am I related to any party
17 problems I have with that paper in terms of relevance to 18 to said action, nor am I in any way interested in the
18 this case. One, as I said, they were not causality. 19 outcome thereof.
19 Two, it didn't show statistical significance for any of 20 IN WITNESS WHEREOF, I have subscribed my name
20 the stocks in terms of the PCO effects, and three, when 21 this 20th day of April, 2023.
21 they tried to investigate whether there was a meme stock 22
22 effect, there seemed to be some technical mistake that 23
23 made them miss all the important stuff going on in the <%5411,Signature%>
24 real world. 24 LESLIE ROCKWOOD ROSAS, RPR, CSR NO. 3462
25 Q. Are you offering any opinion as to whether a 25
53 (Pages 206 - 209)
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1 ANTONY L. RYAN, ESQ. 1 IN RE JANUARY 2021 SHORT SQUEEZE TRADING LITIGATION
2 aryan@cravath.com 2 4/19/2023 - Steven Grenadier, Ph.D. (#5868343)
3 April 20, 2023 3 ACKNOWLEDGEMENT OF DEPONENT
4 RE: IN RE JANUARY 2021 SHORT SQUEEZE TRADING LITIGATION 4 I, Steven Grenadier, do hereby declare that I
5 4/19/2023, Steven Grenadier, Ph.D. (#5868343) 5 have read the foregoing transcript, I have made any
6 The above-referenced transcript is available for 6 corrections, additions, or changes I deemed necessary as
7 review. 7 noted above to be appended hereto, and that the same is
8 Within the applicable timeframe, the witness should 8 a true, correct and complete transcript of the testimony
9 read the testimony to verify its accuracy. If there are 9 given by me.
10 any changes, the witness should note those with the 10
11 reason, on the attached Errata Sheet. 11 ______________________________ ________________
12 The witness should sign the Acknowledgment of 12 Steven Grenadier, Ph.D. Date
13 Deponent and Errata and return to the deposing attorney. 13 *If notary is required
14 Copies should be sent to all counsel, and to Veritext at 14 SUBSCRIBED AND SWORN TO BEFORE ME THIS
15 cs-ny@veritext.com. 15 ______ DAY OF ________________, 20___.
16 16
17 Return completed errata within 30 days from 17
18 receipt of testimony. 18 __________________________
19 If the witness fails to do so within the time 19 NOTARY PUBLIC
20 allotted, the transcript may be used as if signed. 20
21 21
22 Yours, 22
23 Veritext Legal Solutions 23
24 24
25 25
Page 211
1 IN RE JANUARY 2021 SHORT SQUEEZE TRADING LITIGATION
2 4/19/2023 - Steven Grenadier, Ph.D. (#5868343)
3 ERRATA SHEET
4 PAGE_____ LINE_____ CHANGE________________________
5 __________________________________________________
6 REASON____________________________________________
7 PAGE_____ LINE_____ CHANGE________________________
8 __________________________________________________
9 REASON____________________________________________
10 PAGE_____ LINE_____ CHANGE________________________
11 __________________________________________________
12 REASON____________________________________________
13 PAGE_____ LINE_____ CHANGE________________________
14 __________________________________________________
15 REASON____________________________________________
16 PAGE_____ LINE_____ CHANGE________________________
17 __________________________________________________
18 REASON____________________________________________
19 PAGE_____ LINE_____ CHANGE________________________
20 __________________________________________________
21 REASON____________________________________________
22
23 ________________________________ _______________
24 Steven Grenadier, Ph.D. Date
25
54 (Pages 210 - 212)
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& 110 70:9 71:9 1987 101:12 210:4 211:1
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11 17:21 18:3 1986 120:13 189:21
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29 96:11 117:13 800 99:24 181:7 193:6,6
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5 79 90:19 193:9 195:12 academics
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access 60:8 17:13 24:11 addicted 60:3 79:10 124:22
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allow 120:25 27:14,17 28:4 anecdotes 178:14 185:9
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assisted 19:17 168:16 aware 16:8 banks 15:24
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association 15:20 55:3,11 56:24 143:17 151:21
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41:17 58:10 108:25 137:7,9 139:16 51:5,8,10 58:6
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191:16 192:25 author 120:11 157:5 169:24 67:21 69:2,6
195:7 196:1 authority 81:23 170:7,13,14 97:12 111:3
assumes 84:15 82:20 197:11 113:6 121:6
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assuming 49:18 206:19 126:3 130:14
b 24:18 42:1
52:14 112:6 auto 29:22 133:14 134:15
65:18 109:6
182:8 191:16 90:23 142:8 143:18
123:18,19
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41:13,21 42:9 82:10,23 83:4 150:8 163:18
back 27:24
43:15 44:6,12 83:10 86:25 168:9,13
39:23 47:13
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67:16 74:18
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basic 13:8 23:9 70:4 107:22 71:25,25 72:10 benefit 88:19
32:22 58:24 108:18 135:21 73:12 76:3,17 benefits 16:17
113:12,12 156:24 185:8 77:22 78:4 87:7 88:7,22
116:19 199:24 79:13 80:2,15 best 22:24
basically 20:12 behavioral 80:18,21,24 23:23 25:24
22:3 50:15 107:8,17,19 81:21 83:6 26:2,9,10
62:8 91:19 108:5,10,12,13 87:18 88:14,21 35:10,18,24
104:9 173:8 108:17,21 89:7,20 107:21 36:3,8,9,10
207:4 109:1,8,11,13 117:19,23 43:23 44:4
basing 72:1 109:21 118:16,19,21 49:21,23 50:10
76:12 belabor 99:12 119:9,11 52:5 57:25
basis 13:7 111:15 120:12,21 91:19 94:14
52:10 119:5 belief 40:1 58:6 121:2 123:3 96:1,2 186:23
144:7 165:23 64:16 68:17,24 129:4 130:22 193:22 203:1
168:8 180:20 69:4 90:14 131:22 133:1 209:14
190:12 208:10 91:11 92:6 135:14 138:8 bet 104:10
bath 34:8 111:13 134:6 140:21 141:19 123:13
174:22,23 138:23 184:9 143:7 145:2 bets 50:3,10
175:4 207:10 beliefs 50:4,5 146:23,25 58:5 65:18,18
bear 153:15 50:13 72:17,17 149:24,25 138:17
bearish 127:6,8 believe 11:15 150:23 158:1,3 better 98:12
becoming 14:22 15:7 158:10 159:5 104:25 161:17
112:21 23:25 27:19 166:19 175:18 161:18 201:7
bed 34:8 30:1,3,7 32:3 181:8 190:7 201:12
174:22,23 32:24 34:20 194:8 197:17 beyond 34:8
175:3 207:10 35:20 41:11,14 198:23 201:3 46:21 147:6
beginning 2:13 41:23 44:10 205:12 206:1 174:22,23
91:9 112:7 45:7 46:16 believed 45:11 175:4 207:10
157:23 53:25 54:6,19 54:1 55:5,12 bias 109:11
begins 43:7 55:15 56:2,3,8 57:3,11,20,25 biased 109:5
48:12 53:21,22 56:25 60:18,22 88:9 153:10 biases 107:25
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behalf 2:12 62:1 65:13,24 believes 27:18 109:8
behavior 39:20 66:3 67:10 29:21 30:6 bid 132:14,17
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big 21:15 71:15 152:12 153:8 broken 155:11 buys 64:13
84:22 89:2,21 borrowings brokerage 8:11 c
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calculate 30:20
bill 13:8,14,20 borrows brokers 39:3
30:21 169:6
billion 134:1 147:22 132:22 133:25
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bills 13:21 bottom 96:10 197:25 198:9
197:5
bit 32:20 56:22 bought 131:21 198:20 200:1
calculated
89:23 131:9 132:6 199:2,3 bubble 136:15
196:16 201:23
137:4 155:11 bound 178:6 144:1,1,2
calculating
165:7 198:5 brass 105:15 bubbles 23:18
190:11 202:13
black 95:10 break 56:13,13 buffet 64:25
calculation
117:6 56:20 84:6 65:5
24:20
blackberry 133:24 169:13 business 7:14
calculations
34:8 174:22 169:22 11:11 16:7
36:4
207:11 brief 111:15 buttress 177:6
calculi 200:11
blaming 133:19 168:1 buy 9:21 10:2,7
calculus 53:12
body 29:5 briefly 91:4 10:12 26:17
200:11
bond 9:5 162:3 165:14 37:24 38:1
calendar 91:8
bonds 22:15,16 172:14 39:15,17 50:5
california 1:14
bondt 112:15 bright 98:25 50:25 62:1
2:13 6:1 22:14
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209:1
book 93:19,22 bring 189:5 91:7,15 109:6
call 12:3 20:12
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24:23 27:16
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32:8 36:11
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37:3 54:10
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borderline 32:9 187:2,10,13,15
69:22,23 70:15
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71:13 72:16,21
borrow 131:19 44:14 69:15 189:7 203:10
73:20 74:4
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85:12 87:20
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[call - caused] Page 9
102:18,20 cancellation 106:3,4,17,20 83:19 84:17,19
103:23,25 39:17 106:24 115:6 84:24 125:8,9
113:19,19 cancelled 38:5 115:15 121:24 125:12 130:11
115:13 117:6 39:15 122:4 127:22 143:21 144:10
133:3,5,6 cap 10:4 114:8 128:10,11,12 144:12 163:22
134:6,7,16,20 capital 5:11 129:24 132:11 catch 190:3
134:22,24 66:17 82:7 132:16 147:21 categories
135:2,7 136:2 85:21 153:13 148:18 151:21 107:22
142:6 143:24 153:16 184:2 155:10,13,16 category 52:25
144:4 159:9,12 care 62:8 124:1 156:4,25 80:25 154:20
159:14 160:1,2 124:12 176:18 157:11 165:6 157:18
160:4,5 164:10 178:2 165:21 167:6 causal 79:19
166:4 172:15 careful 43:22 168:9 173:20 103:16 146:6
173:18 175:15 80:22 85:11 175:10 176:4 169:9
204:4 124:14 177:22,25 causality
called 18:11 caricature 178:1,7,12,17 148:19 149:9
27:2,10 30:8 122:2 179:23 185:17 157:18 181:21
30:16 32:1 carpet 105:16 185:18 186:19 182:22 190:1
37:15 95:10 case 12:23 188:7 191:14 196:20 205:5
110:9 123:3 13:15,20,23,24 193:12 201:22 205:23 207:18
124:4 135:1 14:17,23 15:11 204:17,18 causation 41:4
136:15 137:13 16:2 20:7,10 205:22 206:11 103:12 125:3
142:6 162:20 21:8,10,14 207:3,18 208:5 143:1,3 146:24
162:23 191:23 24:19 35:22 cases 15:1,22 cause 41:15
194:9 204:13 39:1,11 45:1 20:6 24:22 102:11 103:6
calling 159:17 45:21 46:10,23 46:8,10 64:8 127:17 154:7
163:5 58:18 59:6,16 75:14 100:7,9 154:21 158:20
calls 47:8 54:22 61:14 66:3 110:7 131:13 184:21,21
63:11 75:2 68:16 70:6 176:5 177:23 caused 18:7
134:25 153:14 72:1 73:4 178:17 191:11 41:18 43:15
172:23,24 75:19 76:15 194:9,10 77:9 79:10,23
192:4 197:3 77:24 78:10,22 195:19 196:13 103:3 124:22
cammer 158:11 80:14 89:4,15 201:24 125:23 134:20
158:12,17 90:1 99:3,11 cash 23:2,8,10 136:22,22,23
159:6 99:13 100:6 23:13 36:21 143:1 149:7,7
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[caused - class] Page 10
154:18 157:1 change 41:15 characterized 114:18 124:2
189:20 204:25 50:20,21 72:17 71:13 121:24 124:19 135:16
205:6,10 72:20 75:9,17 155:25 158:8
causes 63:19 85:8 91:1 characterizing cites 81:22
64:1 127:17 147:2 173:16 19:13 87:16 112:15
134:14 179:10,12,18 charge 15:19 123:14,16
causing 123:10 184:25 187:22 charging 177:9,9 205:25
147:6 187:23 196:7 155:14 citing 120:12
caveat 25:17 196:12 199:24 charles 108:23 claim 42:1,25
27:13 31:7 200:5 202:20 charlotte 3:15 128:8 154:14
caveats 44:3 204:7,11 211:4 charts 105:13 claiming 191:8
certain 27:8,19 211:7,10,13,16 chatting 65:21 claims 41:25
140:10 148:12 211:19 chaud 191:11 class 14:21
193:3 198:25 changed 37:14 chose 171:22 15:2,4,9,22
certainly 16:6 37:24 60:15 171:22 18:6 24:7,11
19:8 46:8 49:7 90:13 144:10 circles 128:1 24:18 27:3
52:24 55:16 144:10 161:13 circumstance 36:15,15,25,25
76:22 81:13 178:13,16,25 12:19 26:12 41:7,8,12
92:10 99:11 188:17 202:5 60:23,24 44:11 45:2,9,9
115:15 121:8 202:14 203:25 circumstances 45:20,21 48:17
126:6 138:4,21 changes 96:16 25:3,21 26:12 48:18 53:23,24
138:22 146:6 123:11 145:9 72:22 152:21 54:2,18 55:3,4
148:3 149:23 149:15 163:16 176:6 55:11,12,15
151:4 154:6 165:25 171:9 citadel 16:20 56:24,25 57:11
158:23 172:7 178:11 210:10 citations 97:5,6 59:17 73:9,9
183:21 185:11 212:6 cite 18:15 69:17 77:2 79:14
205:22 changing 38:12 76:22 81:21 99:16 131:3
certainty 155:3 characteristics 82:5,20 89:15 142:10 150:13
certified 2:16 23:16 93:19 96:8 150:13,20
certify 209:5,16 characterizati... 108:15 113:24 157:15,19
cetera 34:8 148:17 205:14 117:20 124:1 159:23,23
chalkboard characterize 138:10 150:21 160:16,17,24
28:1 32:24 110:13 151:4,23 162:10 166:10
chance 14:7 170:3 205:17 cited 69:21 166:13,17
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[class - complexity] Page 11
184:7,8 187:17 clients 16:9 169:15 172:18 99:5 144:18
190:12,25 close 34:16 176:14 182:11 147:10
191:1,5,6,10,13 35:16 80:25 187:9 188:12 companies 15:7
191:15,17,19 81:1 100:21 200:23 201:14 83:8 104:3
191:20 192:21 131:10 135:3,8 201:15,16,18 112:18 163:14
193:3,8,10 151:18 159:12 203:12 204:9 company 23:16
194:11 195:9 159:15 166:3 204:16 63:22 103:23
195:14,21 cma 1:5 2:5 comes 10:17 104:9,18
196:5,6,10,15 cnbc 133:1 69:14 80:1 144:11 149:20
197:1 199:12 coauthors 96:19 110:4 162:23 177:23
203:7,14 205:1 150:22 117:25 company's
205:4 208:4 cold 128:11 coming 15:6 147:12
classes 22:5 collateral 153:3 55:18 107:1 compared
classic 9:5,15 collecting 144:11 199:16 51:25
25:5 67:8 68:9 20:10 commentary compares
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109:1 125:25 combination 164:6 165:8 comparing
clause 56:23 65:8 79:21 commentator 112:17
cleanest 68:13 153:8 180:25 165:9 compete 28:19
clear 35:14 combine 65:2 commentators competition
40:10 43:14 175:13 79:17 23:15 28:17
46:14 51:23 combined commented 76:12 88:10
71:9 73:6 168:4 179:5,7 139:10 159:4 115:12
79:12 121:5 come 31:21 commenting competitive
122:9,18 129:3 36:9 46:11 20:14,14 69:2,5 72:25
154:14 155:12 55:24 56:1,5 176:16 190:10 complaint
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181:1 79:20 81:19 139:11 158:25 39:14
clearly 155:8 121:16 125:25 205:21 complete 212:8
165:15 170:21 129:23 138:20 commission completed
176:17 208:9 138:23,25 18:10 210:17
clepic 3:21 148:20 153:3 committee completely
clever 117:24 156:17 165:20 118:16 60:13
client 13:14 165:23 166:22 common 43:24 complexity
168:12,25 85:12 88:2 199:23
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[complicated - contract] Page 12
complicated 138:21,24 consequences contains 16:19
51:12 52:4 148:21 149:9 109:12 contemplate
53:13 56:4 165:23 168:25 consider 14:12 202:1
111:6 133:19 197:3 20:16 23:11 contending
202:23 203:3,5 conclusions 26:22 65:23 57:17 125:24
203:5,8 204:7 14:16 138:25 113:16 143:1 contends
component concomitantly 143:11 145:12 181:20
22:9 104:1,11 168:5 165:4 177:5 content 121:10
components conditions considered 139:15
108:5 18:20 156:1 26:22 65:24 context 32:10
compute confidence 119:1 151:13 35:20 49:17
196:25 67:24 106:19 consistent 72:7 79:24
computer 128:14 102:21 125:16 81:20 87:15
28:16 29:2,4,7 confident 99:9 190:11 191:5 88:10 97:2
29:9,10 58:20 101:2 202:10 conspiracies 100:5 138:9
115:25 confused 60:12 140:8 139:3,8,23,23
concentration 198:10 constant 27:6 140:14 150:17
86:5 congress 190:15 151:6 166:14
concept 23:5 118:16 constitute 44:2 166:21 171:2
46:6,7 95:12 connected 62:4 152:8 157:10 177:15 188:21
108:2 135:1 87:13 129:14 constraints 189:3,6 191:25
188:23 connecting 72:24 149:3,11 192:10
conception 164:18 150:7 151:18 contextual
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conceptual 24:11 28:18 construct 46:9 contextually
24:23 134:22 136:5 constructed 94:25
conceptualizi... 136:10 194:20 132:6 contingent
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concern 53:9 connotation 173:4 continuation
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59:13 138:18 consciously consumer continue 35:8
concert 140:6 54:19 15:11 75:1 190:19
conclusion 47:9 consensus contact 19:25 contract 12:25
54:23 110:4 119:10 contain 209:13 13:10,12 15:11
117:25 138:20
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[contrarian - crash] Page 13
contrarian 79:5,7 correcting counterfactual
33:17,24 34:3 coordinated 13:17 198:19
contribute 69:23 74:8,9 corrections counting
152:8 76:18,20 78:1 212:6 174:25 176:21
contribution 79:22 89:16 correctly 13:16 177:9,9,12
46:18 127:11 137:22 13:19 32:19 countries 22:5
controversial 140:1,2,9 112:16 113:11 counts 173:7,8
109:4 183:7,9 142:16 143:3 correlated 64:3 county 209:2
controversy 146:8 148:23 64:6 71:15 couple 34:7
120:21 154:1 164:5 100:2 86:11 94:10
conundrum coordinating correlation 128:18 139:20
75:8 87:18 78:21 142:21 29:22 90:23 184:16 185:8
conventional 154:16 cost 10:6 88:19 course 15:21
12:6 coordination 88:25 89:13,19 17:23 22:14
conversations 71:16,21,23 89:25 127:18 23:15 37:5,11
76:25 74:13,24 132:5,12 56:10 77:12
converse copies 210:14 costs 59:9 92:22 111:5
129:17 cornerstone 61:24 68:11 126:14 141:15
conversely 7:5 12:16,17 87:8 89:5,11 151:5 156:2
112:23 12:20,24,25 90:2 114:10 168:19 170:17
convey 26:9 13:10,14,21 127:10 131:21 178:10 185:1
32:21 33:16 19:14,16 21:4 132:11 149:13 197:16
conveyance corporate 149:24 152:13 court 1:1 2:1
37:11 22:11 32:13 153:8 163:24 5:10 42:10,14
conveyed 37:5 correct 8:9 168:14 184:2 42:19 47:5
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conveying 31:3 37:18 6:19 16:23 court's 41:24
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conveys 30:24 74:16 81:10 47:4 56:17 cover 133:6
201:12 87:23 96:20 85:23 94:1 141:10
convinced 109:23 172:11 116:8 209:10 covered 170:15
146:21 156:4 212:8 209:16 210:14 170:15
coordinate corrected 5:4 count 168:1,2 crash 117:5,5
70:5 71:20,22 6:6 7:18,20 counter 129:4 117:21 119:7
78:20,22 79:1 119:13
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[cravath - defined] Page 14
cravath 3:13 damages 24:7 162:8,21 dealt 119:18
7:7,8 24:12,19 25:12 163:19 165:15 debt 163:15
cravath.com 190:11,20 166:14 169:7,8 171:9
3:20,21 210:2 193:12 195:11 173:7 176:13 decades 92:7,8
create 87:21 195:16,20 177:4 184:15 93:9,12
88:5 183:24 196:10,14,16 184:19 209:21 decide 61:25
creating 201:3 196:25 197:5 212:15 decision 18:2
credible 146:14 198:2 199:3 daylight 2:14 50:21 52:11
criticisms 201:3 203:14 2:14 6:2 143:15,18
205:19 204:17 208:17 decisions 45:25
criticized 174:8 daniel 101:15 days 13:5 77:7 50:17,25 51:8
critique 177:15 darned 35:15 77:8,23 97:16 51:9,15,24
crossover darwinian 69:1 97:23,24 98:7 58:6 63:15
30:17 data 20:9,10 98:15 99:1 66:16 67:21
crowds 23:19 30:19,20 92:14 100:21 104:8 199:21
crystal 35:14 92:16 108:23 106:9,12 declare 212:4
cs 210:15 114:1 148:9 117:15 159:21 decline 41:18
csr 1:24 209:4 170:18 171:21 163:2,11 166:1 157:13 184:22
209:24 175:21 178:24 166:6 168:14 189:21 205:1
current 50:9 179:22,23 170:8,14,16 decompose
51:6 127:22 186:25 187:6 172:19,22,22 102:19 103:20
currently 34:1 194:3 172:23,25 deemed 202:11
curtail 118:25 date 21:4 173:4,14,22,23 212:6
customers 66:5 184:17 211:24 175:8,10,10,15 deeming 192:1
163:24 188:11 212:12 179:9,9 199:2 deep 86:8
cut 13:15 47:4 dates 160:16 210:17 defeating 116:3
183:8 186:6 day 29:21 de 112:15 defendant 16:2
cutler 117:12 30:20,21 37:13 113:10 189:16 defendants
119:14 91:18,19 98:1 deal 13:7 84:22 3:12
d 99:6,8,20,24 89:21 164:4 defense 15:21
100:1,1,13 dealing 32:11 define 44:13,13
d 4:1
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d'avolio 151:23
114:23 117:7 dealings 13:18 defined 13:12
damage 198:23
117:13 118:2,6 deals 163:22 21:25 22:23
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[defining - different] Page 15
defining 44:2 125:22 128:18 derive 16:8 determines
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202:9 130:6,10,10,13 describe 20:11 determining
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definition 21:6 134:15,15,19 26:13 97:4 78:4
44:25 54:4 180:23 181:15 162:12 deviated 54:16
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97:10,11 188:8 189:4,11 description 5:3 111:2 136:2
137:24 138:3,6 189:13 202:5 13:22 135:5 deviation 89:23
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174:9 175:7,10 167:24 destabilize 96:12 135:7
175:21 176:11 departures 70:12 diamond
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definitional depend 100:5 70:9 141:4,23 142:7
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definitionally 94:25 detailed 163:8 differ 53:4
142:5 depending details 162:16 difference
definitions 103:24 determination 24:24 25:10
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degree 52:18 107:4 143:14 determine 175:5 179:8
185:23 154:4 185:10 36:24 53:24 190:21 204:9
deity 24:2 deponent 55:4,12 56:24 differences
deleted 101:8 210:13 212:3 151:10 163:1 59:5,5,7
delve 86:8 deposing 163:18 203:17 171:11 191:7
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entirely 53:9 estimate 23:23 32:13,14 exaggerating
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err 170:4 33:2,6,9,15 149:22 154:18 55:18,23 58:23
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formula 95:10 157:5,10 85:8 86:24 11:1,2,6,7,18
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formulate 29:7 fraudulent 165:2 28:5 66:13,13
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fraction 13:23 59:4 23:17,18,21,22
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illiquid 132:17 implemented imputing 114:2 129:9,9,13
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marginally 67:19,19 68:22 154:5,6 155:4 204:15,15
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marin 209:2 70:15,19 71:4 157:21 159:20 market's 95:21
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35:21,24 36:3 85:3,5,6,13 181:14,19 71:7,8 73:7,13
39:21 41:5,12 86:18,23 89:24 182:9,10,12,14 73:18 75:11
41:17,21 42:9 94:13,17,17 182:15,18 76:1,11 78:8
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44:5,12,14,15 95:20,23,25 185:5,7,8,14,18 80:18,25 81:2
44:20,22,25 96:1,23,24 185:19 186:7 81:6,24 82:7
45:3,8,12,15,16 97:3,4,9,12,20 187:2 191:9,12 83:16 85:21
45:19,25 46:1 98:20 99:10 193:16,18,21 88:14 89:21
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material 16:8 114:15 117:16 24:21 177:10 mention 18:17
mathematical 118:5 121:1 191:19 21:9 79:19
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methodology 111:12 98:8 193:11 58:24 67:24,25
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mic 161:10 181:19 189:2 69:20 197:13 141:8,12 153:3
microfractions misconduct 203:3,5 153:7
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motors 97:17 multiple 140:5 neatly 12:10 61:9 68:15
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165:22
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near 7:2
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175:8,10,10 nobody's 17:10 noncontrover... notion 62:7
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nice 64:16 63:22,25 64:1 normal 15:25 null 167:22
nicholas 3:24 64:4,8,10,17 19:11 24:15 168:25
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138:18 139:2,5 73:23 73:24 75:10 173:19 187:20
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objection 18:13
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96:25 98:22 80:15 88:3 oh 62:18 86:7 175:2
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objections occurred 48:12,15 49:14 82:2,2 83:6
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observable occurs 106:8 59:23 82:3 149:10
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observe 109:11 october 117:6 87:1,3 94:4,12 77:24,25
observing 95:1 odd 191:7 95:7 96:21 191:12
95:8,25 oddness 135:15 98:10 102:23 opining 122:4
obtain 168:11 odean 108:16 112:6 116:9,24 187:21 188:21
obtaining 95:1 offer 33:11 119:24 128:16 opinion 33:11
obvious 40:10 48:1 125:16 141:2 143:5 34:15,18,20,21
40:11 68:6,8 157:4 195:3,3 145:21,22 34:23,24 39:7
68:12,15,18,19 offered 125:17 155:16 160:6,7 39:16,24 40:4
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powerful 109:5 premise 54:8 presume 41:18 44:24
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predictor 172:19 174:9 179:14,16,20 105:12,20
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professor 5:5,8 progress providing purposefully
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162:2,3,7,11,18 70:4 74:22,23 129:23 130:8 reliant 200:19
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replication 197:4,20 153:5 182:16 183:3
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resulting 123:4 91:10 93:9 38:5 39:5 risk 22:8,8,10
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results 174:11 105:13 106:22 48:4,8 56:16 127:19,21
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182:17 183:3 richard 101:11 172:13 173:17 157:2,6 184:14
184:10 186:1,3 102:3 103:8 176:6 181:7 185:5,12,16,19
187:5 188:24 117:24 183:10 184:12 186:23,25
188:25 189:1,5 rid 29:12 185:25 187:22 187:7,12 188:6
retrospect 200:13 187:23,24 188:9,11
118:1,21 ride 141:16 192:11 195:24 190:16 193:5
return 75:11 144:2 198:13 201:5 197:23 198:6
102:19 106:8 right 7:1,2,4,6 204:2 208:3 198:17 199:25
111:19 112:22 7:12 8:2,5,8 rise 29:22,24 200:13 201:10
120:4 162:23 10:7,19,21 75:1 190:24 202:6 204:3,8
163:2 205:11 12:15 13:25 risen 134:10 robinhood's
210:13,17 14:2 17:12,14 rises 59:22 18:1 48:19
returning 75:5 17:16 18:12,23 rising 133:14 58:12 66:5
returns 90:6,7 24:8,10,14 149:13 180:8 181:9
90:15,24,25 32:18 34:5,9 204:21
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[rocket - saying] Page 52
rocket 103:10 115:9 116:7,9 190:17 192:3 208:15 210:1
rockets 103:11 116:12 117:11 192:13 196:17 s
rockwood 1:24 119:14 126:17 running 20:11
s 65:18 211:3
2:16 209:4,24 130:17 133:23 196:19
s&p 9:17 120:1
role 8:17 10:23 143:5 145:23 runs 133:25
120:18,22,24
11:18 45:10 157:12,22 134:4,4
121:6
46:10 53:3 160:12 161:9 rush 40:17
sad 206:21
67:1 161:13,17 ryan 3:14,18
sake 125:5
roll 90:20 169:14,17,21 17:2 18:13
sale 58:13
101:11 102:3 170:7 172:3 19:4 26:6 35:3
salvaged 8:12
103:1,8 110:9 174:16 178:6 35:7 38:6 40:5
satisfied 128:24
117:24 162:12 179:4,25 45:4 46:2 47:8
satisfy 114:16
207:10 183:10 184:12 47:21 52:12
save 76:10,11
room 35:5 185:22 189:9 54:22 56:14
saw 84:8
rosas 1:24 2:16 190:2,5,7,24 58:16 60:20
124:11
209:4,24 195:7,23 62:22 80:3
saying 49:15
rosen 3:4,5 197:20 201:1 96:25 98:22
50:15 54:9
4:10 6:22 205:18 208:12 101:14,19,23
57:20 73:12
16:25 17:5 rosenlegal.com 103:4 110:1,23
79:25 84:14
18:19 19:14 3:9 112:3 113:8
85:6 88:1
26:15 35:9,16 roughly 167:12 116:5 117:10
89:20,20 90:1
38:7 40:6 188:11 126:9 129:1
90:9 92:18
42:16,21 45:14 rpr 1:24 2:16 133:15 134:21
93:13 96:2
46:25 47:5,11 209:4,24 142:24 145:19
100:17 110:13
47:12,17 48:4 rudimentary 157:8,16 160:8
111:5,22
52:15 55:2 95:22 169:11,16,18
114:20 122:5,6
56:12,15,18,20 rule 98:25 170:2 171:14
122:7 124:15
59:23 60:21 99:14 107:3 174:12 176:7
124:18 127:1
62:25 63:3,8 124:4,5 156:3 178:9 179:11
128:4 130:13
80:8 85:15,24 run 69:3,7,9 182:13 183:12
130:14 145:7
93:22 94:2,5 74:25 92:20 183:18 184:23
147:10 148:18
97:15 101:5,17 125:4 128:14 187:25 190:3,6
149:7 156:14
101:24 102:2 130:4 143:2 193:13 195:17
156:17 163:7
103:7 110:15 147:8 162:7,18 197:2 199:4
164:13,15
111:24 112:6 162:19,24 205:14 208:9
165:3,24
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[saying - selected] Page 53
176:18,19,25 scholes 95:10 section 24:17 152:6 161:7
176:25 178:25 school 7:14 61:7 73:15 168:16,20
178:25 179:3 schwab 108:23 143:6 160:23 173:20 174:21
179:21 181:13 108:23 171:20 188:23 178:4 180:5
182:1,15,18,25 science 115:25 193:15 194:22 188:1 192:14
184:5 185:9 scientific 178:4 194:23 198:15 194:15 197:13
188:20,25 scientist 103:10 securities 14:21 198:10
189:16 191:22 scooping 15:10,14 18:9 seeing 51:11
192:6 195:2 178:24 21:20,24 24:7 102:5
197:7,10,16,17 scouring 67:19 24:11,18 41:6 seeking 28:21
199:15 200:23 116:1 44:15 45:20 111:8
201:25 202:24 screen 7:25 81:3 86:24 seem 105:8
207:4 47:16 94:4 96:14 123:11 176:18
says 10:19 11:1 101:25 133:21 190:14 seemed 77:4
12:15 48:16 scurrying security 36:11 185:12,13
55:3,11 56:23 153:9 45:21 68:4 207:22
62:20 64:14 search 137:13 96:16,17 seemingly
72:23 73:16,23 163:9,12 security's 202:2
76:1 82:17 173:12 29:23 seems 78:22
86:22 87:4,5 sec 18:12,14,15 see 7:1,10,25 79:7 92:11,21
88:18 96:11 19:3 131:8 8:17 11:10 113:25 117:16
101:19 120:14 163:14 171:7 12:14 14:25 175:11 192:1
123:3 145:4 177:24 15:25,25 28:2 seen 45:17 97:4
149:11 164:9 second 28:15 28:3 40:16 102:2 127:24
165:10 176:23 42:16,17,24 42:22 48:5 138:4 140:17
180:7 181:6 43:6,11 62:18 67:15 85:20 173:7 179:2
186:16 192:9 86:10,22 87:10 89:3 100:6,21 182:5 201:19
192:13 198:14 91:7 104:4 104:14 105:1 202:1
199:24 111:23 120:5 120:13 125:15 sees 60:14,15
scale 118:21 122:12 145:19 126:2 127:20 segment 40:13
scenario 70:21 161:19 180:17 127:21,21 74:8 185:5
196:24 198:19 secondly 136:2 137:12 193:14
scenes 19:23 205:24 138:2 143:7,8 select 122:16
scheme 36:8 seconds 29:4 145:16,22 selected 160:15
30:2 148:6 150:17 169:25 170:9
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[selected - short] Page 54
170:10 175:13 seminars 84:4 serve 193:11 112:10
selecting senior 12:15,16 set 61:19 shock 27:6 64:5
112:20 sense 12:4 19:9 195:20 209:7 64:7 111:16,18
selection 24:1 25:1,2 seven 150:23 111:20 123:3
112:24 26:15 56:14 151:2 173:24 124:10 135:25
self 13:17 116:3 65:14 69:1 175:2 167:5
sell 37:24 50:5 82:22 88:2 several 15:8 shocked 97:25
50:25 62:2 92:17 94:16 152:11 121:16 167:2
64:7 91:8,13 99:5 105:18 share 10:14 shocks 123:10
141:10 143:11 129:12 200:20 17:24 18:2 123:21
148:11 149:12 207:1,9 24:19 42:22 short 1:5 2:5
153:5 157:1,14 sensible 87:5 120:15 22:16,19 28:14
186:24 187:18 sensitive shared 17:20 28:21 32:16,17
187:19 203:11 183:11 shares 10:3 32:22,25 56:13
203:14 sent 210:14 133:6,11 134:9 65:10 69:3,9
seller 152:8 sentence 35:13 134:10,14,16 74:23,25 75:20
203:14 48:16 49:1,9 147:12,20,24 78:5 79:21,22
sellers 128:23 53:21,22 55:2 150:4 153:9 89:17 112:23
146:10,17 55:10 56:21 157:1,14 113:15 118:8
147:1,7 151:17 82:17,21,21,25 sharing 42:15 125:14,19
154:2 87:10 145:20 sharp 124:21 126:1,7,12,14
selling 16:9 180:16,18,20 sharply 149:12 126:16,18,24
50:17 67:22 181:25 182:2,6 shed 150:3 127:3,13 128:3
74:23 89:17 182:8 183:9 sheet 210:11 129:24 131:11
109:10 131:11 sentences shifts 30:20 131:19 132:5
132:5 145:25 199:16 shleifer 5:14 140:24 141:6,8
149:3,6 150:7 sentiment 93:19,25 94:6 141:13,16,25
153:17 128:20 138:8 94:10 105:2,2 141:25 142:13
sells 60:17 138:11 105:2 107:5 143:4 145:25
semantic sentiments 109:18 116:13 146:9,17 147:1
153:22 137:25 138:1 116:25 119:11 147:7,13,15,18
semantics 138:19 120:10,13 148:11,23
159:10 separate 30:9 123:2,2,15 149:1,1,3,5,6
seminar 84:9 31:3,6,13 53:9 shleifer's 96:5 149:12,24
96:19 110:13 150:7,8,12,19
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Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 109 of
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[short - social] Page 55
151:10,16,17 185:7 187:6 99:7 103:2 109:5 128:20
151:20,20,24 191:18 194:10 105:20 106:7 134:19 153:14
152:4,7,19 198:2,24 199:3 106:22 111:9 179:21 182:15
153:17,19,20 201:4 206:3 114:12 160:17 single 175:14
153:23 154:2 207:19 163:3 165:25 178:7 179:5
154:10,13,16 showed 110:9 169:7 173:18 206:10
154:18,21,23 149:22,24 173:21 179:8 sir 6:18
154:24,25 158:4 206:6,12 sit 126:10
156:21 164:2 showing 123:23 significantly 136:20 197:11
166:5 167:9 149:2 97:13,17,23 sitting 67:15
176:14,16 shown 107:23 178:22 130:24
210:4 211:1 124:2 179:7 signs 206:8 situation
212:1 187:1 192:22 silicon 7:5 151:17
shortcut 90:3 shows 8:7 21:8 silly 36:6 83:25 six 20:1 77:7,7
shorted 147:20 90:5 108:23 92:17 173:6
147:24 150:4 112:19 113:13 similar 14:15 skill 209:15
152:23 136:8 193:2 25:22 64:19 slice 10:17
shorter 153:2 195:12 95:5 97:7 slightly 41:10
shorthand 2:16 shut 8:16 105:24 114:21 slow 133:21
shorting 11:9 side 146:16 136:4 151:25 162:20,21
74:17 125:18 159:19 170:5 169:5 174:16 small 12:3
126:5,11,19,21 185:14 187:2 174:19 38:10 40:13
126:22 127:2,3 196:13 similarities 58:24 61:7
127:5,8,10 sides 15:21,24 131:13 66:5 104:11
131:14 132:10 sight 175:19 similarity 111:4 114:8
132:12 152:13 sign 210:12 131:17 185:7,13 187:1
shorts 127:13 signature similarly 72:3 187:8
131:13 141:10 209:23 simple 24:20 smarter 134:2
141:17 148:4 signed 210:20 40:2 71:21 134:3
show 18:4 42:2 significance 86:23 95:12 snapshot
42:10 54:11 98:3 99:23 152:17 181:17 166:18
85:15 99:18 114:16 163:3 186:18 199:18 social 21:12
101:7 137:10 206:9 207:19 200:7 202:25 31:19 60:1,3
167:2,10 significant 65:8 simply 33:9 70:5 71:23
178:19 179:13 98:2,6,16 99:1 46:22 82:23 76:25 128:1
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[social - squeezes] Page 56
138:17 139:1 sort 9:5 13:22 178:4 181:21 104:13,18,19
139:11,18 21:15 22:24 183:6 192:3 150:10 162:23
140:14 142:16 23:4 24:2 25:1 194:12,15 171:7
142:21 167:11 26:23 27:6,25 207:16 specifically
207:5 28:3,13,20 sorts 61:2,11 12:18
socially 31:12 30:18 32:11 132:18 139:12 speculation
society 31:17 34:22 38:21 sound 23:4 70:10
31:23 39:20 43:12 114:9 speeches 81:19
sold 112:23 44:10,18 52:4 sounds 17:10 spent 20:19
147:13 153:6 59:22 63:12 25:22 30:25 21:4
199:2,2 64:2 68:20,25 31:8,9 33:25 spigots 204:8
solutions 69:24,25 70:13 47:22 50:8 split 13:7 29:3
210:23 71:7,13,17 110:10 169:16 30:2
solve 202:11 72:16 73:20 176:8 183:19 spoke 30:2
somebody 75:3 78:25 199:14 208:6 87:13
27:18 40:12 80:12 82:12,13 source 144:12 spoken 139:6
54:18 57:3,7 85:12 86:17 152:19 spot 83:11
64:12 84:8 88:2,22 89:1,4 sources 76:23 165:2
131:18 155:25 89:18 90:14 163:16,18 spotting 28:4
167:2,2 91:11 92:18 170:18,21 spreads 132:14
somewhat 34:4 98:24 102:22 171:21 172:1 132:17
193:6,6 103:15 104:4 southern 1:2 squarely 208:6
sophisticated 107:20,24,25 2:2 squeeze 1:5 2:5
36:7 94:19 108:5 109:15 speaking 44:14 32:16,17,22,25
soros 32:10 109:19 114:1,8 44:18 69:15 141:6,8,13,16
sorry 35:12 114:15,23 159:18 188:11 142:1 150:19
40:20 43:2,14 118:17 124:9 196:6 201:13 151:10,17,21
55:9 66:6 86:4 127:16 128:1 speaks 167:25 152:4,9 153:19
95:14 100:10 134:23 136:15 special 61:17 153:20,24
104:22 116:13 136:17,18 178:1 154:10,13,16
120:3 172:6 138:12,12 specific 9:1 154:19,23,25
174:14,22 143:16 150:15 19:6 23:16 156:21 210:4
180:12 187:11 152:17 153:17 37:7,12 81:15 211:1 212:1
187:19 190:3 156:24 158:19 83:3 102:14,20 squeezes 79:21
199:9 204:22 172:9 175:24 103:24 104:5,5 79:22 143:4
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[squeezes - stock] Page 57
148:23 149:1,2 86:24 87:9,12 210:5 211:2,24 103:20,24
149:6 150:8 117:17 119:10 212:2,4,12 104:11 105:6
151:24 154:21 160:18 182:4 stickler 100:12 105:12,20
164:3 187:5 111:22 106:5 109:14
ss 209:1 statements stiglitz 87:16 111:16,24
staff 18:14,19 150:16 88:1 113:4,14
21:4 states 1:1 2:1 stock 9:5,13 116:20 117:1,5
standard 80:12 stating 104:25 18:11 21:6 117:13,17
103:25 104:15 statistical 22:21 23:1,3 119:18,19,19
105:10 114:11 92:20 98:3 23:21,23 24:18 119:25 122:12
138:14 194:9 99:23 103:13 25:20,24 26:2 122:13 125:23
194:15,24 106:13 114:16 28:1 35:11 126:19,22
197:12 162:11 175:6 39:18,22 44:23 128:8,19,21
standpoint 199:18 206:9 49:21,22,23,25 129:6 130:8,12
15:22 87:13 206:16 207:19 50:9 51:11,18 131:14,15,16
206:15 statistically 51:25 52:6,10 131:20 133:13
stanford 7:2,11 58:21 97:17 53:10 54:14 134:20,25
8:4 84:3 98:1,6,16 99:1 55:19,21 56:6 135:9,15 136:6
stared 87:22 99:7 103:2 56:11 57:22 136:10,20,22
start 80:16 105:20 106:7 58:13 59:9 136:23 139:9
86:7 109:6 106:22 114:12 60:25 64:15,23 140:23 141:17
112:7 142:12 160:17 163:2 66:2 67:10 141:21 143:12
142:14 166:14 165:25 173:21 70:17 71:4 143:13,13,21
167:21 179:8 206:5,12 75:9,18 76:16 144:13 146:24
started 11:22 statistics 77:10 79:18 147:1,13 148:9
11:22 15:15,20 205:25 206:2 80:9,18 83:12 149:12,13
167:11 stay 144:2 83:13,19,23 152:13,15,18
starts 17:21 stayed 193:6,7 84:17,18 87:18 152:19,22,23
86:22 102:10 stenographic... 87:22 90:6,6 152:25 153:11
192:9 209:11 93:7 95:14,25 154:2,5,7,10,21
state 123:25 step 163:5 97:17,19,23 155:4,8 156:10
200:3 209:1 steve 62:23 98:1,6,15,20 156:17 163:1
statement steven 1:12 99:1,6,20 163:19 164:9
19:12 25:6,14 2:11 4:8 5:2,5 100:1,8 102:12 164:13,15,23
25:16 55:8 5:8 6:7,10,13 102:19 103:2 165:1,10,10,16
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Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 112 of
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[stock - studies] Page 58
165:25 167:7 70:2 73:4,6 163:10 164:7 30:16,24 31:1
168:3,8,22 74:22 75:17 166:1,12 167:3 31:3,13,15,16
169:7 174:6 77:1,23 79:10 167:8,15,20,22 31:19,19 32:1
176:14,15,23 79:15,15 80:9 168:6,23 170:1 32:8 33:18
177:4 180:24 80:11 91:7,13 170:10 172:21 34:3 93:16
181:16,22 92:6,16 93:10 173:21 179:7 113:3,6 141:25
182:8,9,17,23 99:14,23 100:3 180:9 181:13 straw 121:24
183:4 184:10 101:3 103:21 183:2 184:17 122:2
184:21 189:11 104:17 109:6 184:19,21 stream 108:16
189:21 192:16 109:25 110:4,6 187:3,16,24 street 33:13
194:9 202:19 110:16 112:20 189:7,24 60:4,9 65:18
204:10,21 113:5 114:6,8 195:12 205:4 65:18 138:17
205:1 206:23 118:13 120:24 205:11 206:2,5 strengths
207:21 121:3 122:4,6 206:10 207:2,3 148:10
stock's 94:14 122:6,17 207:4,6,8,10,12 strict 156:1
95:6 126:17 124:22,23,25 207:20 strikes 141:14
153:21 125:20,21 stop 15:17 188:18
stockbrokers 126:7,14 stopping strong 44:6
184:18 127:25 130:4 188:14 109:9 119:10
stocks 9:20 131:2,4,9,11 stories 146:20 119:22 144:4
10:16 17:25,25 134:23 136:9 148:22 161:14 181:19
18:7 21:9,11 137:2 138:18 story 91:17 strongly 89:22
21:17 23:6,6 139:2,5,18 110:6 116:3 100:4 156:3
27:20,23 31:10 140:15 142:18 136:17 146:6 179:17
34:5,9,12,12,16 142:22,23 146:11,13,16 structure 18:20
35:19,21,23 145:24 146:1 149:8 168:13 stubborn 72:6
36:14,21 37:4 146:18 147:22 192:16 200:16 72:8,14,15
37:9,13 38:5 148:12,21 strands 109:15 student 72:11
38:22,25 39:9 149:14,19 strategies 9:1 102:5 107:14
39:18 41:1,11 150:13,20,23 21:22 22:1 109:21
45:7,11 46:16 151:1,7,11 141:23 142:11 students 80:23
46:23 54:1 155:19,21 142:14 117:23
55:6 57:1,13 156:6,16,21 strategy 21:25 studies 72:24
57:14 61:15,19 157:7,13,15,20 26:23,24 27:9 90:20 91:22
64:10 65:22 159:22 162:14 28:6 29:7 30:8 115:4 135:14
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Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 113 of
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[studies - suspicious] Page 59
169:4 194:16 subset 28:25 suit 15:9 36:16 37:22
197:14 39:21 41:14 sum 149:11 38:19 42:12
study 102:18 56:7 66:23 summarize 43:21 49:7
107:19 112:17 67:2 180:24 75:6 50:23 52:16,22
159:8,13,15,15 182:17 183:3 summarized 53:6 56:14
159:18 160:2,2 184:10 186:3 96:11 161:24 62:4,14 63:9
160:4,5,10,13 187:5,7,8 summarizing 66:12 67:3
160:15,20 188:24,25 73:14 77:21 81:21
161:3,24 166:4 189:4,5 summary 82:14 83:1 91:23
167:19 169:2,3 subsets 56:7 143:17 145:18 92:9 104:16,25
169:8,22 178:7 subsidiaries sums 72:23 105:15 107:18
193:17,20 17:18 sun 83:11 110:4 112:4
194:12,18,25 subsidiary 165:2 120:8 138:23
196:9,17,20 11:15 super 61:10 139:3 140:4
stuff 12:5 13:9 substance 37:6 supermarket 152:3,10
20:15 22:5 substantive 64:13 154:14,16
23:19 87:13 181:15 supervision 159:16 160:18
92:17,18 substitute 209:12 160:21 171:10
112:11 114:21 131:10 supply 96:17 180:17,21
116:1 163:21 subtle 68:7,17 149:13,19 189:23 191:2
163:22 194:7 succeed 69:2 support 95:9 191:18 193:19
207:23 successful 69:9 165:24 189:9 surprise 104:14
subject 13:21 113:3,6,6 suppose 49:15 118:24
34:6 50:6 134:4 154:3,22 58:9 74:19,21 surprised
68:11 81:9 188:13 74:22,23 98:15 147:15 182:1,4
202:2 sudden 52:10 106:5,6 125:5 surprising
submitted 161:9 supposed 32:18 124:16 148:5
38:14 suddenly 10:10 156:20 surrounding
subs 104:10 sufficient sure 7:24 8:11 96:22
subscribe 195:15 9:16 10:24 survive 174:1
147:4 suggest 144:1 11:20 16:25 174:24 175:2,4
subscribed suggesting 17:5 20:4 survives 174:6
209:20 212:14 198:1 25:18 28:7,10 suspect 115:23
subsequent suggests 123:4 29:18 31:15 suspicious
29:24 157:13 33:4,16,23 126:4
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[sustainable - term] Page 60
sustainable takes 86:5 talks 92:24 tell 7:22 14:23
69:10 137:20 177:11 112:11 123:10 38:13 62:17
sustained 78:24 talk 16:1 41:4 task 197:10,19 86:1 99:9
swayne 3:13 44:8 65:9 tasked 197:8 101:9 107:12
swing 30:13,14 71:12 79:3 202:13 186:10 193:20
swoop 71:5 83:7,16,17 taste 64:14 tells 98:25
125:13 84:5 105:2 tax 22:14 91:12 127:6
sworn 6:14 117:19 123:21 91:15 109:12 temperature
212:14 137:22 160:23 teach 27:3 83:12
symbols 172:20 161:15 206:24 80:23 117:23 temporarily
synopsis 82:13 talked 55:24 203:7 74:4,12,15
t 61:22 110:24 teaching 75:9,16
114:21 115:14 142:10 temporary 73:2
t 65:18 211:3,3
127:25 135:22 technical 27:10 111:1,4 145:5
table 37:12
139:11 159:20 27:14,14,17,22 ten 8:15,25
195:24 206:3
162:5 163:21 28:2,3,6,12 25:6 67:16
tables 76:24
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101:1 113:15
115:3 135:18
yep 180:17
yield 130:3
york 3:7,7,17
3:17 68:10
80:9
young 206:22
z
zero 38:1,10
zoom 1:13 2:12
Veritext Legal Solutions
212-279-9424 www.veritext.com 212-490-3430
Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 124 of
125
Federal Rules of Civil Procedure
Rule 30
(e) Review By the Witness; Changes.
(1) Review; Statement of Changes. On request by the
deponent or a party before the deposition is
completed, the deponent must be allowed 30 days
after being notified by the officer that the
transcript or recording is available in which:
(A) to review the transcript or recording; and
(B) if there are changes in form or substance, to
sign a statement listing the changes and the
reasons for making them.
(2) Changes Indicated in the Officer's Certificate.
The officer must note in the certificate prescribed
by Rule 30(f)(1) whether a review was requested
and, if so, must attach any changes the deponent
makes during the 30-day period.
DISCLAIMER: THE FOREGOING FEDERAL PROCEDURE RULES
ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
THE ABOVE RULES ARE CURRENT AS OF APRIL 1,
2019. PLEASE REFER TO THE APPLICABLE FEDERAL RULES
OF CIVIL PROCEDURE FOR UP-TO-DATE INFORMATION.
Case 1:21-md-02989-CMA Document 582-3 Entered on FLSD Docket 06/21/2023 Page 125 of
125
VERITEXT LEGAL SOLUTIONS
COMPANY CERTIFICATE AND DISCLOSURE STATEMENT
Veritext Legal Solutions represents that the
foregoing transcript is a true, correct and complete
transcript of the colloquies, questions and answers
as submitted by the court reporter. Veritext Legal
Solutions further represents that the attached
exhibits, if any, are true, correct and complete
documents as submitted by the court reporter and/or
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