NERA's Role in Securities and Exchange Commission vs. John F. Mangan, Jr.

The Situation

NERA provided analysis and testimony on behalf of the defendant in a CompuDyne PIPE case, Securities and Exchange Commission v. John F. Mangan, Jr. The SEC alleged that Mr. Mangan intended to fraudulently take advantage of material non-public information concerning a PIPE transaction by selling short pre-announcement. The SEC's expert testified that the close-to-close price drop from $17.38 on the day Mr. Mangan arranged to purchase shares at the $12 discounted offering price to $14.25 the following day, when he placed a sell order before the open, sold soon thereafter, and the PIPE transaction was subsequently announced, was statistically significant.

NERA's Role

NERA Senior Vice President Dr. Marcia Kramer Mayer was retained by Mr. Mangan's counsel, George C. Covington and Cory Hohnbaum of King & Spalding, as the defendant's expert on materiality. Dr. Mayer conducted a battery of event studies covering the one-day window examined by the SEC's expert and found the evidence to be mixed and therefore insufficient to conclude that the $3.13 drop was statistically significant. She also presented intraday event studies, opining that these were more germane, and concluded that the PIPE news was not material when publicly disclosed.

The Result

On 20 August 2008, the Hon. Judge Graham C. Mullen of the US District Court for the Western District of North Carolina, Charlotte Division, granted Mr. Mangan's motion for summary judgment. Judge Mullen ruled that the relevant time for assessing materiality was when the defendant traded. Citing Dr. Mayer's deposition testimony that the relevant event window for such an assessment extended from the trade time to the same-day close and that the $14.33 to $14.25 price drop over that interval was immaterial, he ruled that the market did not devalue CompuDyne stock after the trade at issue.