77 F.4th 74
2d Cir.2023Background
- Shareholders brought a class action against Goldman Sachs for alleged securities fraud (Class Period: Feb 5, 2007–June 10, 2010), claiming Goldman’s public statements about business principles and conflicts-management misled investors and maintained preexisting price inflation.
- Plaintiffs’ alleged corrective disclosures: April 16, 2010 (SEC Abacus enforcement filing), April 30, 2010 (Wall Street Journal report of a DOJ probe), and June 10, 2010 (reports of SEC investigation into Hudson CDO); stock price fell markedly after these events.
- Plaintiffs relied on the inflation-maintenance theory: the corrective drops equal prior inflation; they invoked the Basic fraud-on-the-market presumption of classwide reliance at Rule 23(b)(3) certification.
- Goldman offered event studies and market-evidence (36 pre-disclosure media reports, expert testimony by Drs. Gompers, Choi, and Starks) to rebut Basic by showing no price impact from the challenged pre-disclosure statements or that enforcement-news, not conflict-news, caused the drops.
- Procedural history: district court certified the class three times; this Court remanded multiple times (including after the Supreme Court’s Goldman decision directing courts to consider misstatement genericness vs. corrective specificity). On the third remand the district court again certified; the Second Circuit now reverses and orders decertification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants rebutted Basic’s presumption of classwide reliance at certification | Basic presumption applies; corrective disclosures show truth revealed and back-end drops proxy front-end inflation, so reliance is classwide | Defendants can rebut by preponderance with evidence that corrective events did not correct the specific misstatements or otherwise did not impact price | Held for defendant: defendants rebutted Basic by preponderance; class certification reversed and class to be decertified |
| Can pre-disclosure media reports be treated as alternative corrective disclosures that dissipated inflation? | Plaintiffs: pre-disclosure reports were less detailed and therefore insufficient to dispel link between misstatements and price drops | Goldman: the 36 pre-disclosure reports showed the market learned about conflicts earlier and showed no price reaction, severing causal link | Court: district court did not clearly err rejecting them as alternative corrective disclosures on grounds that the Abacus Complaint had greater detail and SEC gravitas; but overall record supports defendants severing the link |
| Were Goldman’s business-principles statements and conflicts-risk disclosure too generic to support an inflation-maintenance inference? | Plaintiffs: coupled with conflicts disclosure and market context, the statements could sustain inflation and be corrected by later disclosures | Goldman: the business-principles statements are platitudes; the conflicts-risk language is generic; mismatch with highly specific corrective disclosures undermines inference | Court: district court clearly erred by treating separate business-principles statements as consumed conjunctively with the conflicts disclosure; business-principles statements are generic; conflicts disclosure also treated as insufficiently specific for the back-end proxy to stand |
| Did the district court misapply the Vivendi inflation-maintenance/test for a truthful, equally-generic substitute (and Goldman mismatch guidance)? | Plaintiffs: the corrective disclosures’ details and severity reasonably substitute for truthful disclosures and thus show inflation maintenance | Goldman: Vivendi requires comparing equally generic truthful substitutes; Goldman requires caution when misstatement is generic and corrective disclosure is specific — a mismatch weakens inference | Court: district court erred—it improperly used detailed corrective facts to stand in for an equally generic truthful substitute; mismatch doctrine and Vivendi require a closer alignment, and defendants’ evidence showed insufficient link |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (establishes fraud-on-the-market presumption of reliance)
- Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys., 141 S. Ct. 1951 (2021) (courts must consider misstatement genericness vs. corrective disclosure specificity; mismatch can defeat back-end–front-end inference)
- Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455 (2013) (limits merits inquiries like materiality at class certification but allows overlap where relevant to price impact)
- Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (defendants may rebut Basic with direct evidence that misrepresentation did not affect price)
- In re Vivendi S.A. Sec. Litig., 838 F.3d 223 (2d Cir. 2016) (inflation-maintenance theory: back-end drops can proxy front-end inflation if a truthful, equally-generic substitute would have moved the price)
- Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS II), 955 F.3d 254 (2d Cir. 2020) (prior Second Circuit decision addressing class-certification evidence and materiality concerns)
- Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS III), 11 F.4th 138 (2d Cir. 2021) (remand guidance to consider all price-impact evidence including genericness)
- Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017) (illustrative inflation-maintenance case where corrective disclosure expressly contradicted specific prior misstatements)
- ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (statements about integrity/risk-management may be too generic to be material or to induce reliance)