United States District Court, E.D. New York
March 30, 2004.
In re ASHANTI GOLDFEELDS SECURITIES LITIGATION
The opinion of the court was delivered by: DAVID TRAGER, District Judge
MEMORANDUM AND ORDER
On March 27, 2000, a group of shareholders in Ashanti Goldfields
Company Limited ("Ashanti") brought an action against Ashanti and two of
its officers, Mark B. Keatley (CFO and member of the board of directors)
and Sam Jonah (CEO and member of the board of directors) ("defendants"),
alleging that Ashanti and the officers of Ashanti made fraudulent
statements between July 28, 1999 and October 5, 1999 in violation of
§ 10(b) of the Securities Exchange Act of 1934 (the "1934 Act") and
Rule 10b-5 promulgated thereunder, and § 20(a) of the 1934 Act,
concerning commodities futures activity by the company (the "Webster
Action"). A similar action was filed on February 3, 2000 (the "Furman
Action"). A third complaint was filed on April 19, 2000, asserting claims
on behalf of a class of all persons who acquired shares of Ashanti
between April 21, 1997 and October 5, 1999 (the "Kuch Action").
Following consolidation of all three actions, counsel for all parties,
including the defendants, agreed by a stipulated stay, "so ordered" by
this Court on September 8, 2000 ("the
Stipulation," "the Stipulated Stay," or "the Stay"), that the
proposed class period set forth in the Consolidated Amended Complaint
would be limited to the period between July 28, 1999 and October 5, 1999,
the period asserted in the Furman and Webster Actions. The parties agreed
that the plaintiffs would have the right to seek to lift the stay in the
event that the consolidated action is not dismissed in its entirety upon
a motion to dismiss. In March 2001, defendants moved to dismiss the First
Amended Consolidated Complaint. In February 2002, defendants' motion to
dismiss was granted in part and denied in part. In re Ashanti Sec.
Litig., 184 F. Supp.2d 247. On March 7, 2002, a Second Amended
Consolidated Complaint was filed by lead plaintiffs.
Lead plaintiffs William Webster, Ron Moore, and Rosemary Valente
("proposed class representatives," "lead plaintiffs," or "plaintiffs")
now move for an Order lifting the Stipulated Stay, and for leave to amend
plaintiffs' Second Consolidated and Amended Complaint ("SAC") to
encompass the claims originally stayed in the September 2000 Stipulation.
Defendants cross-move to dismiss the Third Amended Complaint in the event
that leave to amend is granted. Lead plaintiffs also move to certify a
class pursuant to Rule 23 of the Federal Rules of Civil Procedure.
II. Motion to Lift the Stipulated Stay and for Leave
to Amend Plaintiffs' Second Consolidated and
Plaintiffs move the Court for an Order lifting the Stipulation, and for
Leave to Amend Plaintiffs' Second Consolidated and Amended Complaint
("SAC"). The Stipulation states:
The stay provided for by this Stipulation and
Order shall not be lifted without the approval of
this Court after prior notice to the defendants
and opportunity for the defendants to contest the
lifting of the stay. In the event that this action
is not dismissed in its entirety, the lead
plaintiffs appointed by the Court shall determine
whether to seek to lift the stay provided by this
Stipulation and Order by no later than 120 days
before the close of fact discovery as to the claim
in the Proposed Class Period.
Yanez Decl. Ex. A. § 4.
Plaintiffs assert that the Stipulation places no substantive conditions
on the lifting of the stay except for requiring that the claims first
survive a motion to dismiss. Since the action has not been dismissed in
its entirety, with most of the claims actually surviving the motion to
dismiss, plaintiffs have chosen to seek to lift the stay. Defendants
acknowledge that while plaintiffs waited until the last minute to seek a
lifting of the Stay, plaintiffs did move to lift the stay within the time
permitted by the Stipulation and Order. Def. Mem. 4. Therefore, there can
be no question that plaintiffs' request to lift the stay is timely. The
second ground on which defendants contest the lifting of the stay relates
to the matter of whether the defendants will be prejudiced by lifting of
the stay and a further amendment of the complaint. Since the potential
for prejudice rests not with the lifting of the stay but with the
amendment of the complaint, this objection will be discussed below in the
analysis of the motion to amend. As defendants raise no other objection
to the lifting of the stay and there is no other reason why the stay
should not be lifted, the stipulated stay is hereby lifted.
The question that follows is whether plaintiffs should be permitted to
amend the complaint to extend the proposed class period and include the
claims stayed by the Stipulation. Plaintiffs assert that they should be
permitted to amend to include the claims stayed by the Stipulation
because these claims are based on misstatements and omissions that are
virtually identical, and in most cases verbatim, to those already ruled
actionable by this Court's February 2002 Memorandum and Order. As such,
plaintiffs argue that the additional changes in the PTAC are not new
claims of fraud but simply serve to demonstrate defendants' ongoing
fraudulent conduct over an expanded time period. Pl. Mem. 1.
Amending of a complaint is governed by Rule 15(a) of the Federal Rules
of Civil Procedure, which provides that "leave [to amend] shall be freely
given when justice so requires." Fed.R.Civ.P. 15(a). The decision to
grant a request for leave to amend a complaint is within the discretion
of the Court. Foman v. Davis, 371 U.S. 178, 182 (1962);
Ching v. United States, 298 F.3d 174, 180 (2d Cir. 2002). It is
well-established in the Second Circuit that leave to amend should be
granted freely though the district court may exercise its discretion to
deny a motion to amend if there is a good reason for it. Min Jin v.
Metro. Life Ins. Co., 310 F.3d 84, 101 (2d Cir. 2002) ("Leave to
amend should be freely granted, but the district court has the discretion
to deny leave if there is a good reason for it, such as futility, bad
faith, undue delay, or undue prejudice to the opposing party.").
Defendants argue that the motion to amend should be denied on several
grounds. First, defendants argue that plaintiffs' undue delay and
improper purpose mandates denial of the motion to amend. Second,
defendants argue that they will be prejudiced if lead plaintiffs are
granted leave to amend the complaint. Third, defendants allege that lead
plaintiffs have failed to adequately allege a strong inference of
scienter, so that the Proposed Third Amended Complaint ("PTAC") would not
survive a motion to dismiss. Fourth, defendants argue that the new claims
plaintiffs seek to file are barred by the statute of limitations, and
that this would be another basis on which the new complaint would not
survive a motion to dismiss.
1. Undue Delay
Defendants argue that the motion to amend should be denied because
plaintiffs seek to file the PTAC almost three years after the filing of
the original complaint on February 3, 2000,
and that plaintiffs knew about the additional claims proposed in
the PTAC since the case first began. Furthermore, defendants argue
plaintiffs' motion to amend was filed for an improper purpose in that the
claims in the PTAC "are claims that lead plaintiffs have known about
prior to every prior iteration of their complaint and chose not to
pursue." Def. Mem. 6. The rule in this Circuit with respect to undue
delay is that a court may deny a motion for leave to amend "where the
motion is made after inordinate delay, no satisfactory explanation is
offered for the delay and the amendment would prejudice other parties."
Grace v. Rosenstock, 228 F.3d 40, 53-54 (2d Cir. 2000).
Defendants' claims of bad faith and undue delay are meritless given that
the delay resulted directly from the Stay stipulated to by all parties.
As plaintiffs rightly explain, the delay was contemplated by the
Stipulation, and defendants have known since the date of the Stipulation
that plaintiffs could make a motion to lift the stay and seek to extend
the time period covered by the complaint. Pl. Mem. 5-6. Thus, defendants'
claims of improper purpose and undue delay are unsupported and do not
constitute good reason to deny leave to amend.
2. Prejudicial Effect
Defendants also argue that they will be prejudiced if lead plaintiffs
are granted leave to file the PTAC. However, in their briefing on the
issue defendants fail to make a convincing argument. The only basis for a
claim of prejudice asserted by defendants is that they would have to
conduct discovery and prepare for trial on the new claims. Since
discovery is still ongoing in this case, it is hard to see how expansion
of the class period would prejudice the defendants other than simply
expanding the scope of discovery. In this instance, there is no undue
prejudice to the defendants from amendment of the complaint since the
amended claim arises from the same
conduct set forth in the original pleading and the original
complaint gave the defendant fair notice of the newly alleged claims.
See Wilson v. Fairchild Republic Co., 143 F.3d 733, 738 (2d Cir.
1998) (holding that a district court may grant leave to amend so long as
"the original complaint gave the defendant fair notice of the newly
alleged claims."); O'Hara v. Weeks Marine, Inc., 294 F.3d 55, 68
(2d Cir. 2002) (quoting Fed.R.Civ.P. 15(c)(2)) (holding that a
plaintiff generally may amend the complaint to include a claim if it
"arose out of the conduct, transaction, or occurrence set forth or
attempted to be set forth in the original pleading.").
A third ground advanced by defendants in opposition to the motion to
amend is that plaintiffs have failed to adequately allege a strong
inference of scienter, and amendment would therefore be fufile because
the PTAC would not survive a motion to dismiss. This court has previously
decided that plaintiffs adequately pled scienter with respect to the
claims in the Second Amended complaint ("SAC"). In re Ashanti
Goldfields Sec. Litig., 184 F. Supp.2d 247, 270 (E.D.N.Y. 2002).
Plaintiffs attempt to argue that defendants' scienter challenge is barred
by the law of the case doctrine since it has already been held that
plaintiffs adequately pleaded scienter with regard to statements alleged
in the SAC. The law of the case doctrine "posits that when a court
decides upon a rule of law, that decision should continue to govern the
same issues in subsequent stages in the same case. Law of the case
directs a court's discretion, it does not limit the tribunal's
power. . . ." Arizona v. California, 460 U.S. 605, 618
(1983) (citations omitted). Since this court did not have the claims
advanced in the PTAC before it when it
decided the defendants' motion to dismiss the SAC, the law of the
case doctrine does not bar defendants' scienter challenge.
While defendants' scienter challenge is not barred, the court's
decision with respect to scienter in the SAC informs its analysis of the
issue of scienter with respect to the PTAC. Defendants argue that: (1)
plaintiffs have alleged no facts giving rise to a strong inference of
intent to defraud; (2) plaintiffs have failed to allege motives giving
rise to a strong inference of intent to defraud; and (3) alternative
explanations for defendants' conduct preclude sustaining a scienter
allegation based on a strong inference of intent to defraud. Def. Mem.
8-16. This court has already clearly stated that a `"strong inference
that the defendant[s] acted with the required state of mind' . . . may be
established by either alleging facts to show that defendants had both
motive and opportunity to commit fraud, or alleging facts that constitute
strong circumstantial evidence of conscious misbehavior or recklessness."
Ashanti, 184 F. Supp.2d at 269 (citing Novak v.
Kasaks, 216 F.3d 300, 307 (2d Cir. 2000)). As was the case with the
previous scienter challenge, with respect to the present scienter
challenge "[t]he shareholders only attempt to show scienter under the
second category, conscious misbehavior or recklessness."
Ashanti, 184 F. Supp.2d at 269. That being the case, plaintiffs
are not required to show motive for fraud. Thus, defendants' objections
that plaintiffs have failed to adequately allege a strong inference of
intent to defraud are inapposite.
As was already stated in the previous opinion: "If a plaintiff is
attempting to prove scienter by showing conscious misbehavior or
recklessness, it is not sufficient to merely allege that such behavior
took place. Recklessness in this context is conduct which is `highly
unreasonable representing an extreme departure from the standards of
ordinary care . . . to the
extent that the danger was either known to the defendant or so
obvious that the defendant must have been aware of it.'" In re
Ashanti, 184 F. Supp.2d at 269-70 (quoting Rothman v.
Gregor, 220 F.3d 81, 90 (2d Cir. 2000)). Based on the facts alleged
in the SAC, it has already been concluded that defendants "were aware of
the nature of the transactions in the hedge book" and that plaintiffs
established a "strong inference that Ashanti knew that its
characterization[s] of its futures activity as hedging and not
speculation were false." Ashanti, 184 F. Supp.2d at 270.
The claims advanced in the PTAC merely bolster the prior finding.
Ashanti's public filings during the extended class period indicated that
the company's sales and hedging policy was set at quarterly meetings and
was subject to strict internal controls. PTAC ¶¶ 13-14, 16. Moreover,
plaintiffs have already been granted leave to amend their complaint to
include the transcript of Keatley's July 28, 1999 conference call after
finding that "Keatley's statements regarding the hedge book's ability to
withstand a price rise shows that he and Ashanti were aware of the nature
of the transactions in the hedge book." Ashanti, 184 F. Supp.2d
at 270. Similarly, plaintiffs allege that in statements made during the
April 29, 1999 conference call, which plaintiffs seek to add to the
complaint, defendant Keatley assured investors of the hedge book's
ability to withstand a price rise. PTAC ¶¶ 21-22. Thus, the scienter
analysis with respect to the July 28, 1999 conference call applies to the
April 29, 1999 conference call as well. In short, as with the claims
asserted in the SAC, the additional claims put forward in the PTAC "lead
to the strong inference that Ashanti knew that its characterizations of
its futures activity as hedging and not speculation were false."
Ashanti, 184 F. Supp.2d at 270.
Defendants also argue that lead plaintiffs' claims cannot be reconciled
with the fact that defendants engaged in significant repurchases of their
own securities during the proposed class
period. Def. Mem. at 9-12; Def. Rep. Mem. at 2. While net purchases
or sales of stock may be relevant with respect to a motive for fraud
claim, when the claim is based on conscious misbehavior or recklessness
net purchases of stock by defendants do not necessarily negate an
inference of scienter on a motion to dismiss. See, e.g., In re
Seebeyond Techs. Corp. Secs. Litig., 266 F. Supp.2d 1150, 1169 (C.D.
Cal. 2003) (holding on a motion to dismiss that even though defendants
argued that "purchases of stock negate an inference of scienter because
they are inconsistent with a motive to maximize his personal benefit from
an artificial inflation of the stock price. . . . [T]aking the
allegations together, the plaintiff has presented sufficient allegations
to raise the strong inference of scienter [in the form of] a strong
inference that the defendants acted with deliberate or conscious
recklessness.")-Since in this case the scienter claims are based upon
conscious misbehavior, whether defendants were net buyers or net sellers
of Ashanti is irrelevant. Ashanti, 184 F. Supp.2d at 269. Once
again this court concludes that "[t]aken together, [the] facts pleaded by
the shareholders lead to the strong inference that Ashanti knew that its
characterizations of its futures activity as hedging and speculation were
false." Id. at 270.
4. Statute of Limitations
A fourth ground advanced by defendants in opposition to the motion to
amend is that the claims relating to the expanded portion of the proposed
class period are barred by the statute of limitations. A claim under
Section 10(b) and Rule 10b-5 must be brought within one year after
discovery of the facts constituting the violation, and that one year
period begins to run once a
plaintiff is on "constructive" or "inquiry" notice.*fn2
15 U.S.C. § 78i(e); Kahn v. Kohlberg, Kravis, Roberts & Co.,
970 F.2d 1030, 1042 (2d Cir. 1992) (the one-year limitations period
applicable to discovery of the violation begins to run after the
plaintiff "obtains actual knowledge of the facts giving rise to the
action or notice of the facts, which in the exercise of reasonable
diligence, would have led to actual knowledge."); Menowitz v.
Brown, 991 F.2d 36, 41-42 (2d Cir. 1993) (referring to discovery of
facts giving rise to the violation as "constructive or inquiry notice.").
Defendants argue that the claims regarding the expanded portion of the
proposed class period were not raised until April 19, 2000, and that
plaintiffs were on inquiry notice of their expanded claims prior to April
19, 1999. Thus, defendants allege that the statute of limitations began
to toll prior to April 19, 1999 and that the expanded claims are
Plaintiffs counter defendants' argument that the expanded claims are
time-barred by asserting that defendants waived their right to object on
statute of limitations grounds when they consented to the Stipulation. PL
Rep. Mem. at 6. Specifically, plaintiffs claim that "the stay tolled the
Statute of Limitations" with respect to the claims asserted in the Kuch
Action. Id. Plaintiffs also argue that "defendants specifically
waived their right to raise the a [sic] defense of the statute of
A plain reading of the Stipulation reveals that plaintiffs
mischaracterized the terms of the Stipulation. The Stipulation explicitly
states that defendants did not waive their statute of limitations
This Stipulation and Order shall act to toll
completely any applicable statutes of limitation,
the defense of laches, and all other time-bar
defenses (such as the defense of failure to
prosecute) as to the Stayed Claims, but only
during the time the stay provided by this
Stipulation and Order is in effect; in particular,
the defendants expressly reserve and shall not be
deemed to have waived any arguments that any of
the claims in the Furman, Webster, or Kuch
Actions, whether or not stayed by this Stipulation
and Order, were time-barred as of the time the
complaints in the Furman, Webster, and Kuch
Actions were filed.
Stipulation ¶ 5. Furthermore, plaintiffs and defendants agreed to
the following language:
Nothing in this Stipulation and Order shall be
deemed to operate as a waiver by the defendants of
any defenses to the Stayed Claims other than those
described in paragraph 5. In the event that the
stay provided by this Stipulation and Order is
lifted by the Court, the defendants shall be
permitted to raise any defenses preserved by this
paragraph 7 by pre-answer motion.
Id. ¶ 7. From these two provisions of the Stipulation,
there is no question that defendants preserved the statute of limitations
defense with respect to arguments that any of the claims in the Kuch
Action were time-barred as of the time the complaint in the Kuch action
Plaintiffs also incorrectly argue that defendants can no longer raise a
statute of limitations argument since defendants did not plead the
statute of limitations in their answer. This argument is directly
controverted by the provision of the Stipulation which states that
"defendants shall be permitted to raise any defenses preserved by this
paragraph 7 by pre-answer motion." Id. ¶ 7.
Since the Stipulation preserved defendants' right to raise the instant
statute of limitations challenge by means of a pre-answer motion, it must
be determined whether the previously stayed claims now being advanced in
the PTAC were time-barred as of the filing of the Kuch action on
April 19, 2000, i.e. whether plaintiffs were on constructive or
inquiry notice prior to April 19, 1999.
Defendants argue that plaintiffs have been on inquiry notice no later
than the fourth quarter of 1998 due to various "storm warnings" to which
investors should have paid attention, and that, therefore, the applicable
date for starting the clock for statute of limitations purposes is
sometime in late 1998, which would make plaintiffs' claims time-barred.
Defendants cite LC Capital Partners, LP v. Frontier Ins. Group,
318 F.3d 148 (2d Cir 2003), for the holding that a securities fraud claim
was time-barred because plaintiffs were placed on "inquiry notice" of
their claims by "storm warnings." Id. at 154-55. The case
involved an action against an insurance company in which the plaintiffs
alleged that the company implemented reserve policies with the deliberate
purpose and systematic effect of under-reserving for claims, and that in
order to cover the revenue shortfalls created by its failure to reserve
adequate sums and price policies correctly, it engaged in a pyramid
scheme to generate income to pay claims on existing policies.
Id. at 150. In determining when the statute of limitations began
to run, the LC Capital court focused on "three substantial
reserve charges taken within a brief period of time: $17.5 million in
1994, $40 million in 1997, and $139 million in 1998," and held that the
plaintiffs were on inquiry notice immediately after the last of those
charges. Id. at 152. Although the company had taken another
reserve charge in 1999 and did not make the announcement the plaintiffs
claimed alerted the market to the company's troubles until 2000,
id. at 152, the court, nevertheless, held that all the storm
warnings existing by December 1998 put the plaintiffs on inquiry notice
regarding all of their claims by that date, and that the consolidated
claims filed on February 5, 2001 were therefore time-barred. Id.
LC Capital is easily distinguishable from the case at bar.
First, the defendant in that case took three successive and increasing
reserve charges within a short period of time, which obviously points to
a pattern of under-reserving that would suggest a serious problem for an
insurance company. Second, the reserve problems were discussed in a
widely disseminated news article in the National Underwriter,
published on December 21, 1998. Third, there was a previously filed
litigation in 1994 in the Eastern District of New York in which the very
same allegations were raised against the company. These facts provide
little guidance for the instant case, in which defendants' exposure to
risk only became evident when the price of gold began to rise in
September 1999. This distinction is a fundamental one.
In LC Capital, the Second Circuit found that plaintiffs'
reliance on reassuring statements by Frontier's management was
unreasonable given the combination of the three factors discussed above.
Id. at 155-56. In the instant case, Ashanti repeatedly stated
that it was properly protected against increases in the price of gold.
Absent an actual increase in the price of gold, Ashanti's statements
provided sufficient comfort to investors such that even if an investor
might have suspected that there was speculation, the Company's statements
would have allayed any concerns to the average investor. As the LC
Capital court stated, "reassuring statements will prevent the
emergence of a duty to inquire or dissipate such a duty only if an
investor of ordinary intelligence would reasonably rely on the statement
to allay the investor's concern . . . Whether reassuring statements
justify reasonable reliance that apparent storm warnings have dissipated
will depend in large part on how significant the company's disclosed
problems are, how likely they are of a recurring nature, and how
substantial are the `reassuring' steps announced to avoid their
recurrence," Id. at 155. In the case at bar, Ashanti's
reassuring statements certainly could be
viewed as justifying reasonable reliance until the rise in the
price of gold in September and October 1999 exposed those statements for
what they were.
Accordingly, as there were no "storm warnings" that put plaintiffs on
inquiry notice prior to October 1999, plaintiffs' claims are not
III. Defendants' Cross-Motion to Dismiss
In the event that plaintiffs' motion for leave to file a third amended
complaint is granted-which motion is granted-Ashanti cross-moves to
dismiss the complaint for failure to state a claim pursuant to
In order to state a claim under Section 10(b), a plaintiff must allege
that "the defendant, in connection with the purchase or sale of
securities, made a materially false statement or omitted a material fact,
with scienter, and that the plaintiff's reliance on the defendant's
action caused injury to the plaintiff." Ganino v. Citizens Utilities
Co., 228 F.3d 154, 161 (2d Cir. 2000). A motion to dismiss must be
denied "unless it appears beyond a reasonable doubt that the plaintiff
can prove no set of facts in support of his claim which would entitle him
to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99
(1957). The duty of a court in ruling on a 12(b)(6) motion "is merely to
assess the legal feasibility of the complaint, not to assay the weight of
the evidence which might be offered in support thereof." Ryder Energy
Distrib. Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779
(2d Cir. 1984). In ruling on a 12(b)(6) motion, a court must accept as
true all well-pleaded facts alleged in the complaint and draw all
reasonable inferences in the pleader's favor. See Jackson Nat. Life
Ins. Co. v. Merrill Lynch & Co., Inc.,
32 F.3d 697, 699-700 (2d Cir. 1994); Liberty Ridge LLC v. Real
Tech Sys. Corp., 173 F. Supp.2d 129, 134 (S.D.N.Y. 2001).
Defendants make the following arguments in support of their
cross-motion to dismiss: (1) lead plaintiffs have failed to adequately
allege a strong inference of scienter; and (2) lead plaintiffs' new
claims are barred by the statute of limitations. Def. Mem. at 8-20. Both
grounds have been considered above as they were simultaneously argued in
opposition to plaintiffs' motion for leave to amend and in support of the
instant cross-motion to dismiss. As discussed above in sections (II)(3)
("Scienter") and (II)(4) ("Statute of Limitations"), plaintiffs'
adequately pled scienter in the PTAC and their new claims are not barred
by the statute of limitations. Accordingly, these grounds for dismissal
advanced by defendants are rejected.
However, following oral argument, in response to a request by the
court, defendants filed a letter arguing that even if the court grants
the motion to amend, several allegations in the PTAC should be dismissed
on the ground that they are identical to claims dismissed previously in
the February 2002 Memorandum and Order. January 14, 2004 Letter from
Douglas W. Henkin. The allegations that defendants seek to dismiss on
this ground relate to: Ashanti's alleged duty to disclose the details of
the hedge book (PTAC ¶¶ 19, 20, 23(a), 30, 31, 36(a), 41(c)); the
statement contained in the September 29, 1999 press release which
characterized Ashanti's trading activity as "contingency planning" (PTAC
¶ 40(a)); and the statement contained in the September 29, 1999 press
release which described Ashanti's hedge book as "actively managed" and
"tightly controlled" (PTAC ¶¶ 40(c), 41(b)). January 14, 2004 Letter
from Douglas W. Henkin; January 23, 2004 Letter from Douglas W. Henkin.
In a reply letter dated January 21, 2004, plaintiffs concede that the
statements of "contingency planning" and "actively managed" and "tightly
controlled" contained in PTAC paragraphs 40(a), 40(c), and 41(b) are not
actionable as affirmative misrepresentations. January 21, 2004 Letter
from Paul D. Young. Since plaintiffs concede that the claims in these
paragraphs have already been dismissed in the court's prior decision,
defendants' cross-motion to dismiss is granted with respect to paragraphs
40(a), 40(c), and 41(b).
In their reply letter, plaintiffs counter defendants' argument that
PTAC paragraphs 19, 20, 23(a), 30, 31, 36(a), and 41(c) relate to
Ashanti's alleged duty to disclose the details of the hedge book by
arguing that these paragraphs "do not simply allege that Ashanti did not
specifically outline the details of the hedge book, but rather allege
that Ashanti misstated the very nature of the `hedge book,'" and that
therefore these paragraphs should not be dismissed. January 21, 2004
Letter from Paul D. Young. The claims in the paragraphs in question are
Paragraph 19: Plaintiffs claim that
"statements in the October 1997 6-K materially
falsely and misleadingly represented the nature
and purpose of the Company's purported `hedge'
book," that Ashanti did not mention in its 1996
20-F, 1997 20-F, or October 1997 6-K the
nonstandard options contracts with modified terms,
sometimes called "exotics" that were the alleged
source of the company's exposure to "catastrophic
liability and margin calls," and that the public
filings failed to disclose certain details of the
options contracts. PTAC ¶ 19.
Paragraphs 20 and 31: Plaintiffs claim
that the material risk from the "hedge" book, and
in particular the call options and "exotics," was
concealed from and misrepresented to investors.
PTAC ¶¶ 20, 31.
Paragraph 23(a): Plaintiffs claim that
in Ashanti's October 1997 6-K and the April 29,
1999 investor conference call "[t]he Company did
not set forth `full details' but omitted to
disclose numerous derivative transactions that
increased the risk for Ashanti and failed to
disclose the amount of future gold production that
Ashanti had entangled in its risky derivatives
transactions." PTAC ¶ 23(a).
Paragraph 30: Plaintiffs claim that
"statements in the July 1999 6-K materially
falsely and misleadingly represented the nature
and purpose of the Company's purported `hedge'
book," that Ashanti did not mention in its 1996
20-F, 1997 20-F, 1998 20-F, or October 1997 6-K
the call options contracts and "exotics" that were
the alleged source of the company's exposure to
"catastrophic liability and margin calls," and
that the public filings failed to disclose certain
details of the options contracts. PTAC ¶ 30.
Paragraph 36(a): Plaintiffs claim that
in Ashanti's July 1999 6-K and defendant Keatley's
July 28, 1999 interview, and defendants' July 28,
1999 investor conference call, defendants' failed
to disclose and misrepresented the fact that "the
Company was employing option contracts in order to
increase revenue, i.e. by selling call options and
exotic options and receiving premium income from
the buyers rather than in order to protect itself
against market fluctuations, and these contracts
exposed the Company to margin calls should the
price of gold rise suddenly." PTAC ¶ 36(a).
Paragraph 41(c): Plaintiffs claim that
the statements in the September 29, 1999 press
release failed to disclose the fact that "the
Company's disclosures excluded the terms of its
`exotic' option contracts, which would have
permitted investors to recognize the speculative
nature of the Company's purported `hedge' book."
PTAC ¶ 41(c).
Although plaintiffs are correct that the court's prior decision found
statement omissions concerning the nature and purpose of the hedge book
to be actionable, defendants are correct in arguing that claims relating
to Ashanti's alleged duty to disclose the details of the hedge book
should be dismissed since they were previously dismissed by this court's
February 2002 Memorandum and Order. See In re Ashanti Sec.
Litig., 184 F. Supp.2d at 266 ("to the extent that the shareholders
are pursuing claims for failing to include certain details of the hedging
instruments, those claims are dismissed"). However, paragraphs 20, 31,
and 36(a) state actionable claims relating to the nature and purpose of
the hedge book, while paragraphs 19, 23(a), 30, and 41(c) state claims
relating to Ashanti's failure to disclose details of the hedge book.
Thus, paragraphs 19, 23(a), 30 and 41(c) must be dismissed to the extent
that they state claims relating to Ashanti's failure to disclose details
of the hedge book.
Accordingly, the cross-motion to dismiss is denied, except as to the
claims in paragraphs 40(a), 40(c), and 41(b), which shall be dismissed in
their entirety, and as to the claims in paragraphs 19, 23(a), 30, and 41
(c), which shall be dismissed to the extent that they state claims
relating to Ashanti's failure to disclose details of the hedge book.
IV. Motion for Class Certification
Proposed class representatives move to certify a class consisting "of
all persons who purchased or otherwise acquired [Global Depository
Receipts ("GDRs")*fn3 of Ashanti] during the period between April 21,
1997 and October 5, 1999, inclusive, (the "Class Period"), and who were
damaged thereby."*fn4 Pl. Mem. Class cert. at 1.
Plaintiffs argue that "this open-market securities fraud action
satisfies all applicable requirements for class certification under
Rule 23 of the Federal Rules of Civil Procedure," Pl. Mem. Class Cert. at 3,
and, among other things, that all members of the class relied upon
defendants' "materially false and misleading statements during the Class
Period . . . about Ashanti's purported `hedge' book" and that defendants
"failed to disclose material adverse facts." Pl. Mem. Class Cert. at 7;
see also PTAC ¶ 59, at 34-35 ("plaintiffs and other members
the Class purchased or otherwise acquired Ashanti common stock
relying upon the integrity of the market price of Ashanti common stock
and market information relating to Ashanti").
Defendants oppose class certification, arguing that (1) lead
plaintiffs' claims are atypical of the proposed class; (2) lead
plaintiffs have failed to demonstrate that they will be adequate
representatives of the proposed class; (3) common questions of law do not
predominate because the market for Ashanti GDRs was not efficient and
presumption of reliance under the fraud-on-the-market-theory does not
apply, or alternatively, if the market for Ashanti GDRs could be deemed
efficient, the presumption of reliance is rebutted in this case; and (4)
there is a significant risk of intra-class conflicts. Def. Mem. Class
Cert. at 1-29. Defendants also argue that "any class must be limited to
domestic investors." Def, Mem. Class Cert. at 30-33.
For the reasons set forth below, the Court grants plaintiffs' motion
for class certification as modified in the Conclusion to this Memorandum
and Order and appoints proposed class representatives William Webster,
Ron Moore, and Rosemary Valente as Class Representatives.
1. The standard guiding Rule 23 motions
Class certification is governed by Rule 23 of the Federal Rules of
Civil Procedure. Fed.R.Civ.P. 23. The requirements of Rule 23 are to
be applied liberally, not restrictively. In re Blech Sec.
Litig., 187 F.R.D. 97, 102 (S.D.N.Y. 1999) (citing Korn v.
Franchard Corp., 456 F.2d 1206, 1208-09 (2d Cir. 1972)). A liberal
standard is in accord with the Second Circuit's preference for the use of
class actions in securities law claims. In re Avon Sec. Litig.,
No. 91-2287, 1998 WL 834366, at *4 (S.D.N.Y. Nov. 30, 1998) (noting
importance of class actions in enforcing securities laws where numerous
investors have been injured but not to the point of
pursuing suit individually) (citing Green v. Wolf Corp.,
406 F.2d 291, 298 (2d Cir. 1968)); see also Blech, 187 F.R.D. at
102 ("Class action treatment of related claims is particularly
appropriate when plaintiffs seek redress for violations of the securities
laws."). Accordingly, in securities cases, "when a court is in doubt as
to whether or not to certify a class action, the court should err in
favor of allowing the class to go forward." Blech, 187 F.R.D. at
2. The requirements of Fed.R. Civ. P. 23(a)
In order to certify a class, a litigant must satisfy the four
requirements of Rule 23(a) of the Federal Rules of Civil Procedure and
demonstrate that the proposed class action fits into one of the three
categories described in Rule 23(b). Green v. Wolf Corp., 406
F.2d at 298 (2d Cir. 1968). Although the plaintiff bears the burden of
proving that its proposed class is appropriate for certification,
Harrison v. Great Springwaters of Am., Inc., No. 96-5110, 1997
WL 469996, at *3 (E.D.N.Y. June 18, 1997), the plaintiff is not obliged
to make an extensive evidentiary showing in support of its motion.
Follette v. Vitanza, 658 F. Supp. 492, 505 (N.D.N.Y. 1987),
vacated in part on other grounds, 671 F. Supp. 1362 (N.D.N.Y.
1987). Moreover, in considering a motion for class certification, a court
must assume the truth of the plaintiffs' allegations. In re AMF
Bowling Sec. Litig., No. 99-3023, 2002 WL 461513, at *3 (S.D.N.Y.
Mar. 25, 2002) ("Although a court must conduct a rigorous inquiry in
determining whether the requirements of Rule 23 have been satisfied, it
must accept plaintiffs' allegations as true and refrain from conducting
an examination of the merits when determining the propriety of class
certification."). See also Shelter Realty Corp. v. Allied Maintenance
Corp., 574 F.2d 656, 661 n.15 (2d Cir. 1978); Caridad v.
Metro-North Commuter R.R., 191 F.3d 283, 291 (2d Cir. 1999);
Perales, 110 F.R.D. 299, 305 (S.D.N.Y. 1986); Ventura
v. New York City Health and Hosps. Corp., 125 F.R.D. 595, 598
In pertinent part, Rule 23(a) of the FRCP provides that:
One or more members of a class may sue or be sued
as representative parties on behalf of all only if
(1) the class is so numerous that joinder of all
members is impracticable, (2) there are questions
of law or fact common to the class, (3) the claim
or defenses of the representative parties are
typical of the claims or defenses of the class,
and (4) the representative parties will fairly and
adequately protect the interests of the class.
Fed.R.Civ.P. 23(a). Each of these requirements will be addressed in
First, the numerosity requirement is satisfied when the class is
numerous enough to make ordinary joinder of all members impractical.
"Impracticability means difficulty or inconvenience of joinder; the rule
does not require impossibility of joinder," Blech, 187 F.R.D. at
103. Furthermore, "[i]n securities fraud actions brought against publicly
owned and nationally listed corporations, the numerosity requirement may
be satisfied by a showing that a large number of shares were outstanding
and traded during the relevant period." In re Frontier Ins. Group,
Inc. Sec. Litig., 172 F.R.D. 31, 40 (E.D.N.Y, 1997). See also
Dietrich v. Bauer, 192 F.R.D. 119, 123 (S.D.N.Y. 2000); Gerber
v. Computer Assocs. Int'l, No. 91-3610, Fed. Sec. L. Rep.
(CCH) P 98, 722, at 92, 398-99, 1995 WL 228388, at *2 (E.D.N.Y. Apr. 7,
1995) ("[defendants'] common stock was listed and actively traded on the
New York Stock Exchange; therefore, it is likely that [defendants']
stockholders are not concentrated in any one geographic location, but
rather, are widely dispersed. Hence, given that there will be a variety
of residences and numerous claims, joinder would be impractical."),
In this case, plaintiffs point to the following for support of their
numerosity claim: (1) during the Class Period, Ashanti had more than 100
million Shares outstanding; (2) millions of
these shares were actively traded on the New York Stock Exchange
("NYSE"); and (3) during the Class Period, Ashanti's shares traded
between $5.50 and a little over $13.00 per share on a daily trading
volume between 37,000 and 4,541,600 shares. Though plaintiffs have not
yet ascertained the precise number of members of the class, based on the
above alleged facts, they claim that "in light of the daily and total
trading volume during the Class Period, proposed class representatives
believe that there are thousands of Class members." Pl. Mem. Class cert.
at 10. Accordingly, plaintiffs provided sufficient evidence to support a
finding of numerosity.
Second, to satisfy the requirement of commonality, the plaintiff must
demonstrate that common questions of law or fact are at the core of the
cause of action alleged by the plaintiff. "The commonality requirement is
met if plaintiffs' grievances share a common question of law or of fact."
Robinson v. Metro-North Commuter R.R., 267 F.3d 147, 155 (2d
Cir. 2001). "The commonality requirement of Rule 23(a)(2) has been
applied permissively by the courts in the context of securities fraud
litigation." In re Blech, 187 F.R.D. at 104; see also In re
Frontier, 172 F.R.D. at 40. Here, plaintiffs allege that the
following questions of fact or law are common to members of the Class:
(1) whether the federal securities laws were violated by defendants' acts
and omissions; (2) whether defendants participated in and pursued the
fraudulent scheme or course of conduct; (3) whether the company's
publicly disseminated releases and statements during the Class Period
omitted and/or misrepresented material facts; (4) whether defendants
acted willfully, with knowledge or recklessly, in omitting and/or
misrepresenting material facts; (5) whether the market price of Ashanti
shares during the Class Period was artificially inflated due to
defendants' wrongful conduct; and (6) whether the members of the class
have sustained damages and, if so, the proper measure of damages.
Defendants do not dispute commonality.
Plaintiffs have adequately demonstrated that these claims are
common to all members of the proposed class, and thus the commonality
requirement is satisfied,
Third, plaintiff must demonstrate typicality. In this case, proposed
class representatives' claims arise out of the alleged misrepresentations
by defendants concerning Ashanti's hedge book. Proposed class
representatives argue that they stand in precisely the same position as
do other purchasers of Ashanti's shares during the Class Period because
"[t]he damages that proposed class representatives and other members of
the Class seek arise from the purchase of Ashanti's shares at prices
artificially inflated as a result of defendants' false and misleading
statements in documents filed with the SEC and in statements publicly
disseminated by defendants during the Class Period." PL Mem. Class Cert.
Defendants dispute proposed class representatives' claims that they
satisfy the typicality requirement because "the presence of a unique
defense destroys typicality." Def. Mem. Class Cert. at 19. Specifically,
defendants argue that "[a] plaintiffs' claim is not typical if the
plaintiff did not rely on the integrity of the market in making his or
her [securities] purchases." Id. Defendants further allege that
since plaintiffs' reliance on the integrity of the market will be a focal
point of this litigation, plaintiffs "are subject to differing and
divergent defenses because of their individual lack of reliance on the
alleged misrepresentations." Id. at 19-20.
The typicality requirement "is satisfied when each class member's claim
arises from the same course of events, and each class member makes
similar legal arguments to prove the defendant's liability." Marisol
A. v. Giuliani, 126 F.3d 372, 376 (2d Cir. 1997) (per curiam)
(quoting In re Drexel Burnham Lambert, 960 F.2d 285, 291 (2d
Cir. 1992)); see also In re Blech, 187 F.R.D. at 106 ("[T]he
typicality requirement is satisfied because, as set forth in the
Complaint, the plaintiffs' claims of fraud arise from the same
course of conduct."). Because "`reliance' is clearly alleged" (see,
e.g., PTAC ¶ 59, at 34-35 ("plaintiffs and other members of the
Class purchased or otherwise acquired Ashanti common stock relying upon
the integrity of the market price of Ashanti common stock and market
information relating to Ashanti")), and "because a jury may conclude"
that investing in a publicly traded stock whose price is inflated due to
material misrepresentations "entails reliance," proposed class
representatives satisfy the typicality requirement. In re Nortel
Networks Corp. Sec. Litig., No. 01-1855, 2003 WL 22077464, at *3
(S.D.N.Y. Sept. 8, 2003) (rejecting defendants' argument that class
representative failed to satisfy typicality requirement because class
representative allegedly did not rely on the integrity of the market).
Moreover, the presumption of reliance/efficiency of the market is an
issue to be decided at the trial of the matter, not at the class
certification stage of this case. Cromer Fin. Ltd. V. Berger,
205 F.R.D. 113, 133 (S.D.N.Y. 2001); see also discussion below
in section (IV)(3) of this Memorandum and Order.
Additionally, "[t]he rule barring certification of plaintiffs subject
to unique defenses is not `rigidly applied in this Circuit.'"
Nortel, 2003 WL 22077464, at *4 (quoting In re
Frontier, 172 F.R.D. at 41). Thus, minor variations among individual
plaintiffs' fact patterns do not undermine the typicality requirement.
Robidoux v. Celani, 987 F.2d 931, 936-37 (2d Cir. 1993) ("When
it is alleged that the same unlawful conduct was directed at or affected
both the named plaintiff and the class sought to be represented, the
typicality requirement is usually met irrespective of minor variations in
the fact patterns underlying individual claims."). Additionally, even in
cases where a unique defense might exist, "[a] plaintiff subject to a
unique defense is not an appropriate class representative only if that
unique defense might draw the focus of the
litigation away from common legal or factual issues," In re
Arakis Energy Corp. Sec. Litig., No. 95-3431, 1999 WL 1021819, at *6
(E.D.N.Y. Apr. 27, 1999); see also In re Indep. Energy Holdings PLC
Sec. Litig., 210 F.R.D. 476, 481 (S.D.N.Y. 2002) ("While the extent
of non-reliance on [plaintiffs'] part will certainly be a fact question
to be decided at trial, it is unlikely to significantly shift the focus
of the litigation to the detriment of the absent class members.").
Defendants also argue that lead plaintiffs are atypical because they
are individual investors while most of Ashanti's stock was owned by
insiders and institutional investors. Def. Mem. Class Cert. at 25.
Defendants fail to cite a single case that actually supports this
argument*fn5, and in fact "there is no requirement in Rule 23 concerning
the amount of loss either in gross or compared with the losses of others,
necessary to qualify as a class representative." In re Oxford Health
Plans, Inc. Sec. Litig., 191 F.R.D. 369, 375 (S.D.N.Y. 2000).
Typicality is satisfied where, as here, "claims of representative
plaintiffs arise from same course of conduct that gives rise to claims of
the other class members, where the claims are based on the same legal
theory, and where the class members have allegedly been injured by the
same course of conduct as that which allegedly injured the proposed
representatives." Id. (citing In re Drexel Burnham, 960
F.2d at 291). Accordingly, plaintiffs have met the requirement of
Finally, to satisfy the fourth requirement of Rule 23(a), plaintiffs
must demonstrate that "the representative parties will fairly and
adequately protect the interests of the class." The
"adequate representation" inquiry has two prongs: "first, class
counsel must be qualified, experienced and generally able to conduct the
litigation. Second, the class members must not have interests that are
antagonistic to one another." Harrison, 1997 WL 469996, at *5
(quoting D'Alauro v. GC Servs. Ltd. P'ship, 168 F.R.D. 451, 457
Regarding the first prong, there is no dispute. The proposed class
representatives have selected and retained the law firms of Milberg Weiss
Bershad Hynes & Lerach, LLP, and Cauley Geller Bowman Coates &
Rudman, LLP, as co-lead counsel for the proposed Class. Both firms are
well-respected and have extensive experience with securities class
actions. Defendants do not contest this fact.
However, defendants strongly contest the adequacy of the prospective
class representative under the second prong of the adequacy inquiry.
Defendants argue that the proposed class representatives do not meet the
adequacy requirement because they are only minimally involved in this
case and that the litigation has been lawyer-driven. Def. Mem. Class
Cert. at 25-29. However, defendants' adequacy challenge is inappropriate.
See In re Frontier Ins. Group, 172 F.R.D. at 46 ("In the context
of complex securities litigation, attacks on the adequacy of the class
representative based on the representative's ignorance or credibility are
rarely appropriate.") (citing County of Suffolk v. Long Island
Lighting Co., 710 F. Supp. 1407, 1416 (E.D.N.Y. 1989) (Weinstein,
Moreover, "[c]ourts that have denied class certification based on the
inadequate qualifications of plaintiffs have done so only in flagrant
cases, where the putative class representatives display `an alarming
unfamiliarity with the suit,' display an `unwillingness to learn about'
the facts underlying their claims, or are so lacking in credibility that
they are likely
to harm their case." In re Frontier Ins. Group, 172 F.R.D. at 47 (citations
omitted). None of these circumstances is present here, and there is no basis
to deny the class on inadequacy grounds.
Class action plaintiffs are not required to understand complex legal
terms or to direct litigation strategy, as long as they are "aware of the
basic facts underlying the lawsuit as alleged in the complaint and [do]
not abdicate [their] obligations to fellow class members." Id. A
review of the deposition transcripts reveals that lead plaintiffs have
satisfied this requirement. See Appendix of Exhibits in Support
of Memorandum of Law in Support of Plaintiffs' Motion for Class
Certification ("PL Class Cert. App."), Ex. 1 (Webster Dep.) 61:19-64:2,
79:16-85:2; Ex. 2 (Moore Dep.) 88:6-95:13, Ex. 3 (Valente Dep.)
59:12-63:20. Thus, proposed class representatives satisfy the adequacy
3. The requirements of Fed.R.Civ.P. 23(b)(3)
In addition to satisfying the requirements of Rule 23(a), a potential
class action must qualify under one of the categories set forth in
Rule 23(b). Plaintiffs rely on Rule 23(b)(3), which allows class certification
if "the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other
available methods for the fair and efficient adjudication of the
controversy." Plaintiffs contend that both prongs of the (b)(3) category
of Rule 23 are satisfied here.
With respect to the first prong, plaintiffs argue that "[w]here, as
here, the complaint alleges that defendants have made false
representations, the issues of law and fact that flow from that activity
predominate over any individual issues rendering class treatment
Mem. Class Cert. at 18, Defendants counter by arguing that class
certification should be denied because individual issues predominate.
Specifically, defendants argue that the fraud-on-the-market theory
("FOMT"), under which plaintiffs' reliance on alleged misrepresentations
is presumed, does not apply. Def. Mem. Class Cert. at 11. According to
the FOMT, "an individual plaintiff need not show that he actually read or
heard a misrepresentation" but rather "is presumed to have relied on it
by virtue of his reliance on a market that fully digests all available
material information about a security and incorporates it into that
security's price," Cromer Fin. Ltd. v. Berger, 205 F.R.D. 113,
128 (S.D.N.Y. 2001) (citing the seminal case on the FOMT, Basic Inc.
v. Levinson, 485 U.S. 224, 108 S.Ct. 978 (1988)).
Defendants argue that the "market for Ashanti's Global Depository
Receipts ("GDRs") was likely not efficient, making the
fraud-on-the-market doctrine inapplicable in the first instance." Def.
Mem. Class Cert. at 11. Defendants make the argument that the market for
Ashanti securities was not efficient based on an expert report by
Professor Paul A. Gompers of Harvard Business School, which defendants
filed with the court. First, defendants explain that based on an analysis
of the trading of Ashanti securities on the New York Stock Exchange
("NYSE") and the London Stock Exchange ("LSE"), Professor Gompers
concluded that there were (1) significant differences between the prices
at which Ashanti shares and GDRs traded on the LSE and (2) between the
prices at which Ashanti GDRs traded on the NYSE and the LSE at similar
times. Id. at 12. Second, in studying how Ashanti's trading
price moved in relation to news announcements, Gompers observed that
there were a number of significant price changes for Ashanti in the
absence of new information, which he concluded cast doubt on the
efficiency of the market for Ashanti securities. Id. Third,
Gompers observed that the fact that price of
Ashanti securities did not drop in response to the August 1999
Hathaway Report,*fn6 which stated that Ashanti would face margin calls
should there be an upward spike in gold prices, indicates either that the
market for Ashanti securities was not efficient or that the price of
Ashanti's stock was inflated because the market was efficient but had
already incorporated the Hathaway report's analysis in the stock price.
Id. at 13. Fourth, Professor Gompers observed that the
possibility that Ashanti securities were inefficiently traded is
bolstered by the fact that there was very little short interest in
Ashanti, possibly due to the fact that a significant proportion of
Ashanti stock was owned by Lonmin plc, the Government of Ghana, and
institutional investors during the proposed class period. Id.
Defendants also argue that even if the market for Ashanti GDRs could be
deemed efficient, the presumption of reliance under the FOMT is
rebuttable and is in fact rebutted in this case. Id. at 11,
13-16. First, defendants contend that even if one were to assume that the
risks faced by Ashanti in the event of a gold price spike such as
actually occurred were not understood by the market, the Hathaway Report
made those risks clear. Id. at 14. Second, defendants argue that
Ashanti, in its public filings, disclosed the relative contribution of
its hedge book to its revenues and profits. Id. at 14-15. Third,
defendants contend that lead plaintiffs, in their deposition testimony,
rebutted any presumption of reliance that might exist. Defendants allege
that at least one lead plaintiff indicated that he would have purchased
Ashanti GDRs even if the truth had been disclosed, and that another lead
plaintiff made significant purchases of Ashanti GDRs after the fraud
alleged by plaintiffs was revealed. Id. at 15. Defendants argue
that any one
of these factors is sufficient to rebut any presumption of
reliance. In addition, defendants argue that the majority of Ashanti
stock was held by institutional investors and insiders, some of who had
or had the opportunity to have discussions with Ashanti about its gold
hedge book, and that "[t]his is precisely the sort of situation in which
individual reliance issues preclude certification even if a stock trades
efficiently and any presumption is not deemed rebutted." Id. at
Although defendants are correct in arguing that the presumption of
reliance is generally rebuttable, see Basic, 485 U.S. at 248,
108 S.Ct. at 992 ("Any showing that severs the link between the alleged
misrepresentation and either the price received (or paid) by the
plaintiff, or his decision to trade at a fair market price, will be
sufficient to rebut the presumption of reliance."); Cromer,
205 F.R.D. at 129 ("The presumption provided by the FOMT . . . is not
absolute and may be rebutted where a defendant casts doubt on the causal
connection at issue."), proof of market inefficiency, as presented in
Professor Gompers' expert report, or rebuttal of the presumption of
reliance is best left to the trial phase of litigation, Basic,
485 U.S. at 248, 108 S, Ct. at 992 n.29 ("Proof [rebutting a presumption
of reliance] is a matter for trial, throughout which the District Court
retains the authority to amend the certification order as may be
appropriate."); RMED Int'l Inc. v. Shan's Supermarkets, 94-5587,
2002 WL 31780188, at *4 (S.D.N.Y. Dec. 11, 2002) ("Whether or not a
market for a stock is open and efficient is a question of fact. . . . The
jury will ultimately decide whether the market is efficient and
defendants are entitled to put on evidence in that respect.");
Cromer, 205 F.R.D. at 133 ("While [defendant] has identified
evidence and arguments it may use at trial to rebut the presumption, it
remains true that it is logical and fair to presume reliance here.");
In re Laser Arms Corp. Sec. Litig., 794 F. Supp. 475, 490
(S.D.N.Y. 1989) ("Whether in fact [defendant] traded in an
efficient market is a question of fact. Therefore, resolution of
that issue must await presentation of further proof at trial."),
aff'd, 969 F.2d 15 (2d Cir. 1992). Accordingly, defendants'
attempt to prove market inefficiency or to rebut the presumption of
reliance is a matter properly left for trial. The first prong of
Rule 23(b)(3) is satisfied in this case.
As to the second prong, which requires that the court determine whether
a "class action is superior to other available methods for the fair and
efficient adjudication of the controversy," the court considers the
(A) the interest of members of the class in
individually controlling the prosecution or
defenses of separate actions; (B) the extent and
nature of any litigation concerning the
controversy already commenced by or against
members of the class; (C) the desirability or
undesirability of concentrating the litigation of
the claims in the particular forum; (D) the
difficulties likely to be encountered in the
management of a class action.
In this litigation, the interest of members of the class in
individually controlling the prosecution of separate actions is minimal,
as the costs and expenses of bringing individual suits would far exceed
any individual recoveries. See In re Blech, 187 F.R.D. at 107
("In general, securities suits such as this easily satisfy the
superiority requirement of Rule 23. Most violations of the federal
securities laws, such as those alleged in the Complaint, inflict economic
injury on large numbers of geographically dispersed persons such that the
cost of pursuing individual litigation to seek recovery is often not
feasible. Multiple lawsuits would be costly and inefficient, and the
exclusion of class members who cannot afford separate representation
would neither be `fair' nor an adjudication of their claims. Moreover,
although a large number of individuals may have been injured, no one
person may have been damaged to a degree which would induce him to
institute litigation solely on his own behalf.").
Additionally, proposed class representatives have stated that they are
not aware of any individual suits pending against defendants, and
defendants have not challenged this assertion. PL Mem. Class Cert. at 20.
Ashanti is subject to jurisdiction within the United States by virtue of
its listing on the NYSE and other domestic exchanges, making this court a
desirable forum for concentrating the litigation of class members'
claims. Finally, the court does not expect any significant difficulties
to be encountered in the management of this case as a class action.
In sum, because class action treatment is superior to any other
available method for the "fair" and "efficient" adjudication of this
case, the requirements of Rule 23(b)(3) are fully satisfied. If
insurmountable management problems were to develop at any point, class
certification can be revisited at any time under Fed.R.Civ.P.
23(c)(1). Accordingly, this class action qualifies under Rule 23(b)(3).
4. Potential Intra-class conflicts
Defendants also challenge class certification on the ground that "there
is a significant risk of intra-class conflicts" because the "economic
environment in which Ashanti operated changed significantly over the
course of the proposed [29 month] class period." Def. Mem. Class Cert. at
17. Moreover, defendants argue that no proposed class representative
purchased Ashanti GDRs prior to August 1999, the very end of the proposed
class period. Thus, defendants argue, "lead plaintiffs purchased Ashanti
GDRs in one economic environment, whereas the vast majority of the
potential members of the proposed class purchased in an entirely
different economic environment." Id. at 18.
Defendants do not clearly state which applicable section of
Rule 23 should be a basis for denying certification due to "a significant
risk of intra-class conflict," nor do the cases they cite (all from district
courts in other circuits) to argue that this risk merits denial of the
motion persuade the court that certification should be denied due to
potential and unspecified intra-class conflicts. Moreover, "[i]t does not
defeat Typicality or Adequacy if it appears that the Class Representative
did not purchase the stock at the beginning of the period sought to be
litigated, so long as the beginning date of the period has a rational
basis." In re Oxford Health Plans, Inc. Sec. Litig.,
191 F.R.D. 369, 378 (S.D.N.Y. 2000). Furthermore, even if conflicts among
class members, such as those suggested by defendants, were to arise in this
case, such potential but yet unrealized conflicts would not require the
denial of certification or disqualification of the class representatives,
because the Court has "substantial discretion to create sub-classes,"
Cromer, 205 F.R.D. at 127, or, alternatively, because the class
can be modified as the litigation goes forward. In re Oxford Health
Plans, 191 F.R.D. at 378.
5. Limitation of Class to purchasers of Ashanti securities in
U.S. securities markets
Finally, defendants also oppose certification on the ground that
purchasers of Ashanti GDRs during the proposed class period included
"residents of foreign countries and/or who purchased on foreign
exchanges." Def. Mem. Class Cert. at 30. In their Reply brief, plaintiffs
clarified that they "are only seeking to represent the class of
purchasers of Ashanti securities in the U.S. securities markets" and that
they "are not seeking to represent the claims of investors who purchased
Ashanti securities on foreign exchanges." Pl. Reply Class Cert. at 19.
There can be no doubt-and defendants do not contest-that this court has
jurisdiction over U.S. citizens or
residents investing on the NYSE. This leaves open the question of
whether the class should include non-U.S. residents or citizens investing
in the NYSE. Plaintiffs correctly argue that the "conduct test" applies.
Pl. Reply Class Cert. at 19. "Under the `conduct' test, a federal court
has subject matter jurisdiction if the defendants' conduct in the United
States was more than merely preparatory to the fraud, and particular acts
or culpable failures to act within the United States directly caused
losses to foreign investors abroad." Alfadda v. Fenn,
935 F.2d 475, 478 (2d Cir. 1991) (citing Psimenos v. E.F. Hutton &
Co., 722 F.2d 1041, 1046 (2d Cir. 1983) (citing Bersch v. Drexel
Firestone, Inc., 519 F.2d 974, 993 (2d Cir. 1975))). Defendants
offer no convincing arguments against inclusion in the class of foreign
investors investing in stock exchanges in the United States. Accordingly,
while plaintiffs' request for class certification is modified to exclude
investors on foreign exchanges, the motion for certification of the class
will cover all investors, including foreign citizens, investing in stock
exchanges in the United States who meet the other requirements of the
Accordingly, plaintiffs' motion for an Order lifting the Stipulation
and Order Staying Certain Claims, So Ordered by this Court on September
8, 2000, is granted. Plaintiffs' motion for Leave to Amend plaintiffs'
Second Consolidated and Amended Complaint is granted. Defendants'
cross-motion to dismiss is denied, with the exception of the claims in
paragraphs 40(a), 40(c), and 41(b), which shall be dismissed in their
entirety, and the claims in paragraphs 19, 23(a), 30, and 41(c), which
shall be dismissed to the extent that they state claims relating to
Ashanti's failure to disclose details of the hedge book. Plaintiffs shall
amend the SAC as
indicated in the Proposed Third Amended Complaint on file with the
court, except for those claims that have been dismissed.
Having satisfied the Rule 23(a) requirements of numerosity,
commonality, typicality and adequate representation and having qualified
under the Rule 23(b)(3) category, plaintiff class is certified, and the
following class definition is adopted:
All persons who purchased or otherwise acquired
the Global Depository Receipts of Ashanti
Goldfields Company Limited listed on stock
exchanges in the Unites States during the period
between April 21, 1997 and October 5, 1999,
inclusive, and who were damaged thereby.*fn7