*588 MEMORANDUM OPINION AND ORDER
Dеfendants Vivendi, S.A. (“Vivendi”), Jean-Marie Messier, Guillaume Hannezo, and Universal Studios, Inc. move for summary judgment against all plaintiffs based on a failure to prove loss causation. Loss causation is a necessary element of plaintiffs’ claims under Sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k(a), 77Z(a)(2) (2006), Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5 promulgated thereunder, as well as certain plaintiffs’ common law claims for fraud and negligent misrepresentation. Defendants make a variety of arguments as to why plaintiffs have failed to carry their burden on this element but focus largely on plaintiffs’ theory that revelations concerning Vivendi’s liquidity problems caused plaintiffs’ losses. In addition to claiming that plaintiffs’ theory of “liquidity” is impermissibly broad, defendants argue that plaintiffs have failed to establish a sufficient connection between Vivendi’s allegedly false or misleading statements and these revelations, or between the revelations and declines in Vivendi’s stock price. Defendants also move the Court to rule on whether certain allegations and statements are actionable against them, as well as on the form of, and method for calculating, damages. For the reasons that follow, defendants’ motions are denied
BACKGROUND
The Court here summarizes the plaintiffs’ 1 case as set forth in the class plaintiffs’ Counterstatement of Material Facts 2 and the expert report of Dr. Blaine Nye. 3 *589 In these motions, defendants challenge оnly the sufficiency of plaintiffs’ evidence of loss causation, focusing primarily on Dr. Nye’s report and testimony. For the sake of context, however, the Court first describes plaintiffs’ allegations concerning the substance of defendants’ alleged fraud. Because defendants were not required to dispute the facts set forth in class plaintiffs’ Counterstatement, nothing in this opinion should be construed as deeming admitted or undisputed the facts asserted in that Counterstatement. In brief, plaintiffs claim that defendants Messier and Hannezo saddled Vivendi with massive amounts of debt and concealed the risk to Vivendi’s liquidity through various false and misleading public statements. When that risk began to materialize in the first half of 2002, Vivendi’s stock price declined as a result, causing plaintiffs’ losses.
Defendants’ Alleged Fraud
Vivendi is a publicly-traded French corporation that was known as Compagnie Genérale des Faux prior to 1998. (Class PI. Counterstatement ¶ 1; Def. 56.1 Statement ¶ 1.) For the newly-minted CEO, defendant Messier, the name change was part of a grand strategy to transform the company from a simple water utility into an international media and telecommunications conglomerate. (Class PI. Counter-statement ¶¶ 3-5.) Central to that strategy was a series of acquisitions that peaked with a three:way merger with The Seagram Company, Ltd. — a U.S. company that owned both Universal Pictures and Universal Music Group — -and Canal Plus S.A. — one of Europe’s largest cable television oрerators. (Id. ¶¶ 5-7.) The acquisitions increased Vivendi’s media and telecommunications debt from approximately €3 billion in early 2000 to over €21 billion in 2002. (Id. ¶ 32.)
Plaintiffs allege that defendants first began to mislead the public when they were promoting the merger to Vivendi’s extant shareholders. At a shareholder meeting in anticipation of the merger vote, for example, Messier told shareholders that “[t]hanks to our free net cash flow and the opportunities to dispose of some holdings ... we will have an additional war chest of 10 billion euros for 2001-2002 before the first euro of debt.” (Id. ¶ 13.) Plaintiffs allege that Messier knew this statement was false, citing a memo from Hannezo stating that “I believe it is wrong to reason in terms of ... free cash flow (there won’t be any this year)....” (Id. ¶ 14.) Nevertheless, Messier continued to tout the “Strength of [Vivendi’s] Cash Flow” to shareholders throughout 2001. (Id. ¶ 49 (Letter to Shareholders dated June 26, 2001).)
Plaintiffs allege that a large part of defendants’ fraud appeared in Vivendi’s financial statements, with detailed numbers backing up Messier’s rosy descriptions of the company’s liquidity position. In particular, plaintiffs allege that defendants used purchase accounting to ensure that Messier’s promises that Vivendi’s EBITDA 4 would grow at 35% annually. (Id. ¶¶ 15-16.) Purchase accounting is typically used at the time of a merger and “allows the acquiring company to provide for cash business expenses by reducing allowances and reserves on the balance sheet.” (Id. ¶ 18.) Because exрenses accounted for in this way reduced allowances and reserves rather than net earnings, Vivendi’s net earnings were correspondingly higher. (Id.) Plaintiffs allege that Vivendi knew its use of purchase accounting beyond the *590 merger was misleading, citing an e-mail from Hannezo declaring that defendants “will benefit from a maximal flexibility in making the opening balance sheet adjustments, and the analysts will not have it easy to track the purchase accounting benefits.” (Id. ¶ 23.) Internally, Vivendi employees referred to purchase accounting or PA as their “profit adder”. (Id. ¶20.) Indeed, plaintiffs claim that 50% of Vivendi’s reported EBITDA growth in the media and communications group was achieved through purchase accounting. (Id. ¶ 30.)
In 2001, plaintiffs allege, Messier continued to push forward with multiple acquisitions, including a minority stake in Maroc Telecom and a secret deal for an additional stake in 2002. (Id. ¶ 31; Nye Report ¶ 61.) These acquisitions translated to debt levels that began to severely test the company’s liquidity. Moreover, Vivendi’s need for cash prompted it to take out large loans on unfavorable terms, including the €608 million loan from Cegetel, the French telecom in which Vivendi owned a large stake, which was repayable on demand. (Nye Report ¶ 91.) Other sources of debt included draw-downs on its commercial paper backstops — actions that in themselves potentially put Vivendi in defаult according to the prudential rules set by the rating agencies. (Nye Report ¶ 8(f).) Internally, Vivendi’s treasury department stressed that this debt meant that the company did not have the capacity for further acquisitions. (Class PL Counterstatement ¶ 35.) By June 2001, there was talk of bankruptcy if Vivendi continued on its course. (Id. ¶¶ 50-52.) At the time, Hannezo warned that “the risk of [a credit rating] downgrade is significant.” (Id. ¶ 53.) After narrowly avoiding just such a downgrade in December 2001, Hannezo wrote the following to Messier:
I told you that I would talk to you about the personal consequences that I’m drawing from my painful and humiliating meetings with the ratings agencies .... For the first time, I felt the wind pass by from the cannonball of something that, from a personal point of view, I do not want to put up with: a downgrade, which would have led to a liquidity crisis; the jeers of all those who have waited for us at the pivotal occasion, desperate for such a long time to see us stumble .... and the unpleasant feeling of being in a car whose driver is accelerating in a sharp turn while I’m the one in the death seat.... The only thing that I am asking is that it doesn’t all end in shame.
(Id. ¶¶ 81-82.) Nevertheless, throughout the fall of 2001, Messier continued to boast of “strong third quarter results” with “Year-to-date ... EBITDA increased 46%.” (Id. ¶ 62.) Just days after Hannezo sent his “death seat” memo, defendants reported on a conference call that “We have a strong balance sheet and such a strong basis of earnings, whiсh we intend to grow, that we’re confident that we will be able to keep our credit rating and to grow the business.” (Id. ¶ 86.)
While plaintiffs allege that Vivendi continued to make false and misleading statements to the public in 2002, those statements were made as other events allegedly began to reveal Vivendi’s true liquidity position. Plaintiffs’ analysis of these events is the heart of their case for loss causation.
Plaintiffs’ Evidence of Loss Causation
The report of Dr. Blaine F. Nye purports to “provide expert opinion on the issues of causation, materiality, market efficiency, and [damages].” (Nye Report ¶ 3.) Dr. Nye has an M.B.A. and Ph.D. in finance from Stanford University and has frequently served as an expert in securities actions. (Nye Report ¶ 1; Nye Re *591 port Exs. 1, 2.) Defendants do not here challenge Dr. Nye’s reliability as an expert, but rather the sufficiency of his findings to establish loss causation.
Before reaching his causal analysis, Dr. Nye makes several assumptions in his report. He first assumes that “Vivendi Universal had progressively worsening and undisclosed liquidity risks throughout the relevant time period, which ultimately led to a liquidity crisis in the summer of 2002.” (Nye Report at 9.) He defines liquidity as “the ability or ease with which Vivendi/Vivendi Universal could timely meet its financial obligations and fund its operations with cash on hand, assets readily convertible to cash on hand, cash from operations, or readily accessible sources of debt.” (Id.) He also assumed that defendants conсealed the risk of a liquidity crisis by misrepresenting or omitting the truth about the following facts, among others: (1) Vivendi’s free cash flow and EBITDA; (2) the terms of Vivendi’s debt to its subsidiary Cegetel; (3) Vivendi’s draw on its commercial paper backups; and (4) Vivendi’s obligation to purchase an additional 16% interest in Maroc Telecom by February 28, 2002. (See id. ¶ 8; see also id. ¶ 93.)
In his section entitled “Causation: Class Action,” Dr. Nye proceeds to explain the causal connection between Vivendi’s concealment of liquidity risk and stock declines on eleven days in 2002. Dr. Nye begins a summary of the events surrounding the fraud and identifies some of defendants’ allegedly false or misleading statements, including those just summarized above. (Id. ¶ 33.) The core of Dr. Nye’s report, however, is his regression analysis and event study. The purpose of a regression analysis is to disaggregate market and industry declines from residual, company-specific share price declines. (Id. ¶ 254-60.) Regression analysis is a common mathematical tool for determining whether and to what extent a correlation exists between two variables. (Id. ¶ 254.) In this case, Dr. Nye compared the day-today percentage increases and decreases of Vivendi’s share price to the same increases and decreases for a market-wide index and an industry-wide index. (Id.) The market-wide index is derived from a collection of different stocks that reflect the “average” behavior of the entire market — as, for example, the Dow Jones Industrial Average does. (Id.) The industry-wide index is derived from a similar collection of, in this case, media and telecommunications stocks during the class period. (Id.) In this way, Dr. Nye could predict rises and declines in Vivendi’s stock price based on the rises and declines of these indexes. Where Vivendi’s stock declined in excess of the market and industry by a statistically significant margin, Dr. Nye could identify days where Vivendi’s share price fell for reasons independent of market or industry forces — Vivendi-specific residual declines. (Id.) From his regression analysis, Dr. Nye identified eleven days on which there were Vivendi-specific residual declines: January 7, May 3, June 21, June 24, July 2-3, July 10, July 15, and August 14-16, 2002. (Id. ¶¶ 127, 171, 192, 195, 213, 216, 222, 225, 239, 242, 244.)
On these days, Dr. Nye conducted his event study. Dr. Nye describes “event study methodology” as used “to disentangle the effects of company-specific information from market and industry information” by associating “day-to-day information releases from sources including Vivendi/Vivendi Universal’s press releases, conference' calls, news reports, securities analysts’ reports, and SEC filings with the daily residual returns on Vivendi/Vivendi Universal stock during the Damage Period.” (Id. ¶ 261.) While regression analysis identifies days in which a company’s value decreases *592 net of market and industry, it does not explain why. Those declines could be due to Vivendi-specific news that is' unrelated to the fraud. Dr. Nye’s event study undertook to determine thе extent to which the events reported to the public on these eleven days revealed Vivendi’s true liquidity condition. A summary of his study follows:
• January 7, 2002: Vivendi sells certain of its treasury shares into the market, reversing its earlier-stated intention to cancel them. (Id. ¶ 126.) Dr. Nye opines that Vivendi’s share price declined, even though Vivendi got a good deal for the shares, because the public had started to doubt Vivendi’s prospects. (Id. ¶¶ 127-28.) Dr. Nye does not, however, point to any evidence suggesting that this negative view of Vivendi was in any way related to liquidity and the risk that Vivendi might not be able to pay down its debt. He does distinguish the concurrent AOL-Time Warner write-down announcement as not a significant cause of the decline because the news was long expected. (Id. ¶¶ 131-32.)
• May 3, 2002: Moody’s downgrades Vivendi, noting that its “continuing concerns that Vivendi Universal might not be able to reduce debt as quickly and comprehensively as planned by the company....” (Id. ¶ 166.) Moody’s also noted that Vivendi’s weak share price had triggered its put obligations requiring major cash outlays, and that meaningful cash flow was a problem. (Id.) Dr. Nye opines that the downgrade revealed that Vivendi’s liquidity position that was much worse than the public had thought. (Id. ¶¶ 167-70.)
• June 21, 2002: The market learns of a quick private sale of Vivendi Environment (“VE”) shares to Deutsche Bank. (Id. ¶ 189.) The sale was in advance of an announced sale of VE stock. (Id. ¶ 186.) Dr. Nye opines that quick sales оf assets suggest the need for immediate cash inflows, and hence weakened liquidity, because companies often get lower prices when they need to sell quickly. (Id. ¶ 20.) This was such a sale and the market reacted by punishing Vivendi’s share price. (Id. ¶ 189.)
• June 24, 2002: Vivendi announces the pending sale of a 15.6% stake in VE. (Id. ¶ 193.) Dr. Nye opines that the market again interpreted the sudden announcement as a sign of needing a quick infusion of cash and therefore of weakened liquidity, pointing to commentators reaching the same conclusion. (Id.) Dr. Nye also distinguishes two competing causes for the same stock declines: (1) rumors that News Corp. would back out of a deal with Vivendi were based on the same concerns as the sale of the VE stake, and therefore cannot be seen as an independent cause; and (2) British Telecom’s announcement that it had not yet decided to sell its Cegetel stake was not new information. (Id. ¶ 194.)
• July 2-3, 2002: On July 1, Moody’s downgrades Vivendi to junk status (Bal) after markets close. (Id. ¶ 207.) The next day, S & P downgrades Vivendi to one notch above junk (BBB-). (Id. ¶ 209.) Moody’s notes concerns over refinancing and the slow pace of asset sales coupled with lower-than-expected sales prices. (Id. ¶¶ 207, 211.) S & P notes a lack of transparency, the strain imposed by Vivendi’s outstanding put options, and certain debt obligations, including the Cegetel loan. (Id. ¶¶ 209-10.) Dr. Nye opines that the downgrades again revealed a weaker Vivendi liquidity position than previously thought and caused price *593 declines on both July 2 and 3. (Id ¶¶ 213, 216.)
• July 10, 2002: Vivendi announces a new $1 billion unsecured credit line, but this positive development is overshadowed by news that French regulators had raided Vivendi’s Paris headquarters as part of their investigation into possible securities fraud. (Id ¶ 219.) Moody’s and S & P also greeted the new credit line with caution, continuing to warn that unless Vivendi did more to pay down its debt, further downgrades were possible. (Id ¶¶ 220-21.) Dr. Nye opines that the rating agencies’ reaction revealed continuing liquidity concerns. (Id ¶ 220.) He does not, however, attempt to distinguish any independent price decline caused by news of the investigation, opining that the information “effectively informed investors of suspicions regarding the Company’s accounting practices.” (Id ¶ 222.)
• July 15, 2002: The French press reports that Vivendi created a shell company and share agreement to control Elektrim, a Polish telecom. (Id ¶ 224.) One interviewer questioned the legality of Vivendi’s actions, but Vivendi denied any wrongdoing. (Id) Nye opines without further explanation that “[t]hese information releases constituted a partial disclosure of Vivendi Universal’s true liquidity condition. ...” (Id ¶ 225.)
• August 14-16, 2002: Vivendi announced prehminary second quarter results on August 14, 2002. The announcement included a variety of negative facts, including: (1) the need to sell an additional €10 billion worth of assets; (2) that debt was €10 billion over what it should be for Vivendi’s desired credit rating; (3) that French GAAP debt stood at €35 billion; and (4) that the company was experiencing a short-term liquidity problem. (Id ¶ 235.) Moody’s and S & P also downgraded Vivendi again, with S & P noting Vivendi’s “liquidity crisis.” (Id ¶ 237.) Dr. Nye opines that the announcements revealed the need for a “fire sale” of assets and the extent of Vivendi’s liquidity problems. (Id ¶¶ 235, 240.) The next day Bloomberg announced that Houghton Mifflin, previously acquired by Vivendi, would sell for less than one-fifth of what Vivendi paid for it, and analysts continued to discuss the repercussions of the August 14 announcements. (Id ¶¶ 241, 243.) Dr. Nye opines that stock declines on August 14, 15, and 16 were all caused by the August 14 disclosures and continued reports on their consequences. (Id ¶¶ 240, 242, 244.)
Dr. Nye concludes his report (at least with respect to the class plaintiffs) with a description of the two methods he used to quantitatively assess damages. He begins by stating generally that “[p]rice inflation in the ADS 5 and ordinary shares is measured by the declines in those securities’ prices upon disclosures related to the alleged fraud, through which investors learned Vivendi Universal’s true liquidity condition.” (Id ¶ 250.) Equivalently, Dr. Nye maintains that while the damages due plaintiffs is the per-share inflation resulting from defendants’ false or misleading statements, the appropriate method for calculating those damages is to examine the price declines that occur in reaction to disclosures of Vivendi’s liquidity position. (Id ¶ 251.) Of course, if particular plain *594 tiffs sell before all of Dr. Nye’s identified disclosures, they may be entitled to recover only that pоrtion of the inflated price that they actually lost. 6 (Id.)
DISCUSSION
I. Summary Judgment
Under Federal Rule of Civil Procedure 56(c), summary judgment may be granted “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). “The plain language of Rule 56(c) mandates the entry of summary judgment ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett,
A fact is considered “material” for purposes of Rule 56 if it “might affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc.,
II. The Law of Loss Causation
“Loss causation is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff.”
Lentell v. Merrill Lynch & Co.,
Owing to the great similarity of an action under Rule 10b-5 to an action for common law fraud, courts have consistently characterized loss- causation as similar to the tort concept of proximate causation.
See Lentell,
The Supreme Court recently attempted to bring clarity to this area in
Dura Pharmaceuticals, Inc. v. Broudo,
The Supreme Court specifically rejected the Ninth Circuit’s holding that “plaintiffs were harmed when they paid more for the stock than it was worth.”
Broudo v. Dura Pharms., Inc.,
The disagreement between the Supreme Court and the Ninth Circuit in
Dura
was partly rooted in differing views of the likelihood of real financial loss following plaintiffs’ purchase. The Ninth Circuit had held elsewhere that loss was not inevitable, admitting that plaintiffs who later sell at a profit or for the same price as the purchase price could not recover..
See Wool v. Tandem Computers Inc.,
Unsurprisingly, the Court’s principal authority for this argument was the common
*597
law of tort. The Restatement (Second) of Torts, quoted by the Court, concludes that “one who misrepresents- the financial condition of a corporation in order to sell its stock will become liable to a purchaser who relies upon the misinformation for the loss that he sustains when the facts as to the finances of the corporation become generally known and as a result the value of the shares is depreciated on the market. ...” Restatement (Second) of Torts § 548A, cmt. b;
see also Dura,
Because it had long adopted similar principles of loss causation, this Circuit felt little impact from
Dura.
Indeed, the lead case on loss causation by the Court of Appeals,
Lentell v. Merrill Lynch & Co.,
Lentell
answers several questions not fully addressed in
Dura. Dura
holds that plaintiffs must establish a causal connection between the fraud and stock declines that occur after the truth begins to “leak out”, but it is silent as to how plaintiffs might prove this. The Supreme Court confirms the analogy to proximate cause, but admits differences as well.
See Dura,
The classic example of a loss-inducing event is a corrective disclosure by the company itself.
9
A corrective disclosure is traditionally an admission by the company that one or more of its previous statements were false or misleading followed by á corrected, truthful and complete version of those statements.
See In re AOL Time Warner, Inc. Sec. Litig.,
Once an event qualifies as a materialization of the risk, plaintiffs must still prove that their losses were caused by that event. Admittedly, this is a potentially complicated endeavor. A stock’s price as listed on an exchange is merely a continuous posting of thousands of individual trades. Moreover, as the Supreme Court in
Dura
noted, a decline in stock price can occur in reaction to “changed economic circumstances, changed investor expectations, new industry-specific or firm-specific
*599
facts, conditions, or other events----”
Dura,
While the plaintiffs at all times bear the burden on loss causation, it is important not to confuse causation with damages when comparing competing causes for a stock decline. In theory, plaintiffs need only prove that they suffered
some
damage from the fraud. Liability obviously does not hinge on how much damage. However, when there are two competing causes for a stock decline, it is easy to argue that one caused the entirety of the decline while the other did not cause any of it. The Fourth and Eleventh Circuits have specifically addressed this problem and held that to satisfy loss causation plaintiffs need only produce sufficient evidence for a jury to concludе that the fraud-related event was a “substantial cause” of the decline.
See Miller v. Asensio & Co., Inc.,
Similarly, the
Lentell
court noted that it was not suggesting that “plaintiffs were required to allege the precise loss attributable” to defendants’ fraud.
Lentell,
Summarizing the case law here discussed, plaintiffs seeking to prove loss causation must establish two causal connections: a connection between the alleged false or misleading statements and one or more events disclosing the truth concealed by that fraud, and a connection between these events and actual share price declines.
Lentell,
III. Dr. Nye’s Report Raises a Genuine Issue of Material Fact Concerning Loss Causation
Defendants argue that plaintiffs have failed to establish both the connection between their allegedly false or misleading statements and any fraud-revealing events, and the connection between these alleged events and Vivendi stock declines. First defendants argue that, as a matter of law, the events identified by plaintiffs cannot qualify as “materializations of a concealed risk” because they do not reveal new information concealed by defendants’ alleged fraud. Second, defendants argue that plaintiffs have failed to disaggregate competing causes of stock price declines.
A. Plaintiffs’ Materialization-of-the-Risk Theory Is Viable
In his report and deposition testimony, Dr. Nye identifies eleven days on which the alleged fraud caused loss by the plaintiffs. (Nye Report ¶¶ 127, 171, 192, 195, 213, 216, 222, 225, 239, 242, 244.) He identified these days by applying a regression analysis to Vivendi’s share price over the class period and selecting those days on which there was a Vivendi-specific residual price decline.
(Id.
¶ 262.) Dr. Nye then proceeded to identify and describe particular events on these days that he claims caused Vivendi’s stock price to decline.
(Id.)
At least in this motion, defendants do not challenge the method by which Dr. Nye selected the eleven days. Rather, defendants challenge whether the events on these days actually disclosed information that had previously been concealed by the fraud.
Lentell,
*601
As a threshold matter, the Court notes that while plaintiffs argue that “[b]oth corrective disclosure and materialization of concealed risk analyses support loss causation in this case,” Class PI. Br. at
22,
this is not a case of corrective disclosure. None of the eleven events include an announcement identifying specific Vivendi statements as false or misleading.
See In re AOL Time Warner, Inc. Sec. Litig.,
Under a broader, materialization-of-the-risk theory, plaintiffs argue that defendants’ false and misleading statements concealed the risk of a liquidity crisis, and that events on those eleven days gradually revealed Vivendi’s deteriorating liquidity condition. Plaintiffs define liquidity as “the ability or ease with which Vivendi/Vivendi Universal could timely meet its financial obligations and fund its operations with cash on hand, assets readily convertible to cash on hand, cash from operations, or readily accessible sources of debt.” (Nye Report at 9.) The subject of Vivendi’s allegedly fraudulent statements therefore covers the extent of its debt, the size of its income stream, and, perhaps most importantly, how quickly Vivendi could convert assets into cash.
See Lentell,
Defendants argue that plaintiffs’ conception of liquidity risk “is so amorphous and all-encompassing as to render it meaningless.” (Def. Br. at 10.) Admittedly, liquidity is a broad concept, but it is not as amorphous as defendants make it out to be. Cash flow by itself, for example, does not mean anything for liquidity, but it does mean something when combined with information concerning the debt it is intended to service. Among other things, plaintiffs argue that defendants’ statements concealed specific facts regarding: (1) Vivendi’s actual EBITDA and free cash flow; (2) Vivendi’s debt to its subsidiary Cegetel and the terms of that debt; (3) Vivendi’s drawing on its commercial paper backups; and (4) Vivendi’s obligation to purchase an additional 16% interest in Maroc Telecom by February 28, 2002. (Nye Report ¶ 93.) Plaintiffs argue that Vivendi’s published EBITDA and free cash flow numbers — the primary measures for cash flow available to service debt — were inflated and that the size and nature of its debt obligations were minimized.
(Id.)
Broad though it may be, the Court concludes that such a theory of liquidity risk is coherent.
See, e.g., Suez Equity Investors, L.P. v. Toronto-Dominion Bank,
Assuming the legitimacy of plaintiffs’ theory, defendants still argue that the information revealed by events on the eleven days was merely “bad news” rather than new information that had been previously concealed. (Def. Reply Br. at 12-15.) Except for the events identified on July 10, 2002, July 15, 2002, and August 14-16, 2002, plaintiffs identify either quick, unexpected asset sales or credit rating downgrades as the loss-inducing events. (Nye Report ¶¶ 126-128, 167-70, 189, 193, 207, 209.) Considering that credit ratings purport to assess the probability that a company will default on its obligations, there is little question that a downgrade is a sign *602 of deteriorating liquidity. As for unexpected asset sales, Dr. Nye specifically discusses their relevance to liquidity in his report. (Nye Report at ¶¶ 19-20.) Specifically, Dr. Nye writes that resolving a liquidity crisis “may require rapid sale of assets in which shareholders hold interests to pay the claims of debtholders, and at prices less than shareholders expected for those assets, or sale of assets important to realization of the company’s strategy.” (Id. at ¶ 19.) Put simply, maximizing shareholder value when a company sells one of its assets means negotiating the best price for it. If the company must sell the asset quickly to meet liquidity demands, it may be forced to accept a lower price for the asset than it would have but for time constraints. Accordingly, both ratings downgrades and unexpectedly quick asset sales have a reasonable relationship to liquidity risks and may be seen as materializations of such risks.
Defendants’ argument runs astray whеn at this point they respond that, at most, plaintiffs have demonstrated that the downgrades and the quick asset sales were foreseeable from the allegedly false or misleading statements. (Def. Reply at 13.) Implicitly conceding foreseeability, defendants purport to challenge only “actual causation,” citing Lentell. (Id.) But proving actual causation, at least in the way Lentell uses the phrase, is part of plaintiffs’ burden to show a causal connection between the materialization of the risk and the stock price declines, not the causal connection between the allegedly false and misleading statements and the materialization of the risk. Establishing the latter connection does not, as defendants appear to believe, require plaintiffs to establish a one-to-one correspondence between concealed facts and the materialization of the risk. In other words, if a company misrepresents fact A (we have plenty of free cash flow), which conceals risk X (liquidity), the risk can still materialize by revelation of fact B (a ratings downgrade), an indication of risk X (liquidity). As discussed above, to prove the causal connection between misrepresenting fact A and the revelation of fact B, plaintiffs must establish only that the revelation of fact B was foreseeable, i.e., within the zone of risk X, and that fact B reveals information about risk X. When fact B is revealed, the market need not be aware of fact A or that fact A had been previously misrepresented. The way defendants describe the law, only a corrective disclosure would prove loss causation.
None of defendants’ attempts to distinguish the relevant case law on this point is successful. In
Suez Equity Investors, L.P. v. Toronto-Dominion Bank,
Defendants practically ignore
Castellano v. Young & Rubicam, Inc.,
Defendants erroneously claim that “to the extent it suggests that a risk of the same type was foreseeable and thus the loss was caused by the risk ...
[Castellano
] has been overruled by Lentell’s explicit requirement plaintiffs prove both foreseeability and proximate cause ... and
Dura’s
holding that securities laws only protect ‘against those economic losses that misrepresentations actually cause.’ ” (Def. Reply Br. at 14 n. 10.) As a threshold matter, one panel of the Court of Appeals generally will not “overrule” an earlier panel, except in unusual circumstances not present here.
Consub Delaware LLC v. Schahin Engenharia Limitada,
As in Castellano, plaintiffs here allege that defendants concealed a broad risk to which the company later fell victim by *604 misleading the public on particular facts and denying the risk. Specifically, plaintiffs argue that defendants concealed a severe liquidity risk by denying any liquidity problems, misrepresenting Vivendi’s actual EBITDA and free cash flow, omitting the terms of its Cegetel debt, omitting Vivendi’s draws on its commercial paper backups, and omitting Vivendi’s purchase obligation in Maroc Telecom. (Class PI. Br. at 7-21.) The events plaintiffs argue constitute a materialization of this concealed risk do not reveal Vivendi’s free cash flow or the previous draws on its commercial paper backups anymore than the announcement of a leveraged capitalization by Young & Rubicam revealed its previous merger discussions with True North. They do, however, present a genuine material issue of fact with regard to whether previously concealed information — here, the tenuous liquidity position of Vivendi— was revealed to the market on those eleven days.
B. Plaintiffs Have Adequately Disaggregated Competing Causal Events
Defendants properly raise whether plaintiffs have established “actual causation” between the fraud-related disclosures and declines in share price. (Def Br. at 12.) Defendants argue that on each of the eleven days there were other potential causes competing with the fraud-related disclosures. According to defendants, plaintiffs have failed to produce sufficient evidence for a fact finder to distinguish between the losses caused by these competing factors and the losses caused by the fraud-related events; therefore, plaintiffs have failed to demonstrate loss causation. The Court does not find it necessary to determine whether plaintiffs have produced sufficient evidence of a causal connection on each of the identified days. To deny summary judgment, it is sufficient for the Court to observe that on several of the days — indeed, a majority — plaintiffs have produced sufficient evidence of such a connection.
Defendants begin with Dura’s observation that absent evidence to the contrary, a lower stock price may reflect, “not the earlier misrepresentation, but changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events, which taken separately or together account for some or all of that lower price.”
Dura,
Plaintiffs’ first respond by pointing to the fact that of “out of more than 440 trading days in the entire class period”, Dr. Nye selected only eleven as days on which fraud-related losses occurred. (Class PL Br. at 2.) Moreover, Vivendi’s stock price fell €70.36 over the course of the class period, while the aggregate decline on the eleven days identified by Dr. Nye amounts to only €27.58, i.e., 39% of the “total” loss. (See Tr. of Mar. 2, 2009 Hr’g at 29-33; Nye Report Ex. 9D.) To identify these days, Dr. Nye conducted a regression analysis to disaggregate market-wide and industry-wide effects on the share price and thus find thе days on which there were Vivendi-specific residual declines. Having identified the days on which there were potential fraud-related losses, Dr. Nye confirmed that these losses *605 were fraud-related by analyzing disclosures made on each of the eleven days and opining both that materializations of the risk occurred and that any other company-specific information released on those days did not cause the residual declines. Plaintiffs argue that these facts rebut defendants’ argument.
Defendants respond by arguing that on these eleven days Dr. Nye has nevertheless failed disaggregate competing causal factors. The fact that Dr. Nye has disaggregated days in which no fraud-related revelations occurred does not release him from disaggregating from competing events on each of the eleven days because
Dura
applies no matter how narrow the scope of application. (Def. Br. at 16-17.) Defendants point incredulously at Dr. Nye’s assertion that 100% of the price decline on each of the eleven days was due to fraud-related revelations.
(Id.
at 17.) Surely, they argue, some part of that price decline was due to some other factor. Defendants are technically correct. If five top Vivendi executives had resigned the same day as a ratings downgrade, it may be incumbent on plaintiffs to producе evidence establishing roughly how much of the price decline was due to the. downgrade and how much to the resignations. But the key term here is “roughly.” -Indeed, given the admonishment by the Court of Appeals that plaintiffs “were [not] required to allege the precise loss attributable” to the fraud,
Lentell,
For the most part, however, defendants do not point to an obvious competing cause on each of the eleven days. Instead, defendants make the novel argument that plaintiffs have failed to disaggregate damages caused by the risk from damages caused by the materialization of the risk. (Def. Br. at 14-15; Def. Reply Br. at 21-25.) Defendants argue that plaintiffs’ causal theory is premised on Vivendi concealing the risk that it would have a liquidity crisis. For example, suppose Vivendi had concealed from the public in December 2001 a 50% risk that it would experience a liquidity crisis in May 2002. Had plaintiffs been aware of that risk, they would have paid €X less for stock. Logically, had the risk been 100%, they would have paid even less (although not necеssarily €2X less). If Vivendi does experience a liquidity crisis in May 2002, the risk has become 100%, and the price decline would reflect what would have happened had a 100% risk been announced in December 2001 rather than a 50% risk. Accordingly, defendants argue, plaintiffs must disaggregate the additional damages caused by the materialization of risk from those attributable to risk itself. Defendants cite no case law for this argument, and the Court has not found any.
The first problem with defendants’ argument is that Dr. Nye opines that “all the pieces were there” in December 2001 and “the probability [of a liquidity crisis] was basically a hundred percent.” (Class PI. Br. at 40.) While defendants argue that “Dr. Nye performed no analysis to arrive at this conclusion”, this is an argument better made in a challenge to Dr. Nye’s credibility as an expert rather than a summary judgment motion. Dr. Nye’s opinion alone creates a genuine issue of material fact on this point. Second, if the Court
*606
analyzes the problem through the lens of tort law and proximate cause, the Court reaches the same result. The Restatement (Second) of Torts concludes that plaintiffs seeking damages for fraud are entitled to seek out-of-pocket damages
and
“pecuniary loss suffered otherwise as a consequence of the recipient’s reliance upon the misrepresentation.” Restatement (Second) of Torts § 549. Prosser and Keеton concurs, noting that plaintiffs can recover for “losses which might be expected to follow from the fraud and from events that are reasonably foreseeable.” W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts § 110, at 767. Prosser and Keeton notes that “if the plaintiff stores his goods in a warehouse represented [to] him to be fireproof and they are destroyed when it burns down, he can recover, and likewise, when he invests in an automobile agency, after false assurance of profits make by similar agencies, and the agency goes bankrupt.”
Id.
In the goods example, plaintiff is entitled to recover not only the inflated price he paid for a fireproof storage facility, but also the cost of the goods lost in the fire. In the agency example, the plaintiff is entitled to recover riot only the inflated price he paid for equity in the agency, but also whatever portion of the bankruptcy loss that was foreseeable. Of course, the bankruptcy example is an example restricted neither to textbooks or common law fraud.
See In re Parmalat Sec.. Litig,,
Finally, it is hard to see how price declines allegedly caused by the materialization of the risk should not be incorporated into plaintiffs’ damages. Stocks are risky investments, and purchasers assume a variety of risks to the value of their stock. Suppose Vivendi disclosed sufficient information in December 2001 for plaintiffs to conclude that there was a 50% risk that Jean-Marie Messier would resign as CEO of Vivendi in July 2002. In December 2001, the price would reflect that risk, and plaintiffs who bought stock then would assume the risk that the stock price would suffer if Messier did in fact resign in July 2002. Plaintiffs allege, however, that they could not have assumed the risk of a liquidity crisis because it was concealed from them. Defendants are essentially arguing that plaintiffs should bear a risk they did not assume and that was intentionally concealed from them. Imposing liability for this loss would not be downside insurance for investors. Not imposing liability, however, might be a windfall for fraudsters.
Defendants remaining arguments mostly concern problems with Dr. Nye’s day-to-day analysis. On certain days, however, defendants utterly fail to point to competing causes of the price declines. On May 3, 2002, defendants point to no competing causes, arguing only that the downgrade revealed no new information. For this argument, applied to several of the eleven days, defendants rely primarily on
In re Omnicom Sec. Litig.,
Defendants also fail to point to any unaddressed competing causes on June 21, 2002 and June 24, 2002. While defendants argue that the Deutsche Bank transaction was announced prior to June 21, 2002, and therefore that the market had already absorbed the news, they can point to no reason why the stock declined. Defendants are also incorrect that Dr. Nye fails to account for the News Corp. rumors and British Telecom. (See Nye Report ¶ 194.) For the reasons discussed above, the Court concludes that there is a genuine issue of material fact as to whether these quick sales disclosed a need for cash and therefore weakened liquidity.
Finally, the only competing cause defendants can adduce on August 14, 2002 (and by implication August 15 and 16) is rating agencies’ concerns over Vivendi management’s “failure to explain its future strategy.” However, a fact-finder could reasonably accept the inference proffered by Dr. Nye that this comment is directly related to the liquidity concerns and how management would address the problem. The Court again concludes that Dr. Nye’s report raises a genuine issue of material fact for the stock declines on this day and on the two days following.
IV. Particular Allegations, Misleading Statements, and Damages
Defendants also seek rulings from the Court that certain allegations and allegedly false or misleading statements could not possibly have contributed to plaintiffs’ loss. Defendants argue that the following allegations are unconnected to the plaintiffs’ loss “regardless of how broadly plaintiffs define their theory of ‘liquidity risk’ (1) the failure to disclose the obligation to Maroc Telecom; (2) the back-dating of the Cegetel current account; (3) the repurchase of the Seagram Bonds; and (4) the failure to meet synergy targets after the merger. (Def. Reply Br. at 15-16.) Similarly, defendants argue that plaintiffs cannot seek damages for: (1) any alleged misleading statements during periods where inflation did not increase; (2) any misleading statements alleged by the Class but not alleged by Liberty Media; and (3) any statements made before March 9, 2001. Whether or not the alleged misstatements or omissions were the proximate cause of plaintiffs’ losses, evidence concerning these allegations may be admissible for the purpose of showing the existence of a liquidity crisis or to establish scienter and a scheme to defraud. Accordingly, the Court will reserve decision on these issues until trial or until the parties raise them in motions in limine.
Finally, defendants argue that Liberty Media is not entitled to seek rescissionary damages and that Dr. Nye’s “constant percentage” method for calculating damages is invalid. The Court finds that damage issues are not properly before it on this motion. Defendants have moved for sum *608 mary judgment on loss causation, and damage issues, while related, are quite another matter.
CONCLUSION
For the reasons given, defendants’ motion for summary judgment against the class plaintiffs, Liberty Media, and GAM-CO for failure to establish loss causation [644] and defendants’ motion for summary judgment against the individual plaintiffs for failure to еstablish loss causation [646] are DENIED.
SO ORDERED.
Notes
.Defendants have traditionally distinguished four categories of plaintiffs: (1) the class plaintiffs; (2) Liberty Media Corp., LMC Capital LLC, Liberty Programming Co. LLC, LMC USA VI, Inc., LMC USA VII, Inc., LMC USA VIII, Inc., LMC USA X, Inc., Liberty HSN LLC Holdings, Inc., and Liberty Media International, Inc. (collectively "Liberty Media”); (3) GAMCO Investors, Inc. ("GAMCO”); and (4) those plaintiffs who brought separate actions after being excluded from the class (the "Individual Plaintiffs”). Defendants filed two motions for summary judgment based on a failure to prove loss causation, with one motion directed at the class plaintiffs, Liberty Media, and GAMCO, and another motion directed at the Individual Plaintiffs. The reason for defendants’ separate motions appears to be the fact that the class plaintiffs, Liberty Media, and GAMCO submitted the expert reports and deposition testimony of Dr. Blaine Nye as evidence of loss causation, while the Individual Plaintiffs submitted the reports and testimony of Mr. Frank Torchio. The issues raised by defendants, however, are identical for all plaintiffs except Liberty Media, and even in the case of Liberty Media, the issues are nearly identical. Accordingly, the Court distinguishes among plaintiffs only as necessary.
. The Court cites to Class Plaintiffs Counter-statement of material facts as "Class PL Counterstatement ¶-",
. Without opining on the sufficiency of Mr. Torchio's report and testimony, the Court concludes that Dr. Nye’s report and testimony are sufficient to deny defendants’ motions for summary judgment against all plaintiffs and limits discussion accordingly.
. EBITDA is defined as Earnings Before Interest, Taxes, Depreciation, and Amortization. (Id. ¶ 16.) It is a widely-used measure of a company's earnings and its ability to service debt. (Vasilescu Decl. Ex. 294 (Mintzer Report ¶¶ 150-52).)
. ADS stands for American Depository Shares and were essentially those Vivendi shares that were traded on the New York Stock Exchange.
See In re Vivendi Sec. Litig.,
. Dr. Nye describes broadly the two alternate methods — constant-dollar (constant-euro) inflation and constant-percentage inflation'— that he uses to make this calculation:
If the magnitude of the inflation on the date the misrepresentation is made or the fraud is revealed is not expected to be influenced by market, industry, or non-fraud-related company-specific events, or indeed based on any available information, then from the standpoint of financial economics, the best estimate of the inflation on the date of purchase is simply the dollar value of the inflation on the date of the initial inflation or the date the fraud was revealed, i.e., the inflation remains constant over the relevant period (constant-dollar inflation). On the other hand, if inflation is expected to be influenced by market, industry and non-fraud-related company-specific events, as would any misrepresentations or omissions about the condition and business operations of the company and thus its earnings and earnings growth, from the standpoint of financial economics the best estimate of inflation at the time of purchase is the percentage change in share price at the point of initial inflation or at the time of revelation of the fraud, as adjusted by market, industry and non-fraud-related company-specific returns during the period between the date of purchase and the date the fraud is revealed (constant percentage inflation).
(Id. ¶ 185.)
. If, for example, a person paid $110 for a share that would have been worth $100 had the truth been known, and later sold it for $105 before the truth came out, she could still recover five of the ten dollars she overpaid regardless of why the share price declined. The Ninth Circuit described such losses as occurring "as a result of market forces operating on the misrepresentations.”
Wool,
. In addition to tort law, the Supreme Court also held that a closer causal relationship between the alleged false or misleading statements and plaintiffs economic losses was more consistent with Congress's intent when it enacted the securities laws.
Dura,
. The Court notes that many courts in the district consider corrective disclosures to be a separate conceptual category from “materialization of the risk”,
see, e.g., In re IPO Sec. Litig.,
. The Court in In re Enron Corp. Sec. Derivative & ERISA Litig., 529 F.Supp.2d 644 (S.D.Tex.2006), gave the following description of an event study:
An event study is a statistical regression analysis that examines the effect of an event on a dependent variable, such as a corporation’s stock price. This approach assumes that the price and value of the security move together except during days when disclosures of company-specific information influence the price of the stock. The analyst then looks at the days when the stock moves differently than anticipated solely based upon market and industry factors-so-called days of "abnormal returns.” The analyst then determines whether those abnormal returns are due to fraud or non-fraud related factors.... [E]vent study methodology has been used by financial economists as a tool to measure the effect on market prices from all types of new information relevant to a company's equity valuation.
Id. at 720.