Providing Expert Evidence in an Alleged Insider Trading Claim

Forge Group Limited (Forge), formerly an Australian engineering, procurement and construction (EPC) company listed on the Australian Stock Exchange (ASX), pursued claims in the Supreme Court of Western Australia relating to the March 2013 sale of a block of Forge shares by Clough Operations Pty Ltd (Clough). The claim related to allegations that Clough disposed of the shares while in possession of material non-public information about Forge’s risk management practices, performance and outlook. Prior to the sale, Clough – along with its corporate parent, which was also an ASX-listed EPC company – had been a strategic investor in Forge, holding an approximately 36 percent stake.  

Managing Director Robert Patton was retained by counsel for the Clough entities and certain individual defendants who had been Clough-appointed directors on Forge’s board prior to the sale. Mr. Patton provided expert evidence on subjects including the types of investors who traded in Forge shares as of March 2013, factors influencing the decision-making of such investors, and the prevailing mix of company-specific and general market and industry information at the time of the sale. In particular, Mr. Patton addressed whether the allegedly non-public information in question could have been inferred from existing publicly available information, whether this information would have been important to a reasonable investor, and whether contemporaneous disclosure of the information would have altered the price at which Forge shares were sold.

The analyses carried out by Mr. Patton and his team included an evaluation of the efficiency of the market for Forge shares, event studies of comparable announcements made by Forge industry peers, and a review of relevant academic literature and contemporaneous analyst commentary.

Mr. Patton submitted two expert reports in the matter and participated in a “conclave” with the opposing expert, supervised by a court-appointed registrar, held in Perth, Australia. Following the conclave, Mr. Patton and the opposing expert prepared a joint expert report, setting out areas of agreement and disagreement for the court. The case settled on confidential terms shortly before trial was scheduled to commence.