Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion to Exclude the Opinions of Dr. Adam Werner on Market Efficiency — In re January 2021 Short Squeeze Trading Litigation (Dkt. 582, S.D. Fla.)

Summary

Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendants' Motion to Exclude the Opinions of Dr. Adam Werner on Market Efficiency in In re: January 2021 Short Squeeze Trading Litigation, Case 1:21-md-02989-CMA (Case No. 21-2989-MDL-ALTONAGA/Damian, Document 582, 27 pages), in the Southern District of Florida, entered June 21, 2023. Plaintiffs argue that the Court can certify without ruling on the motion, since the Eleventh Circuit eschews a Daubert analysis not critical to certification, and that analyzing the year before the class period was proper because Plaintiffs' theory is that Robinhood's manipulation rendered the markets inefficient during the class period. Plaintiffs add that damages are measured on market prices, not prices set by an efficient market, and ask that the motion be denied, over the /s/ signature of Laurence M. Rosen.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

CASE NO. 21-2989-MDL-ALTONAGA/Damian

This Document Relates to: All Actions Involving the Federal Securities Laws

PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION
TO DEFENDANTS’ MOTION TO EXCLUDE THE OPINIONS OF DR. ADAM
WERNER ON MARKET EFFICIENCY

In re: JANUARY 2021 SHORT SQUEEZE
TRADING LITIGATION

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 1 of 27

i

TABLE OF CONTENTS
I.
PRELIMINARY STATEMENT ....................................................................................... 1

II.
STATEMENT OF RELEVANT FACTS.......................................................................... 2

III.
LEGAL STANDARD ......................................................................................................... 3

IV.
ARGUMENT ....................................................................................................................... 4

A.
The Eleventh Circuit Eschews a Daubert Analysis Not Critical to Class
Certification ...................................................................................................................... 4

B.
Dr. Werner’s Opinions Concerning Efficiency in His Opening Report Are Helpful
and Reliable ...................................................................................................................... 5

1.
Analysis of the Year Preceding the Class Period is Helpful...................................... 5

2.
Robinhood’s Data “Commingling” Attack on Reliability Fails ............................... 5

3.
Use of a Dummy Variable for January 27, 2021, Was Appropriate ........................ 6

4.
Werner’s Method of Selecting News is Helpful and Reliable ................................... 7

a.
Werner’s Definition of Efficiency is Appropriate ................................................... 7

b.
Werner’s News/No-News Test is Appropriate Because it Avoids Subjective
Determination of Value Relevant News ................................................................... 9

c.
It Is Appropriate to Include Articles Discussing Price Movement...................... 10

d.
It Was Appropriate Not to Examine the Articles’ Substance .............................. 11

5.
Werner’s Choice of Methodology Is Consistent with Other Cases ........................ 13

C.
The Opinions in Dr. Werner’s Rebuttal Report are Helpful and Reliable .............. 14

D.
Market Efficiency is Unnecessary to Prove Class-wide Damages ............................. 17

V.
CONCLUSION ................................................................................................................. 18

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 2 of 27

ii

TABLE OF AUTHORITIES
Page(s)
Cases
Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1972) .............................................................. 17

Alcott Co. v. Raphael,
275 F.2d 551 (5th Cir. 1960) ....................................................................................................... 12

Allison v. McGhan Med. Corp.,
184 F.3d 1300 (11th Cir. 1999) ................................................................................................... 16

Altidor v. Carnival Corp.,
550 F. Supp.3d 1322 (S.D. Fla.-Miami 2021)............................................................................. 16

Angley v. UTi Worldwide Inc.,
311 F. Supp. 3d 1117 (C.D. Cal. 2018) ............................................................................. 9, 10, 11

Bd. of Educ. of City School Dist. of City of New York v. Califano,
584 F.2d 576 ................................................................................................................................ 15

Bricklayers & Trowel Trades Int'l Pension Fund v. Credit Suisse First Boston,
853 F. Supp. 2d 181 (D. Mass. 2012) ........................................................................................... 7

Brokop v. Farmland Partners Inc.,
No. 18-cv-02104-DME-NYW, 2021 WL 4916240 (D. Colo. July 23, 2021) ........................ 6, 14

Bruschi v. Brown,
876 F.2d 1526 (11th Cir. 1989) ................................................................................................... 17

Buttonwood Tree Value Partners, LP v. Sweeney,
No. SACV1000537CJCMLGX, 2013 WL 12125980 (C.D. Cal. Sept. 12, 2013)........................ 7

Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC,
310 F.R.D. 69 (S.D.N.Y. 2015)..................................................................................................... 4

Castaneda v. Partida,
430 U.S. 482 (1977) .................................................................................................................... 15

City of Tuscaloosa v. Harcros Chemicals, Inc.,
158 F.3d 548 (11th Cir. 1998) ................................................................................................... 4, 6

Cordoves v. Miami-Dade Cnty.,
104 F. Supp. 3d 1350 (S.D. Fla. 2015)........................................................................................ 14
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 3 of 27

iii

Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993) ...................................................................................................................... 3

FindWhat Inv. Grp. v. FindWhat.com,
658 F.3d 1282 (11th Cir. 2011) ............................................................................................... 8, 17

Griffin v. Coffee Cnty.,
608 F. Supp. 3d 1363 (S.D. Ga. 2022) .......................................................................................... 3

Halliburton Co. v. Erica P. John Fund, Inc.,
573 U.S. 258 (2014) ...................................................................................................................... 9

In re Alstom SA Sec. Litig.,
253 F.R.D. 266 (S.D.N.Y. 2008) .................................................................................................. 9

In re Countrywide Fin. Corp. Sec. Litig.,
273 F.R.D. 586 (C.D. Cal. 2009) .................................................................................................. 9

In re Diamond Foods, Inc., Sec. Litig.,
295 F.R.D. 240 (N.D. Cal. 2013) .................................................................................................. 8

In re Groupon, Inc. Sec. Litig.,
No. 12 C 2450, 2015 WL 1043321 (N.D. Ill. Mar. 5, 2015) ........................................................ 7

In re Initial Pub. Offering Sec. Litig.,
260 F.R.D. 81 (S.D.N.Y. 2009)................................................................................................... 17

In re Montage Technology Grp. Ltd. Sec. Litig.,
No. 14-CV-00722-SI, 2016 WL 1598666 (N.D. Cal. Apr. 21, 2016) ........................................ 12

In re Netbank, Inc. Sec. Litig.,
259 F.R.D. 656 (N.D. Ga. 2009) ................................................................................................... 9

In re PolyMedica Corp. Sec. Litig.,
432 F.3d 1 (1st Cir. 2005) ............................................................................................................. 8

In re Teva Sec. Litig.,
No. 3:17-CV-558 (SRU), 2021 WL 872156 (D. Conn. Mar. 9, 2021) ......................................... 9

In re Zantac (Ranitidine) Prod. Liab. Litig.,
No. 20-MD-2924, 2022 WL 17480906 (S.D. Fla. Dec. 6, 2022) ............................................... 14

In re: Petrobras Sec. Litig.,
312 F.R.D. 354 (S.D.N.Y. 2016) .................................................................................................. 9

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 4 of 27

iv

Johnson v. Comm'r of Internal Revenue,
74 T.C. 89 (1980) ........................................................................................................................ 18

Loc. 703, I.B. of T. Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp.,
762 F.3d 1248 (11th Cir. 2014) ..................................................................................................... 4

Manpower, Inc. v. Ins. Co. of Pa.,
732 F.3d 796 (7th Cir. 2013) ....................................................................................................... 11

Mcgarity v. FM Carriers, Inc.,
No. CV410-130, 2012 WL 1028593 (S.D. Ga. Mar. 26, 2012) .................................................. 11

McIntire v. ChinaMedia Express Holdings, Inc.,
38 F. Supp. 3d 415 (S.D.N.Y. 2014) ....................................................................................... 9, 10

Monroe Cnty. Employees’ Ret. Sys. v. S. Co.,
332 F.R.D. 370 (N.D. Ga. 2019) ............................................................................................... 1, 4

Nat'l Sur. Corp. v. Georgia Power Co.,
No. 2:17-CV-68-RWS, 2019 WL 4394403 (N.D. Ga. Sept. 12, 2019) ...................................... 12

Pidcock v. Sunnyland Am., Inc.,
854 F.2d 443 (11th Cir. 1988) ..................................................................................................... 18

Pub. Employees’ Ret. Sys. of Mississippi v. Mohawk Indus., Inc.,
2022 WL 17920570 (N.D. Ga. Nov. 28, 2022) ............................................................................. 1

Reynolds v. Giuliani,
118 F. Supp. 2d 352 (S.D.N.Y. 2000) ......................................................................................... 15

Schleicher v. Wendt,
No. 1:02-CV-1332-DFH-TAB, 2009 WL 761157 (S.D. Ind. Mar. 20, 2009) .............................. 5

Schoen v. State Farm Fire & Cas. Co.,
No. CV 21-00264-JB-N, 2022 WL 16579767 (S.D. Ala. Nov. 1, 2022) .................................... 12

Scott v. City of Indianapolis,
No. 1:08-CV-0150-SEB-TAB, 2010 WL 1265990 (S.D. Ind. Mar. 25, 2010) ........................... 15

Thorpe v. Walter Inv. Mgmt., Corp.,
No. 1:14-CV-20880-UU, 2016 WL 4006661 (S.D. Fla. Mar. 16, 2016) .................................... 18

U.S. v. Reddy,
534 F. App’x. 866 (11th Cir. 2013)............................................................................................... 6

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 5 of 27

v

UCB, Inc. v. Teva Pharms. USA, Inc.,
No. 1:12-CV-4420-CAP, 2015 WL 11199058 (N.D. Ga. Mar. 18, 2015).................................. 11

Vision I Homeowners Ass'n, Inc. v. Aspen Specialty Ins. Co.,
674 F. Supp. 2d 1321 (S.D. Fla. 2009)........................................................................................ 16

Willis v. Big Lots, Inc.,
No. 2:12-cv-604, 2017 WL 1074048 (S.D. Ohio Mar. 17, 2017) ....................................... 6, 8, 12
Rules
Fed. R. Evid. 702 .............................................................................................................................. 3
Other Authorities
Daniel R. Fischel, Efficient Capital Markets, the Crash, and the Fraud on the Market Theory, 74
Cornell L. Rev. 907 (1989) ........................................................................................................... 8

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 6 of 27

vi

DEFINED TERMS AND OTHER ABBREVIATIONS
ACCC ¶
References are to paragraphs of the Amended Consolidated Class Action
Complaint, filed January 17, 2023 (ECF No. 527)
Cert. Br.
Motion for Class Certification (ECF No. 559).
Dates
Unless a year is noted, the year is 2021
Defendants
Robinhood Markets, Inc. and its two wholly-owned subsidiaries,
Robinhood Financial, LLC and Robinhood Securities, LLC (also
referred to collectively as “Robinhood”)
Fischel Depo.
Deposition of Daniel R. Fischel, taken April 12, 2023 (Rosen Decl. Ex
1)
Fischel ECM Article
D. Fischel, “Efficient Capital Markets, the Crash, and the Fraud on the
Market Theory,” 74 Cornell L. Rev. 907, 912–13 (1989) (ECF. No. 559-
36)
Fischel Rpt.
Report of Daniel R. Fischel, dated February 16, 2023 (ECF. No. 559-8)
Fischel Reb. Rpt.
Rebuttal Report of Daniel R. Fischel, dated March 28, 2023 (ECF. No.
559-32)
Grenadier Depo.
Deposition of Steven Grenadier, taken April 19, 2023 (Rosen Decl. Ex
2)
Grenadier Rpt.
Corrected Expert Report of Professor Steven Grenadier, dated February
24, 2023 (ECF. No. 559-7)
Grenadier Reb. Rpt.
Rebuttal Expert Report of Professor Steven Grenadier, dated March 28,
2023 (ECF. No. 559-30)
Def. Br.
Motion to Exclude the Opinions of Dr. of Adam Werner (ECF No. 566)
Order
Order on Motion to Dismiss, dated Aug. 11, 2022 (ECF No. 503)
Rosen Decl.
Declaration of Laurence Rosen, filed concurrently with this
Memorandum.
Werner Decl.
Declaration of Adam Werner dated June 21, 2023 (Rosen Decl. Ex. 3)
Werner Rpt.
Report of Dr. Adam Werner, dated February 16, 2023 (ECF. No. 559-14)
Werner Reb. Rpt.
Rebuttal Report of Dr. Adam Werner, dated March 28, 2023 (ECF. No.
559-5)
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 7 of 27

1

I.
PRELIMINARY STATEMENT
Robinhood’s motion to exclude the expert opinions of Dr. Adam Werner regarding market
efficiency in connection with Plaintiffs’ motion for class certification is irrelevant for two reasons.
First, as explained in Plaintiffs’ opening brief, there are multiple bases for finding that common
issues pertaining to reliance predominate without Plaintiffs demonstrating the Affected Stocks
traded in efficient markets.1 Market efficiency is required when price changes are used as a proxy
for class-wide reliance in a misstatement case; Plaintiffs do not allege incorporation of
misstatements into the Affected Stocks’ prices. Second, because the Eleventh Circuit does not
require an event study proving a cause-and-effect relationship between the release of new
information and stock price movements, and will find market efficiency if the other pertinent
factors (the so-called “Cammer/Krogman factors”) point in its favor, Robinhood’s challenges to
Dr. Werner’s event study cannot doom class certification.2 Because the Court can, and should,
certify the class without ruling on this motion, the Court could dismiss the motion as moot.
Beyond being unnecessary, Robinhood’s motion is also meritless, often conflating weight
and admissibility arguments, or making arguments that have no bearing on class certification.
Robinhood faults Dr. Werner for examining the one-year period prior to the class period, instead
of analyzing efficiency during the one-week class period. This ignores the fact that Plaintiffs’
theory of the case is that Robinhood’s manipulation rendered the markets inefficient during the
class period. Robinhood also attacks Dr. Werner’s opinion that it is possible to calculate damages
on a class-wide basis by claiming that proof of market efficiency is required to calculate class-
wide damages. Untrue. Damages are measured based upon market prices, not prices set by an
efficient market.
Robinhood’s motion also attempts to turn case law on its head, arguing that Dr. Werner
erred by not conducting subjective analyses of individual news items pertaining to nine issuers to
determine whether they are “value relevant,” and that his failure to do this renders his opinions

1 Cert. Br. at 10-16. Should the Court credit any one of these arguments, proof of market efficiency
is not required, rendering attacks on Dr. Werner’s report immaterial.
2 “[T]he Court is not aware of any case in the Eleventh Circuit … finding a market inefficient
where all Cammer/Krogman factors but Cammer factor five were satisfied. The Eleventh Circuit
is not alone in its determination that the fifth Cammer factor is not a prerequisite to a finding of
market efficiency...” Monroe Cnty. Employees’ Ret. Sys. v. S. Co., 332 F.R.D. 370, 384 (N.D. Ga.
2019) (emphasis in original); Pub. Employees’ Ret. Sys. of Mississippi v. Mohawk Indus., Inc.,
2022 WL 17920570, at *10 (N.D. Ga. Nov. 28, 2022) (citing Monroe).  See Sec. IV.A, infra.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 8 of 27

2

unreliable and biased. Not so. Multiple courts have affirmed the propriety of Dr. Werner’s
methodology, holding that he used a reliable method. The procedure Robinhood advocates –
conducting individual and subjective determinations of “value relevance,” is the method that is
disfavored. Dr. Werner’s methodology assured his objectivity and his report’s reliability.
II.
STATEMENT OF RELEVANT FACTS
Robinhood, an online stock brokerage, rapidly and recklessly expanded in January 2021,
adding 3 million accounts that month – even courting customers on TV and in print on January 27
to become the most-downloaded app that day – knowing it lacked the infrastructure to support that
many new accounts. ACCC ¶47; Cert. Br. at 5. At 5:11 a.m. on the morning of January 28,
Robinhood did not have $3 billion required to meet its NSCC collateral requirement. ECF 559-29
at 3. After obtaining a one-day waiver of its ECP charge ($2.2 billion), Robinhood barred
purchases, but not sales, of the Affected Stocks to prevent another liquidity crisis the very next
day. ACCC ¶80(d). Robinhood would have allowed purchases to continue had it been adequately
capitalized. Id. Robinhood misled investors by concealing these facts, and that Robinhood knew
its actions would “trigger a crash” in the markets of the Affected Stocks. Cert. Br. at 1; Order at
45-46. This manipulative conduct tanked the Affected Stocks’ prices, damaging investors.
Plaintiffs moved for class certification on April 28, 2023. To address Rule 23(b)’s
“predominance” requirement, plaintiffs presented three arguments with respect to the element of
reliance: (1) common issues predominate because Robinhood’s manipulative scheme was directed
at all class members; (2) because the deception accompanying Robinhood’s restrictions was a
failure to disclose material information, Affiliated Ute excuses the need for proof of reliance; and
(3) reliance on an assumption of an efficient market free of manipulation is a merits issue that is
common to all class members and only requires proof of a bona fide market, not proof of efficiency
akin to that required by Basic v. Levinson. That said, mindful of the unique nature of this case, in
an abundance of caution, Plaintiffs submitted an expert report from Dr. Adam Werner,
demonstrating that the markets for seven of the nine Affected Stocks were efficient under the
Cammer and Krogman tests (eight factors, in total).
Prior to his recent retirement, Dr. Werner was a lecturer at the Orfalea College of Business
at California Polytechnic State University, where he taught economics courses to graduate and
undergraduate students. Werner Rpt. ¶4. He is an affiliated expert at Crowninshield Financial
Research, Inc. He previously worked for consulting firms such as Cornerstone Research (with
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 9 of 27

3

whom Robinhood expert Dr. Steven Grenadier is affiliated), CRA International, and NERA. He
has been retained numerous times as an expert on a variety of economic matters, by both plaintiffs
and defendants. His opinions have been accepted in Federal, State, and Bankruptcy Courts, as well
as courts in Australia and Canada. He holds a Ph.D. in finance from Northwestern University’s
Kellogg Graduate School of Management. Id. ¶5.
In connection with Cammer Factor 5, price reaction to new information, Dr. Werner
conducted an event study. Werner Rpt. ¶¶52-79. Specifically, he performed a “news vs. no-news
test” which compared stock price movements on “high information” days (the top 10% of news
days in the study period, measured by the number of articles identified) with movements on “low
information” days (the remaining 90% of news days). Id. at ¶¶67-79. Dr. Werner expressly adopted
a broad definition of news – any article about each of the nine Affected Stocks identifiable through
a search of the news database Factiva – to be as objective as possible. Id. at ¶68. Comparing the
occurrence of statistically-significant price movements on high news days with those on low news
days, Dr. Werner found evidence of a cause-and-effect relationship for eight of the nine Affected
Stocks and concluded that this factor supported efficiency for those stocks. Id. at Table 9 & ¶79.
Werner Rpt. at 34.
Robinhood does not attack Dr. Werner’s analysis on any other Cammer/Krogman factor.
III.
LEGAL STANDARD
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 588-596 (1993) established a
“liberal” approach to admit expert testimony that is both relevant and reliable. Id. at 594-95. “The
focus [of the Daubert analysis] must be solely on principles and methodology, not on the
conclusions that they generate.” Id. at 595. “Vigorous cross-examination, presentation of contrary
evidence, and careful instruction on the burden of proof are the traditional and appropriate means
of attacking shaky but admissible evidence.” Id. at 596. “[T]he rejection of expert testimony is the
exception rather than the rule.” Fed. R. Evid. 702 (advisory committee notes (2000)). “[I]n a
Daubert inquiry, a court is not concerned with the correctness of an expert’s opinion. Instead, the
focus is on whether the expert is qualified to give the opinion, whether the expert’s methodology
is reliable, and whether the opinion is helpful.” Griffin v. Coffee Cnty., 608 F. Supp. 3d 1363,
1372-73 (S.D. Ga. 2022), objections overruled, No. 5:19-CV-92, 2022 WL 2805037 (S.D. Ga.
July 18, 2022).
The Eleventh Circuit summarized the Daubert test as boiling down to three requirements:
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 10 of 27

4

(1) the expert is qualified to testify competently regarding the matters he intends to
address; (2) the methodology by which the expert reaches his conclusions is
sufficiently reliable as determined by the sort of inquiry mandated in Daubert; and
(3) the testimony assists the trier of fact, through the application of scientific,
technical, or specialized expertise, to understand the evidence or to determine a fact
in issue.
City of Tuscaloosa v. Harcros Chemicals, Inc., 158 F.3d 548, 562 (11th Cir. 1998). Defendants
challenge only the reliability of Dr. Werner’s methodology and the helpfulness of his testimony.
IV.
ARGUMENT
A.
The Eleventh Circuit Eschews a Daubert Analysis Not Critical to Class
Certification
In addition to being moot because Plaintiffs meet the “predominance” requirement without
a finding of market efficiency, the motion is also procedurally improper. In Loc. 703, I.B. of T.
Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp., 762 F.3d 1248, 1258 n.7 (11th Cir.
2014), the Eleventh Circuit held that a full Daubert analysis is only needed when the challenged
expert opinion is critical to class certification. Here, it is not.
Dr. Werner’s report included an analysis of the five “Cammer factors” and the three
“Krogman factors” which courts typically consider in determining efficiency. Robinhood objects
to Werner’s methodology only as to Cammer Factor 5, which Werner addressed with an event
study. However, the Eleventh Circuit has held that Cammer Factor 5 is not dispositive of market
efficiency and that an event study is not required to establish a fraud-on-the-market presumption
at class certification. Regions, 762 F.3d at 1256.  Indeed, the court in Monroe Cnty., supra, noted
that Regions affirmed a finding of market efficiency even though the plaintiffs did not proffer an
event study. 332 F.R.D. at 384. Monroe further observed that the Eleventh Circuit is joined by five
other circuits in not requiring proof under Cammer Factor 5, id. at 384-85, because “[r]equiring a
plaintiff to submit proof of market reactions – and to do so with an event study – ignores Supreme
Court precedent as well as practical considerations.” Id. at 385 & n.8 (quoting Carpenters Pension
Tr. Fund of St. Louis v. Barclays PLC, 310 F.R.D. 69, 83 (S.D.N.Y. 2015) and collecting cases).
In fact, where the other Cammer and Krogman factors support a finding of market
efficiency, courts in the Eleventh Circuit dispense with proof under Cammer Factor 5. Id. (no
Eleventh Circuit case failed to find market efficiency where the other seven factors were satisfied).
Here, the other factors are met, an event study is not critical to class certification, and a Daubert
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 11 of 27

5

analysis is unneeded.
B.
Dr. Werner’s Opinions Concerning Efficiency in His Opening Report Are
Helpful and Reliable
1.
Analysis of the Year Preceding the Class Period is Helpful
Robinhood argues that “securities plaintiffs may establish [Basic] reliance on a class-wide
basis by showing that the market was efficient at the time they transacted—in other words, during
the Class Period.” Def. Br. at 7-8. While this is true in a misrepresentation case, the Court already
acknowledged that the elements of a §10(b) claim are different in a manipulation case, especially
a case where it is alleged that material omissions made both the defendants’ price-deflationary acts
manipulative and the markets inefficient. Indeed, both of Robinhood’s experts testified that
manipulation can render inefficient a market that had previously been efficient. Grenadier Depo.
at 44:18-25; Fischel Depo. at 145:19-146:4. The assertion that Dr. Werner’s analysis is unhelpful
because it “answers the wrong question by addressing the wrong time period” (Def. Br. at 8) is
therefore meritless. Plaintiffs do not contend that the markets for the Affected Stocks were efficient
during the class period, but that they were efficient before Robinhood’s manipulations, and Dr.
Werner’s event study is helpful for that purpose.
Further undercutting Robinhood’s claim that only class-period efficiency should be studied
is its submission of expert reports from Dr. Grenadier and Mr. Fischel opining that markets for the
Affected Stocks were inefficient during abbreviated pre-class periods. See Fischel Rpt. at ¶¶ 21 n.
44 & 34 (finding market inefficiency during the period between January 4 and 27); Grenadier Rpt.
at ¶¶4 n.1 & 13, (finding inefficiency during the period January 21-27). Robinhood cannot claim
that Dr. Werner’s analysis of efficiency in the pre-class period is unhelpful to the finder of fact
while proffering expert reports on exactly the same topic.
Moreover, an event study of the year prior to the class period can be helpful to the court’s
market efficiency review. See Schleicher v. Wendt, No. 1:02-CV-1332-DFH-TAB, 2009 WL
761157, at *5 (S.D. Ind. Mar. 20, 2009), aff'd, 618 F.3d 679 (7th Cir. 2010) (“[A]s part of this
event study, Dr. Feinstein studied the price movement on a daily basis for the year before the class
period .… Those observations also tended to support the finding of an efficient market …”).
2.
Robinhood’s Data “Commingling” Attack on Reliability Fails
Robinhood contends that because the market behaved atypically in the period leading up
to January 28 (which period is unclear: Mr. Fischel starts his analysis on January 4 while Dr.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 12 of 27

6

Grenadier begins his on January 21), Dr. Werner’s use of a one-year period for determining
efficiency prior to the class period (Def. Br. at 6-9) was inappropriate because it improperly
“commingles” two sets of distinct data. Robinhood claims that even if the one-year data is relevant,
it improperly masks extraordinary activity that amounted to market inefficiency during some point
in January. Robinhood cites no case where this comingling concept was used to exclude an expert
report in a securities fraud case. Cases where courts admit the reports but find that efficiency has
not been shown for the entire proposed class period are not applicable here.3   More importantly,
Robinhood does not cite either of its experts’ opinions in support of this theory. Robinhood’s ipse
dixit is no basis for exclusion.
There are scientific tests to determine whether there are in fact substantial variations within
the one- year period such that it would require separating sub-periods to analyze for efficiency,
such as the Breusch-Pagan test for heteroskedasticity. Werner Dec. ¶15. But Robinhood’s experts
never performed that test, and it is no wonder why, because when Dr. Werner performed it, he
found there was no indication that for any of the Affected Stocks, there were variations in the one-
year period that would undermine his use of a one-year analysis. Id. ¶16. Cf. Willis v. Big Lots,
Inc., No. 2:12-cv-604, 2017 WL 1074048, at *5 (S.D. Ohio Mar. 17, 2017) (an attack on
methodology but not on the outcome does not demonstrate lack of reliability or disturb efficiency
finding).
3.
Use of a Dummy Variable for January 27, 2021, Was Appropriate
  Robinhood asserts that Dr. Werner’s exclusion of January 27 2021, from his regression
somehow makes the results unreliable.  Dr. Werner explained that he excluded January 27 from

3 In U.S. v. Reddy, 534 F. App’x. 866 (11th Cir. 2013) a defense expert’s analysis of radiology
images for an 18-month period matching the period of alleged wrongdoing was partially excluded
because a superseding indictment was handed down with a shorter but overlapping period of
wrongdoing. Unlike the indictment’s clear line of demarcation, it is only Robinhood’s say-so as to
which part of Dr. Werner’s opinion should be excluded as not relevant to the case. Similarly, in
Harcros Chems, 158 F.3d at 566, data concerning collusive activity in Florida could not be
commingled with data regarding Alabama as evidence of a conspiracy alleged to have occurred
solely in the state of Alabama. Again, a state line is clear, when the atypical activity began is not
even agreed upon by Robinhood’s experts. The court in Brokop v. Farmland Partners Inc., No.
18-cv-02104-DME-NYW, 2021 WL 4916240 at *17-18 (D. Colo. July 23, 2021), did not exclude
the expert report and only shortened the class period because plaintiffs’ expert conceded that he
had not shown efficiency in early part of class period.

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 13 of 27

7

his regression analysis because it was the event that led to Robinhood imposing the Restrictions.
Werner Depo. at 124:2-125:4. Similar to a corrective disclosure date in a misstatement case, Dr.
Werner knew in advance of conducting his news/no news test that there would be a potentially
extreme price return on this day, as this is a date alleged to be eventful in this case.. Therefore, he
excluded that date to avoid biasing the results of his regression analysis by removing potentially
abnormal price movements. Importantly, the purpose of a regression model is to estimate typical
stock price behavior so that individual dates can be compared against this benchmark in
determining statistical significance. Dr. Werner did not exclude any dates from his ultimate tests
to determine whether news days vs non-news days were more frequently associated with
statistically significant stock price movements. That is, January 27, 2021, was in fact included in
Dr. Werner's tests of market efficiency. Moreover, use of dummy variables is “a common and
accepted component of securities fraud event studies, although courts have cautioned against their
overuse.” Bricklayers & Trowel Trades Int'l Pension Fund v. Credit Suisse First Boston, 853 F.
Supp. 2d 181, 188 (D. Mass. 2012) (dummying out 54% of trading days is too many); Buttonwood
Tree Value Partners, LP v. Sweeney, No. SACV1000537CJCMLGX, 2013 WL 12125980, at *11
(C.D. Cal. Sept. 12, 2013) (dummying out 6.4% of trading days is acceptable).
Dr. Werner dummied out only five trading days out of 253 or 2.0% - an immaterial
number.4 Werner Rpt. at ¶63. Dr. Werner also stated that whether or not he included January 27
in his regression analysis had no effect on the results. Werner Depo, pg. 124:2-20.  Robinhood’s
criticism is thus immaterial. Indeed, neither of their experts mention it in their rebuttal reports. See
In re Groupon, Inc. Sec. Litig., No. 12 C 2450, 2015 WL 1043321, at *7 (N.D. Ill. Mar. 5, 2015),
objections overruled, No. 12 CV 2450, 2015 WL 13628131 (N.D. Ill. May 12, 2015) (criticism of
expert’s use of dummy variable dismissed because expert testified it made no difference either
way and opposing expert did not test whether it made a difference).
4.
Werner’s Method of Selecting News is Helpful and Reliable
a.
Werner’s Definition of Efficiency is Appropriate
Robinhood’s argument that Dr. Werner’s definition of efficiency is inappropriate because
it does not match the academic definition of efficiency lacks merit for the simple reason that there
is no single academic definition of efficiency. As Mr. Fischel himself noted:

4   Robinhood’s calculation of 365 trading days in the one-year estimation period is an error.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 14 of 27

8

Much of the discussion of efficient capital markets suffers from ambiguity
concerning what characteristics capital markets must satisfy to be considered
“efficient.” At least two definitions of “efficient” capital markets exist. The first …
focuses on the speed with which market prices reflect publicly-available
information and whether the price reaction to new information is without bias … I
refer to this definition as “trading-rule efficiency.”
The second definition of efficient capital markets focuses on the extent to which
security prices reflect the present value of the net cash flows generated by a firm’s
assets. I refer to this definition of efficiency as “value efficiency.”
Daniel R. Fischel, Efficient Capital Markets, the Crash, and the Fraud on the Market Theory, 74
Cornell L. Rev. 907, 912–13 (1989) (“Fischel ECM Article”). ECF 559-36. Other sources refer to
these two types of efficiency as “informational efficiency” and “fundamental efficiency.” In re
PolyMedica Corp. Sec. Litig., 432 F.3d 1, 14-15 (1st Cir. 2005) (the latter fully incorporates
information both quickly and accurately). Even if there were one academic definition of market
efficiency, financial economists do not dictate the means by which market efficiency is determined
by the courts. Big Lots, 2017 WL 1074048, at *4 (“This does not mean that Defendants (or their
expert …) are incorrect in what they say—it means that Defendants (and their expert) often
describe a different conception of an efficient market than is used by the law.”).
Dr. Werner testified that it is his understanding courts typically look for “informational
efficiency” when evaluating the applicability of the fraud-on-the-market presumption. Werner
Depo. 66:13-67:23. This is correct. In FindWhat Inv. Grp. v. FindWhat.com, 658 F.3d 1282, 1310
(11th Cir. 2011), the Eleventh Circuit held: “A ‘fraud on the market’ occurs when a material
misrepresentation is knowingly disseminated to an informationally efficient market.”5 Robinhood
quibbles with Dr. Werner’s reading of Halliburton II but neither that decision nor the cases cited
herein require proof of “fundamental efficiency” or “value efficiency” as Robinhood claims. Def.
Br. at 10-12. Dr. Werner used the definition adopted by courts and is correct that Halliburton II
rejected a strict adherence to fundamental efficiency, holding that “[d]ebates about the precise
degree to which stock prices accurately reflect public information are thus largely beside the

5 See PolyMedica, 432 F.3d at 16 (“Our focus on whether a particular market has absorbed all
available information (and misinformation) … is not a fundamental value inquiry.”); In re
Diamond Foods, Inc., Sec. Litig., 295 F.R.D. 240, 247 (N.D. Cal. 2013) (“The majority of courts
in this circuit agree that … market ‘efficiency’ means that prices will ‘reflect all relevant
information,’ a definition of efficiency known as informational efficiency.”).
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 15 of 27

9

point.” Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 272 (2014).
b.
Werner’s News/No-News Test is Appropriate Because it Avoids
Subjective Determination of Value Relevant News
One necessary step in performing an event study is to determine at the outset a definition
of “news”. Experts performing this analysis use different definitions of news as their point of
comparison, e.g., any day with an earnings announcement, any day with an earnings surprise, or
any mention of a company in a news story.6 Given that there are multiple methodologies for
classifying news, selection of the appropriate criteria requires some discretion. “Courts recognize
that reality, and, in the normal course, do not discount or exclude Cammer 5 event studies based
on that fact.” In re Teva Sec. Litig., No. 3:17-CV-558 (SRU), 2021 WL 872156, at *33 (D. Conn.
Mar. 9, 2021); see also In re: Petrobras Sec. Litig., 312 F.R.D. 354, 368 (S.D.N.Y. 2016) (refusing
to consider challenges to news day selection methodology in event study) (vacated in part on
otherer grounds). For this case, Dr. Werner used the criterion of all news articles identifiable
through a search on the database Factiva that mentioned the Affected Stocks during the Relevant
period. Dr. Werner testified that he did this to minimize subjectivity, analyzing all news rather
than making his own determination of what an investor would find informative. Werner Depo.
229:44-231:2; Werner Decl. ¶31. Objectivity in selecting event criteria ensures reliability. In re
Countrywide Fin. Corp. Sec. Litig., 273 F.R.D. 586, 618 (C.D. Cal. 2009) (“[E]vents for study
should be selected using criteria that are as objective as possible.”). Courts routinely reject Daubert
challenges to event studies using very similar methods to Dr. Werner’s when granting class
certification.7
Robinhood’s experts’ use of subjective methodologies demonstrates the appropriateness of
this approach. As Dr. Werner observed in his rebuttal report, Mr. Fischel and Dr. Grenadier cannot

6 D. Tabak, “What Should We Expect When Testing for Price Response to News in Securities
Litigation,?” at 6 (NERA Economic Consulting Aug. 2016); Rosen Decl. Ex. 6.
7 See, e.g. Angley v. UTi Worldwide Inc., 311 F. Supp. 3d 1117, 1124 (C.D. Cal. 2018) (rejecting
attack on event study that treated as “news days” all days with articles mentioning the company
through a Bloomberg search);  McIntire v. ChinaMedia Express Holdings, Inc., 38 F. Supp. 3d
415, 429-30 (S.D.N.Y. 2014) (rejecting attack on study defining “news days” as those with articles
on Bloomberg and Factiva); In re Netbank, Inc. Sec. Litig., 259 F.R.D. 656, 673-74 (N.D. Ga.
2009) (rejecting Dr. Tabak’s attack on an event study that treated as “news days” all days with
articles mentioning the subject company through a search on Factiva); In re Alstom SA Sec. Litig.,
253 F.R.D. 266, 280 (S.D.N.Y. 2008).
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 16 of 27

10

even agree as to which days during the single week in which their study periods overlapped should
be identified as news days for five of the Affected Stocks. Werner Reb. Rpt. at ¶47. at 24. Similarly,
when Dr. Grenadier re-ran Dr. Werner’s analyses using three different ex ante definitions of
“news,” it resulted in different findings concerning proof of cause-and-effect with respect to the
Affected Stocks each time. Grenadier Reb. Rpt. at ¶53 & Ex. 1A-C. (defining “news” as earnings
and guidance: BB, BBBY and NOK; defining “news” as 8Ks and 6Ks: AMC and BBBY; defining
“news” as press releases: BBBY).
c.
It Is Appropriate to Include Articles Discussing Price Movement
Even though Mr. Fischel himself recognizes the difference between informational/trading-
rule efficiency and fundamental/value efficiency, the former of which has been widely adopted by
courts, Robinhood faults Dr. Werner for not screening out information that “has nothing to do with
the company’s future cash flows.” Def. Br. at 13. But courts have consistently held that the better
practice is to use objective criteria in selecting news to include in an event study, and to avoid just
such subjective ex ante determinations. Angley, 311 F. Supp. 3d at 1124 (collecting cases);
McIntire, 38 F. Supp. 3d at 429 (rejecting attack that expert included news about company’s price
movement in its definition of news and finding that the expert’s “methodology for categorizing
News Days and Non–News Days was sufficiently reliable, objective, and consistent with scientific
principles”).
Excluding articles about price movement would have been inappropriate because they
contained information that reasonable investors might have traded on. As Dr. Werner noted, some
investors trade on momentum, which involves looking at stock price movement in determining
what trade to make. Werner Dep. Tr. 230:9-18. Dr. Grenadier himself worked at a hedge fund that
conducted momentum trading. Grenadier Depo. 12:7-8 In fact, CEO Vlad Tenev stated that
Robinhood provides its customers with “notifications about stock movements that help them stay
informed.”8 How can Robinhood argue the very price movement information they provide to their
customers is not relevant?9

8   Vlad Tenev, “Robinhood Users Come Under Attack,” Wall Street Journal (Sept. 27, 2021)
(Rosen Decl., Ex. 7).
9 In addition to price movement information, several of the articles that Robinhood claims should
have been excluded contain information that an investor might find relevant, such as the fact that
trading in these companies has come under regulatory scrutiny. See, e.g., ECF 566-17 and 566-27.

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 17 of 27

11

Robinhood implies there is no precedent for Dr. Werner’s methodology (despite its use in
cases cited herein) because he only pointed to one example of such testing at his deposition, Dr.
Tabak’s event study in the Alibaba class certification motion, which did not employ the exact same
methodology. Def. Br. at 13-14 (citing Werner Dep. Tr. 225:7-13). In that case, one of several
permutations of the news/no news tests Dr. Tabak ran analyzed all news mentions of Alibaba in a
Factiva database and compared the days with the highest 10% of news mentions to those with
fewer mentions. It is that test that Dr. Werner looked to in designing his own event study. ECF
566-7, Ex. 8a. While it is true that Dr. Tabak performed an additional test where he excluded
articles that “were solely reporting on Alibaba’s price movements or volume,” when Dr. Werner
removed those articles he continued to find a statistically significant correlation between high news
days and price movement. Werner Decl. ¶33. Finally, Robinhood notes that Dr. Tabak excluded
from his Factiva searches articles that fell into the category of “recurring pricing and market data”
– an option on Factiva that weeds out a subsection of articles. If Dr. Werner’s methodology slightly
deviated from Dr. Tabak’s  that is no basis to exclude his report. See Angley, 311 F. Supp. 3d 1125-
26 (where expert strove to minimize subjectivity, certain decision points require some
subjectivity). This deviation goes to weight, not admissibility. Id., at 1126.
In essence, their criticisms of Dr. Werner’s decision not to exclude documents that discuss
only price movement are complaints about the quality of his underlying data. Numerous courts
have held that “the type of data used by [an expert] to perform his damages analysis is merely
grounds for cross-examination at trial.” UCB, Inc. v. Teva Pharms. USA, Inc., No. 1:12-CV-4420-
CAP, 2015 WL 11199058, at *7 (N.D. Ga. Mar. 18, 2015); see also Manpower, Inc. v. Ins. Co. of
Pa., 732 F.3d 796, 806 (7th Cir. 2013) (“Reliability … is primarily a question of the validity of
the methodology employed by an expert, not the quality of the data used…”); McGarity v. FM
Carriers, Inc., No. CV410-130, 2012 WL 1028593, at *7 (S.D. Ga. Mar. 26, 2012) (“[T]he
identification of flawed data or facts relied upon by an expert is precisely the role of cross-
examination and does not render expert testimony inadmissible”).
d.
It Was Appropriate Not to Examine the Articles’ Substance
Robinhood faults Dr. Werner for failing to filter out certain articles included in his sample
that could be considered extraneous because, while they mention the names of the various
companies, they actually do not relate to the companies themselves, such as an article related to
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 18 of 27

12

the rapper “Princess Nokia” and an article related to “Blackberry Township, Pennsylvania.”10
Robinhood and its experts submitted no evidence that the exclusion of the extraneous news articles
that they identified would have changed the outcome of Dr. Werner’s event study. In the absence
of such a showing, exclusion is inappropriate. Willis v. Big Lots, Inc., No. 2:12-CV-604, 2017 WL
1074048, at *5 (S.D. Ohio Mar. 17, 2017) (rejecting Daubert motion and noting that “it is
significant that Defendants do not contend that Steinholt's failure to perform an ex-ante hypothesis
affected the outcome of the event study in any way”).
In addition, Robinhood’s argument fails because, as noted in the previous section, the
quality of data an expert uses goes to the weight of the expert’s opinion, not its admissibility. The
cases Robinhood cites for the contrary proposition do not support their argument. For example,
Schoen v. State Farm Fire & Cas. Co., No. CV 21-00264-JB-N, 2022 WL 16579767, at *8 (S.D.
Ala. Nov. 1, 2022), is readily distinguishable because the expert testifying as to the costs of a repair
had not prepared the underlying estimate of the repair which itself was so poorly prepared as to be
unreliable, e.g., including the wrong insulation, flooring that did not need to be replaced, popcorn
texture for twice ceiling square footage, and an error in the cost of house wrap by a hundred-fold.
Inclusion of a handful of articles not pertinent to the nine issuers in a data set of over 14,000 news
articles is hardly the same as a completely defective repair estimate. And the other cases cited are
no better.11 Werner Rpt. Ex. 8, pg. 202.
Finally, Robinhood claims that Dr. Werner should have reviewed all of the articles for the
nine issuers over a one-year period to remove those articles where he subjectively determined the
information was not new. Def. Br. at 15-16. However, as discussed in the previous section, courts
disfavor subjective screening of potential news dates. In In re Montage Technology Grp. Ltd. Sec.
Litig., No. 14-CV-00722-SI, 2016 WL 1598666, at *10 (N.D. Cal. Apr. 21, 2016), the only case
Robinhood cites where a report was excluded for failure to exclude confirmatory information from
among 51 documents generated over a 4.5-month class period, the expert had defined “news” as
analyst reports that “contained new and unexpected information.” Here, where the data set
included all Factiva articles pertaining to nine issuers over a one-year period, Dr. Werner did not

10 Neither Robinhood nor their expert, identify any such articles with respect to AMC, GME,
KOSS, TR, or TRVG. Def. Br. at 15 and Fischel Reb. Rpt. ¶ 22 n.33.
11 Nat'l. Sur. Corp. v. Georgia Power Co., No. 2:17-CV-68-RWS, 2019 WL 4394403, at *5 (N.D.
Ga. Sept. 12, 2019) does not address data quality and Alcott Co. v. Raphael, 275 F.2d 551, 557
(5th Cir. 1960) preceded Daubert by over thirty years.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 19 of 27

13

and would not claim that all of the articles contained new and unexpected information.
5.
Werner’s Choice of Methodology Is Consistent with Other Cases
Mischaracterizing Dr. Werner’s testimony, Robinhood argues that because this was the
first time he used this methodology, his expert report should be excluded because it was contrived
to reach a particular result. Def. Br. at 16-18. First, the only change in this case is that Dr. Werner
used a broader and more objective definition of news. Nothing else changed.  The methodology
for testing news event days against non-news days is the same as his prior reports.  Werner Decl.
¶38. Second, Dr. Werner explains that he made this decision after first reviewing news “to better
understand the industry and markets that the Affected Companies were operating in …[because it]
… is one of the first steps I take before employing any event selection methodology” Id. ¶45.
Importantly, this “is not the same as testing for market efficiency as Defendants attempt to
portray.” Id.  Dr. Werner did not perform any tests for market efficiency before first selecting the
news event criteria. Id. ¶44.
Dr. Werner explained that when he began working on this case, he considered using the
tests he had in the past but, mindful of the flaws in those methodologies, e.g., the use of press
releases or 8-Ks as a proxy for news could be overinclusive, in that those sources could contain
non-material or non-new information, or underinclusive, in that news about an issuer might come
from another source – he determined that it was more appropriate to use a broader, more objective
definition of news. Werner Depo. 174:6-175:19. Dr. Werner also explained that as he began
considering how to define news for the event study, he realized that  selecting individual news
dates as he had in the past would be criticized as inherently subjective. Id. at 229:11-23; Werner
Decl. ¶37-39. Also, with nine Affected Stocks, each had its own policies and practices for what
information to include in earnings announcements, 8-Ks and press releases. Werner Decl. ¶40.
This would have led to inconsistencies within the report. As noted above, this is borne out by Dr.
Grenadier not getting the same results across companies when testing earnings/guidance, press
releases, and 8-Ks and 6-Ks – a fact that underscores the limitations of the prior methodologies
and supports the broader test he employed.
That Dr. Werner’s careful consideration of the proper testing to use in this rather unique
case led him to use a methodology he personally had not used before is not disqualifying where it
has not only been used by other experts but has been used by Dr. Werner in two subsequent reports
in different cases, working with different law firms. Rosen Decl. Exs. 4 & 5. Robinhood’s
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 20 of 27

14

authorities are thus distinguishable: The methodology in Cordoves v. Miami-Dade Cnty., 104 F.
Supp. 3d 1350, 1364 (S.D. Fla. 2015) was not just different from past practice, it was inferior; In
re Zantac (Ranitidine) Prod. Liab. Litig., No. 20-MD-2924, 2022 WL 17480906, at *132 (S.D.
Fla. Dec. 6, 2022) dealt with unexplained inconsistency with prior practice. See also Brokop, 2021
WL 4916240, at *12 (fact that expert never before performed a test not found in literature is not
disqualifying if explained). Here, as in Brokop and Zantac, Dr. Werner explained why he adopted
a new methodology – to avoid the over- or under-inclusiveness of an ex ante selection of news
types.
C.
The Opinions in Dr. Werner’s Rebuttal Report are Helpful and Reliable
In his rebuttal report, Dr. Werner conducted tests to complete the partial, anecdotal
analyses performed by Mr. Fischel and Dr. Grenadier in their opening reports. Essentially,
Robinhood’s experts performed a highly-biased, “backward” event study – without testing any
hypothesis. They first identified dates with abnormal stock movements and then sought out news
on those dates, if any. Werner Reb. Rpt. ¶¶41, 44. However, they never conducted a statistical
analysis to determine the likelihood that the association of news days with abnormal price
movements could occur by chance. Id.
On rebuttal, Dr. Werner used a binomial test to show that Robinhood’s experts’ anecdotal
analyses fall apart under statistical scrutiny. Id. at ¶45. A binomial test is a simple application that
is designed to calculate whether the frequency of one of two outcomes (hence, “binomial”) could
occur by chance. For instance, a binomial test could be used to answer the question of whether, if
we flip a coin 100 times and it lands on heads 60 times, the coin is fair. If it is unlikely that a fair
coin could reach that result, the binomial test can be used to conclude that the coin is not fair.
Similarly, Dr. Werner used the binomial test to calculate whether, in the week leading up to the
class period, the co-occurrence of news (according to the definitions of news selected by Mr.
Fischel and Dr. Grenadier) and statistically-significant price movements could be attributed to
chance. If the odds that the association could be attributed to chance is below 5%, that is evidence
of efficiency. For six of the seven stocks that Dr. Werner tested, the binomial test in fact showed
such evidence of efficiency. Id. at ¶50 & Table 7.
The binomial test is a well-known and widely-accepted tool of statistical analysis. It is
routinely taught in undergraduate- and graduate-level statistics courses. See, e.g., Rosen Decl. Ex.
8 (excerpt from R.V. Hogg, J.W. McKean & A.T. Craig, Introduction to Mathematical Statistics
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 21 of 27

15

(6th ed.) p. 133-34 (Pearson Prentice Hall, 2005)). Binomial tests have been included in expert
reports accepted by federal courts. See, e.g. Scott v. City of Indianapolis, No. 1:08-CV-0150-SEB-
TAB, 2010 WL 1265990, at *4 (S.D. Ind. Mar. 25, 2010) (“Because the binomial distribution test
is a method that is accepted and recognized in the relevant scientific community, we conclude that
[the expert] utilized a sufficiently reliable methodology in evaluating the data before him, and that
his testimony thus meets the standard outlined in Daubert”); Reynolds v. Giuliani, 118 F. Supp.
2d 352, 374 (S.D.N.Y. 2000) (“…[B]inomial tests of statistical significance are recognized by
courts as being valid…”); Castaneda v. Partida, 430 U.S. 482, 496 n. 17 (1977) (adopting binomial
distribution as statistical model to evaluate racial discrimination in grand jury selection); Bd. of
Educ. of City School Dist. of City of New York v. Califano, 584 F.2d 576, 585 n. 29 (2nd Cir.1978),
aff'd, 444 U.S. 130 (1979) (same).
Robinhood falsely suggests that Dr. Werner “admitted” that his binomial test “does not
compare ‘news’ days to ‘non-news’ days.” Def. Br. at 18 (citing Werner Depo. at 334:14-21)
(emphasis added). Yet the passage they quote is in response to a question where Dr. Werner states
that he did not perform a separate statistical test called a Fisher’s exact test:
Q. Yes. And do you see that he then runs a Fisher’s exact test and finds there is no
statistically significant difference on the days with news and the days without news,
right?
A. Based on his definition of news, again, I haven’t had a -- I haven’t examined this
thoroughly, but on the surface that appears to be what it is.
Q. Okay. And when you conducted your binomial test results for your rebuttal
report you did not do this kind of comparison between the news dates and the non-
news dates during the one-week period before the proposed class period, did you?
A. Right, based on the small sample size, that is correct.
Werner Depo. at 334:14-21 (emphasis added). Werner was simply explaining he did not
perform a Fisher’s exact test (as he had with his original data) because the sample size was too
small for that test to be meaningful.
Dr. Grenadier’s purported competing test12 (ECF 566-13), is itself fundamentally flawed,

12 The alleged Grenadier document, introduced at Dr. Werner’s deposition, was produced after the
parties’ exchanged opening and rebuttal reports has never been authenticated by Dr. Grenadier or
by counsel. Robinhood asserts in its motion to strike that this is proper as a response to Dr. Werner
performing a binomial test for the first time in rebuttal, disregarding the fact that it is entirely
proper to perform a new analysis in rebuttal to rebut an opposing expert’s analysis. Dr. Grenadier
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 22 of 27

16

as it excludes from its calculation the “news days” that Mr. Fischel identified. Because it is not
working from the same data set, it can have no bearing on the reliability of Dr. Werner’s test. There
is no basis to exclude Dr. Werner’s analysis on rebuttal because his data set included both experts’
set of news dates.
The bone Robinhood (and Dr. Grenadier) have to pick is not with the reliability of the
methodology employed (here, binomial test) but with Dr. Werner’s decision of what to test.  He
tested days that Grenadier and Fischel had identified as news days to ensure objectivity. Certainly,
Robinhood cannot fault Dr. Werner for selecting as news days the same days that its experts
determined were news days. That Dr. Grenadier suggests he should test something else as well –
Grenadier’s selection of non-news days while ignoring Fischel’s non-news days - is not a criticism
of the methodology of Dr. Werner’s binomial test. Robinhood does not get to dictate what
statistical tests Dr. Werner may perform in rebuttal, particularly when neither Dr. Grenadier nor
Prof. Fischel performed any statistical tests on news days vs. non-news days.   At most, these are
the kind of “battle of the experts” arguments – going to the weight of the evidence and the experts’
relative credibility, not the relevance or reliability of their method – that this and other courts in
the Eleventh Circuit have found to be uniquely the province of the factfinder, and therefore
inappropriate for determination by the Court on a Daubert motion. See, e.g., Altidor v. Carnival
Corp., 550 F. Supp.3d 1322, 1331 (S.D. Fla.-Miami 2021) (“It is not the role of the district court
to make conclusions as to the persuasiveness of the proffered evidence… courts must be careful
not to conflate questions of admissibility of expert testimony with the weight appropriately to be
accorded to such testimony by the fact finder.” ) (internal citations and quotations omitted); Vision
I Homeowners Ass'n, Inc. v. Aspen Specialty Ins. Co., 674 F. Supp. 2d 1321, 1325 (S.D. Fla. 2009)
(“so long as the expert is minimally qualified, objections to the level of the expert's expertise go
to credibility and weight, not admissibility”) (internal marks omitted); Allison v. McGhan Med.
Corp., 184 F.3d 1300, 1313 (11th Cir. 1999) (“[T]he proponent of the testimony does not have the
burden of proving that it is scientifically correct, but that by a preponderance of the evidence, it is
reliable.”).13

himself performed new analyses in his own rebuttal. Grenadier Reb. Rpt. This, however, is a sur-
rebuttal.
13   Robinhood also cites FindWhat for the proposition, irrelevant to the binomial test, that
disclosure of . . . information already known by the market will not cause a change in the stock
price.” FindWhat, 658 F.3d at 1310.  All that FindWhat held is that false statements during a class
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 23 of 27

17

D.
Market Efficiency is Unnecessary to Prove Class-wide Damages

In connection with Comcast’s requirement that plaintiffs show that it is possible to
calculate damages on a class-wide basis to support a “predominance” finding, Dr. Werner
described one way to measure out-of-pocket damages: Subtract the sale price of the Affected Stock
during the Class Period (while the Restrictions were in place) from the market price of the Affected
Stocks at close of trading on January 27, 2021 (the price just before Robinhood imposed trading
restrictions). Werner Rpt. ¶95. As Dr. Werner testified, this is true whether or not that January 27
price was the result of an efficient market. Werner Depo. at 381:10-382:5. As predicted,
Robinhood’s attack on Dr. Werner’s market efficiency opinion is the means by which to attack his
Comcast damages opinion. Cert. Br. at 23-25.
 Robinhood asserts, without citing any legal authority, that Dr. Werner’s use of the closing
price on January 27 to measure damages is dependent upon proof that the price was set by an
efficient market; because they argue that it was not, they seek to exclude his class-wide damages
opinion. This is not the law. Securities fraud damages for defrauded sellers are “the difference
between the fair value of all that the [] seller received and the fair value of what he would have
received had there been no fraudulent conduct ….” Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128, 155, 92 S. Ct. 1456, 1473, 31 L. Ed. 2d 741 (1972), followed by, Bruschi v. Brown,
876 F.2d 1526, 1531 (11th Cir. 1989); Pidcock v. Sunnyland Am., Inc., 854 F.2d 443, 446 (11th
Cir. 1988).
Importantly, the best proxy for the value of a stock is its market price. This is true, Mr.

period that confirm false statements preceding the class period are not expected to cause a price
increase, because the false statements are already incorporated in the stock price. Thus, the failure
of the share price to increase upon the false statements does not defeat loss causation. What it does
not say is that a rise in the absence of new news is evidence of inefficiency. In the In re IPO class
certification motion, Prof. Fischel acted as an expert for plaintiffs, testifying that the markets there
were efficient. To rebut Fischel’s opinion, defendants’ expert pointed out that of the “twenty-eight
days identified by Fischel as having a statistically significant price change for Sycamore-
concluded that the price moved without the release of relevant new information on twenty-two of
those days” – that is only 21.4% of the time were price movements accompanied by news. In re
Initial Pub. Offering Sec. Litig., 260 F.R.D. 81, 102 (S.D.N.Y. 2009).  Prof. Fischel responded that
“significant share price changes are not always explained by known announcements. He opined
that ‘most of the daily variation in stock prices generally is unexplained by market factors, industry
factors, or firm-specific news.’  He also noted that prices can change when investors trade on
private information, and that it is not always possible to identify the relevant information that
moved share prices years after the fact.”  Id. None of this defeats efficiency.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 24 of 27

18

Fischel wrote, even when there is a large presence of irrational retail “noise traders,” as he claims
was the case in the markets for the Affected Stocks just prior to the class period. See Fischel ECM
Article at 914-15. (ECF 559-36). The closing price on January 27, before Robinhood’s restrictions
manipulated both supply and demand, falls squarely within Mr. Fischel’s definition of fair value:
Q. What is the difference between a stock’s market price and its value?
A. You have to have a definition of what “value” means.
Q. Do you have a definition of “value” for a stock?
A. Well, there's a general definition of what a fair market value is, a price between
a willing buyer and a willing seller where both have reasonably complete
information and neither is under a compulsion to buy or sell. That’s a generally
accepted definition of fair market value. So under that definition, as long as those
criteria are met, price and value are the same.
Fischel Depo. at 147:12-148:6. When shares are traded on a national exchange such as the NYSE
and NASDAQ, the market price is the best estimate of fair market value, even when the stock is
alleged to be artificially inflated, because the owner can sell the shares and receive the market
price.  Johnson v. Comm'r of Internal Revenue, 74 T.C. 89, 96 (1980), aff'd sub nom. Johnson v.
Comm'r, 673 F.2d 262 (9th Cir. 1982) (citing cases).14 Here, Plaintiffs held shares with recognized
market values set by willing buyers and sellers in highly liquid markets. If Robinhood had not
implemented the Restrictions, Plaintiffs’ would have received approximately the prices prevailing
on January 27.  In truth, Robinhood is arguing that something other than the Restrictions, a short
squeeze or a bubble bursting, caused the decline in the price of the Affected Stocks.15  That is a
loss causation argument not properly addressed on class certification. Thorpe v. Walter Inv. Mgmt.,
Corp., No. 1:14-CV-20880-UU, 2016 WL 4006661, at *16 (S.D. Fla. Mar. 16, 2016) (citations
omitted). Therefore, it is not properly the subject of a Daubert challenge at class certification.

V.
CONCLUSION
For the foregoing reasons, Robinhood’s motion to exclude the expert report of Dr. Adam
Werner should be denied in all respects.

14   While these decisions are in the context of valuing stock for tax purposes, the IRS’s definition
of fair market value is identical to Prof. Fischel’s.
15   Dr. Werner showed that there were no intervening events between the time Robinhood imposed
the restrictions and the immediate decline in the Affected Stocks’ prices. Werner Reb. Rpt. ¶¶102-
108 tables 12, 13.
Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 25 of 27

19

Dated: June 21, 2023

Respectfully submitted,
THE ROSEN LAW FIRM, P.A.
Laurence M. Rosen, FBN# 0182877
Robin Bronzaft Howald
Michael A. Cohen
By: /s/Laurence M. Rosen

Laurence M. Rosen, Esq.

275 Madison Avenue 40th Floor
New York, New York 10016

Tel: (212) 686-1060

Fax: (212) 202-3827

Email: lrosen@rosenlegal.com
Counsel for Lead Plaintiff Blue Laine-Beveridge and
Named Plaintiffs Abraham Huacuja, Ava Bernard,
Brendan Clarke, Brian Harbison, Cecilia Rivas, Doi
Nguyen, Joseph Gurney, Marcel Poirier, Sandy Ng,
Santiago Gil Bohórquez, and Thomas Cash

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 26 of 27

20

CERTIFICATE OF SERVICE

I hereby certify that on June 21, 2023, a true and correct copy of the foregoing document
was served by CM/ECF to the parties registered to the Court’s CM/ECF system.

/s/Laurence M. Rosen

Case 1:21-md-02989-CMA   Document 582   Entered on FLSD Docket 06/21/2023   Page 27 of 27

File and source

File

gov.uscourts.flsd.590042.582.0.pdf

Size

603,223 bytes

SHA-256

9c14ad73c8c6471d1719f68922a4313afb21c1c063e3799a7b922470943e6de0

Our copy

gov.uscourts.flsd.590042.582.0.pdf

Original

archive.org