(CN) - A class cannot sue BankAtlantic for allegedly misleading the public about the performance of its real-estate portfolio during the housing market crash of 2007 because they cannot prove how much the bank's alleged fraud may have affected its share price decline, the 11th Circuit ruled.
State-Boston Retirement System, on behalf of a class of shareholders certified in 2010, filed suit in the Southern District of Florida claiming that BankAtlantic Bancorp misled the public about the credit quality of its real estate holdings from 2006 to 2007.
In public statements in 2007, former BankAtlantic CEO Alan Levan indicated that the bank's portfolio was healthy. However, by April 2007, internal emails showed that the bank was concerned after numerous loans had to be downgraded.
BankAtlantic kept an eye on real estate loans, assigning each one a grade from one to 13, but these grades were not released to the public.
In a conference call, Levan admitted that the Florida housing market was slowing, which would affect two loans, one for $12.5 million and another for $7.5 million. State-Boston claimed that Levan did not mention that BankAtlantic had $60.3 million in substandard loans, in addition to the loans he mentioned.
Six months later, the bank revealed that the real estate market slowdown left it with $90.3 million in substandard commercial real estate loans.
In one year, BankAtlantic's share price fell from $12.66 per share to $4.72.
State-Boston appealed after the district court granted the bank's motion for summary judgment, but the 11th Circuit affirmed the lower court's decision.
Writing for the panel, U.S. Circuit Judge Gerlad Tjoflat said, "to succeed in a fraud-on-the-market case, it is not enough to point to a decline in the security's price after the truth of the misrepresented matter was revealed to the public. The plaintiff must also offer evidence sufficient to allow the jury to separate portions of the price decline attributable to causes unrelated to the fraud, leaving only the part of the price decline attributable to the dissipation of the fraud-induced inflation."
Without the ability to separate the various causes of a security's decline in price, "the jury has no basis on which to conclude that the dissipation of the fraud-induced inflation was a substantial factor in bringing about the plaintiff's loss," the judge continued.
Tjoflat found that State-Boston could not prove BankAtlantic's share decline was substantially linked to the bank's previous misrepresentations rather than to the disclosure of a weak portfolio.
"None of [State Boston's] evidence excluded the possibility that class members' losses resulted not from anything specific about BankAtlantic's commercial real estate portfolio that Bancorp hid from the public, but from market forces that it had warned of - and that would likely have caused significant losses for an investor in any bank with a significant credit portfolio in commercial real estate in Florida in 2007," the ruling states.