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22-484
Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
______________
August Term 2022
(Argued: September 21, 2022 | Decided: August 10, 2023)
Docket No. 22-484
ARKANSAS TEACHER RETIREMENT SYSTEM, WEST VIRGINIA
INVESTMENT MANAGEMENT BOARD, PLUMBERS AND PIPEFITTERS
PENSION GROUP,
Plaintiffs-Appellees,
PENSION FUNDS, ILENE RICHMAN, Individually and on behalf of all others
similarly situated, PABLO ELIZONDO, THOMAS DRAFT, Individually and on
behalf of all others similarly situated,
Plaintiffs,
HOWARD SORKIN, Individually and on behalf of all others similarly situated,
TIKVA BOCHNER, Individually and on behalf of herself and all others similarly
situated, DR. EHSAN AFSHANI, LOUIS GOLD, Individually and on behalf of all
others similarly situated,
Consolidated Plaintiffs,
v.
GOLDMAN SACHS GROUP, INC., LLOYD C. BLANKFEIN, DAVID A.
VINIAR, GARY D. COHN,
Defendants-Appellants
SARAH E. SMITH,
Consolidated Defendant. â
______________
Before:
WESLEY, CHIN, and SULLIVAN, Circuit Judges.
Shareholders of Defendant-Appellant Goldman Sachs Group, Inc. brought
this class action lawsuit against Goldman and several of its former executives,
claiming defendants committed securities fraud in violation of § 10(b) of the
Securities Exchange Act of 1934 and Rule 10bâ5 promulgated thereunder by
misrepresenting Goldmanâs ability to manage conflicts of interest in its business
practices. After a number of appeals and subsequent remands, including an
appeal to the Supreme Court, the district court once again certified a shareholder
class under Federal Rule of Civil Procedure 23(b)(3).
For the reasons that follow, we reverse the district courtâs class certification
decision with instructions to decertify the class.
Judge Sullivan concurs in the result in a separate opinion.
_________________
ROBERT J. GIUFFRA, JR., Sullivan & Cromwell LLP, New York, NY
(Richard H. Klapper, David M.J. Rein, Benjamin R. Walker,
Julia A. Malkina, Jacob E. Cohen, Sullivan & Cromwell LLP,
New York, NY; Morgan L. Ratner, Sullivan & Cromwell LLP,
Washington, D.C., on the brief) for Defendants-Appellants.
KANNON K. SHANMUGAM, Paul, Weiss, Rifkind, Wharton &
Garrison LLP, Washington D.C. (Audra J. Soloway, Paul,
Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, on the
brief) for Defendants-Appellants.
THOMAS C. GOLDSTEIN, Goldstein & Russell, P.C., Bethesda, MD
(Kevin K. Russell, Goldstein & Russell, P.C., Bethesda, MD;
â The Clerk of the Court is directed to amend the official caption as set forth above.
2
Spencer A. Burkholz, Joseph D. Daley, Robbins Geller Rudman
& Dowd LLP, San Diego, CA; Thomas A. Dubbs, James W.
Johnson, Michael H. Rogers, Irina Vasilchenko, Labaton
Sucharow LLP, New York, NY, on the brief) for
Plaintiffs-Appellees.
Todd G. Cosenza, Willkie Farr & Gallagher LLP, New York, NY, for
Amicus Curiae Former United States Securities and Exchange
Commission Officials and Law Professors in Support of Defendants-
Appellants.
Carmine D. Boccuzzi, Jr. (Victor L. Hou, Jared Gerber, on the brief)
Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for
Amicus Curiae Economic Scholars in Support of Defendants-
Appellants.
Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, New
York, NY (Craig S. Waldman, Joshua C. Polster, Daniel H.
Owsley, Simpson Thacher & Bartlett LLP, New York, NY; Ira
D. Hammerman, Kevin Carroll, Securities Industry and
Financial Markets Association, Washington, D.C.; Thomas
Pinder, American Bankers Association, Washington, D.C.;
Gregg Rozansky, Bank Policy Institute, Washington, D.C.;
Tyler S. Badgley, U.S. Chamber Litigation Center, Washington,
D.C.; Kenneth Stoller, American Property Casualty Insurance
Association, Washington, D.C., on the brief) for Amicus Curiae
Securities Industry and Financial Markets Association, Bank Policy
Institute, American Bankers Association, Chamber of Commerce of
the United States of America, American Property Casualty Insurance
Association in Support of Defendants-Appellants.
Christopher E. Duffy, Vinson & Elkins LLP, New York, NY (Jeremy
C. Marwell, James T. Dawson, Vinson & Elkins LLP,
Washington, D.C.; Darla C. Stuckey, Randi V. Morrison,
Society for Corporate Governance, New York, NY, on the brief)
3
for Amicus Curiae Society for Corporate Governance in Support of
Defendants-Appellants.
Lyle Roberts, Shearman & Sterling LLP, Washington, D.C. (George
Anhang, Shearman & Sterling LLP, Washington, D.C.; William
Marsh, Shearman & Sterling LLP, Dallas, TX; Cory L. Andrews,
John M. Masslon II, Washington Legal Foundation,
Washington, D.C., on the brief) for Amicus Curiae Washington
Legal Foundation in Support of Defendants-Appellants.
Ernest A. Young, Apex, NC (Jeremy Lieberman, Emma Gilmore,
Pomerantz LLP, New York, NY; Andrew L. Zivitz, Kessler
Topaz Meltzer & Check, LLP, Radnor, PA; Stacey M. Kaplan,
Kessler Topaz Meltzer & Check, LLP, San Fransisco, CA, on the
brief) for Amicus Curiae Financial Economists in Support of
Plaintiffs-Appellees.
Deepak Gupta, Gupta Wessler PLLC, Washington, D.C. (Linnet R.
Davis-Stermitz, Gupta Wessler PLLC, Washington, D.C.;
Salvatore J. Graziano, Jai K. Chandrasekhar, Bernstein Litowitz
Berger & Grossmann LLP, New York, NY; Joseph E. White, III,
Saxena White P.A., Boca Raton, FL, on the brief) for Amicus Curiae
Securities Law Scholars in Support of Plaintiffs-Appellees.
John Paul Schnapper-Casteras, Schnapper-Casteras PLLC,
Washington, D.C., for Amicus Curiae Better Markets, Inc. in
Support of Plaintiffs-Appellees.
Carolyn E. Shapiro, Schnapper-Casteras PLLC, Washington, D.C.
(John Paul Schnapper-Casteras, Schnapper-Casteras PLLC,
Washington, D.C.; Daniel P. Chiplock, Lieff Cabraser Heimann
& Bernstein, LLP, New York, NY, on the brief) for Amicus Curiae
Former SEC Officials in Support of Plaintiffs-Appellees.
_________________
4
WESLEY, Circuit Judge:
This class certification dispute has been laboring in federal court for nearly
a decade. It raises challenging questions about how defendants in securities fraud
class actions, having lost a motion to dismiss, can rebut the legal presumption of
reliance established in Basic Inc. v. Levinson, 485 U.S. 224 (1988), at the class
certification stage. The case is before us again: for a third time, the district court
certified, under Federal Rule of Civil Procedure 23(b)(3), a shareholder class, and,
for a third time, we granted defendants leave to pursue an interlocutory appeal of
that order under Rule 23(f).
Some context is required at the outset. The Basic presumption excuses
classes of securities fraud plaintiffs from proving that each class member
individually relied upon a defendantâs alleged misrepresentations. Courts can
instead presume that stock trading in an efficient market incorporates into its price
all public, material informationâincluding material misrepresentationsâand that
investors rely on the integrity of the market price when they choose to buy or sell
that stock. At the same time, defendants can rebut the presumption and defeat
class certification by demonstrating, by a preponderance of the evidence, that the
5
misrepresentations did not actually affect, or impact, the market price of the stock.
This legal terrain under Basic is familiar, and, in this appeal, uncontested.
From there, however, the journey becomes difficult. Analyzing whether a
defendant has proved a lack of price impact is complicated by the fact that a
misrepresentation can affect a stockâs price either by causing the stock to trade at
an inflated price, or as is alleged here, by maintaining inflation that is already built
into the stock price. See In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 258 (2d Cir. 2016).
In the latter scenario, the misrepresentation prevents preexisting inflation in a
stock price from dissipating, but does not cause a price uptick. Instead, the
back-end price dropâwhat happens when the truth is finally disclosedâoperates
as an indirect proxy for the front-end inflation, or the amount that the
misrepresentation fraudulently propped up the stock price. Simply put, the
theory goes: back-end price drop equals front-end inflation.
Fair enough. But what happens when the match between the contents of
the price-propping misrepresentation and the truth-revealing corrective
disclosure is tenuous? Consider two examples. In the first, an automobile
manufacturerâs earlier statement to the market that its best-selling vehicle passed
all safety tests is followed by later news that, in fact, the car failed several crash
6
tests. A price drop follows. There, the earlier statement is precisely negated, or
rendered false, by the later newsâa clean match. In the second example, however,
the same back-end news (and the same price drop) is instead preceded by the
manufacturerâs statement to the market that it strives to ensure that all its vehicles
are road-ready, that it has an elaborate testing protocol to that effect, but that the
task is tall, the goal difficult to achieve. There, it is less apparent the market would
understand the later news of failed crash tests revealed that, in fact, there was no
protocol, or that, in fact, the manufacturer did not seek to make its automobiles
safe to drive. The match between the more specific âcorrective disclosureâ and the
earlier, more generic statement is on shakier ground. Can courts still infer that the
back-end price drop equals the front-end inflation?
The Supreme Court answered that commonsense question. It explained that
the âinference [] that the back-end price drop equals front-end inflation [] starts to
break downâ when the earlier misrepresentation is generic and the later corrective
disclosure is specific, and that, â[u]nder those circumstances it is less likely that
the specific disclosure actually corrected the generic misrepresentation . . . .â
Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys. (Goldman), 141 S. Ct. 1951, 1961 (2021).
7
Following Goldman, courts are now directed to compare, at the class
certification stage, the relative genericness of a misrepresentation with its
corrective disclosure, notwithstanding that such evidence is often also highly
relevant to the closely related merits question of whether the misrepresentation
would have been material to a shareholderâs investment calculusâwhich, under
other Supreme Court guidance, a court may not resolve at class certification. See
Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455 (2013). In short, Goldmanâs
mismatch framework requires careful trekking: district courts must analyze the
price impact issue without drawing what might appear to be obvious conclusions
for off-limits merits questions such as materiality. As Judge Hamilton, writing for
the Seventh Circuit, put it, courts must analyze this issue âwithout . . . thinking
about a pink elephant.â In re Allstate Corp. Sec. Litig, 966 F.3d 595, 602 (7th Cir.
2020).
The question in this case is whether, in applying the Supreme Courtâs
mismatch framework, the district court clearly erred in finding that Goldman
failed to rebut the Basic presumption by a preponderance of the evidence, and,
therefore, abused its discretion by certifying the shareholder class. It did.
8
Accordingly, we reverse the district courtâs order and remand with instructions to
the district court to decertify the class.
BACKGROUND
Factual Background
The facts underlying this lawsuit have been discussed at length in our prior
opinions, see, e.g., Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS I), 879 F.3d
474, 478 (2d Cir. 2018), but are nonetheless recounted here.
Plaintiffs-appellees are individuals and institutions who acquired shares in
The Goldman Sachs Group, Inc. between February 5, 2007, and June 10, 2010 (the
âClass Periodâ). Their claims are being pursued by three pension fundsâthe lead
plaintiffsâeach of which acquired Goldman common stock within the same
period. Plaintiffs filed a consolidated class action complaint in July 2011 against
Goldman and a handful of its former executives (collectively, âGoldmanâ or
âdefendantsâ), accusing Goldman of violating Section 10(b) of the Securities
Exchange Act and Rule 10bâ5 promulgated thereunder. See 15 U.S.C. § 78j(b); 17
C.F.R. § 240.10bâ5. Plaintiffs allege defendants made material misrepresentations
about Goldmanâs business practices and its approach to conflicts-of-interest
management.
9
The Challenged Statements
The alleged misrepresentations generally fall into two categories. First,
plaintiffs point to statements relating to Goldmanâs business principles, which
were included in the companyâs annual report to shareholders and made by
Goldman executives at various conferences:
⢠We are dedicated to complying fully with the letter and spirit of
the laws, rules and ethical principles that govern us. Our
continued success depends upon unswerving adherence to this
standard.
⢠Most importantly, and the basic reason for our success, is our
extraordinary focus on our clients.
⢠Our clientsâ interests always come first. Our experience shows that
if we serve our clients well, our own success will follow.
⢠Integrity and honesty are at the heart of our business.
Joint Appendix (âJ.A.â) at 97.
Second, plaintiffs challenge statements contained in the âRisk Factorsâ
portion of Goldmanâs Form 10-K, filed every year during the Class Period with the
Securities Exchange Commission (âSECâ), concerning the management of conflicts
of interest. With respect to this conflicts disclosure, plaintiffs focus on the
emphasized language below:
10
Conflicts of interest are increasing and a failure to appropriately
identify and deal with conflicts of interest could adversely affect our
businesses.
Our reputation is one of our most important assets. As we have
expanded the scope of our businesses and our client base, we
increasingly have to address potential conflicts of interest, including
situations where our services to a particular client or our own
proprietary investments or other interests conflict, or are perceived to
conflict, with the interests of another client, as well as situations
where one or more of our businesses have access to material non-
public information that may not be shared with other businesses
within the firm.
The SEC, the NYSE, FINRA, other federal and state regulators and
regulators outside the United States, including in the United
Kingdom and Japan, have announced their intention to increase their
scrutiny of potential conflicts of interest, including through detailed
examinations of specific transactions. There have been complaints
filed against financial institutions, including Goldman Sachs, alleging
the violation of antitrust laws arising from their joint participation in
certain leveraged buyouts, referred to as âclub deals,â as discussed
under âLegal ProceedingsâPrivate Equity-Sponsored Acquisitions
Litigationâ in Part I, Item 3 of the Annual Report on Form 10-K. In
addition, a number of class action complaints have also been filed in
connection with certain specific âclub dealâ transactions which name
the relevant âclub dealâ participants among the defendants, including
Goldman Sachs affiliates in several cases, and generally allege that the
transactions constitute a breach of fiduciary duty by the target
company and that the âclubâ participants aided and abetted such
breach. We cannot predict the outcome of the litigation to which we
are a party, and we may become subject to further litigation or
regulatory scrutiny in the future in this regard.
11
We have extensive procedures and controls that are designed to
identify and address conflicts of interest, including those designed
to prevent the improper sharing of information among our
businesses. However, appropriately identifying and dealing with
conflicts of interest is complex and difficult, and our reputation could
be damaged and the willingness of clients to enter into transactions in
which such a conflict might arise may be affected if we fail, or appear
to fail, to identify and deal appropriately with conflicts of interest. In
addition, potential or perceived conflicts could give rise to litigation
or enforcement actions.
J.A. 3278 (emphasis added). 1
It is undisputed that the challenged statements did not cause statistically
significant increases in Goldmanâs stock price. Instead, plaintiffs say, the
statements maintained an already-inflated stock price. According to plaintiffs,
that balloon popped when news of undisclosed conflicts of interest revealed the
falsity of the challenged statements and caused the stock to drop.
The Corrective Disclosures
1 Plaintiffs also include a footnote in their brief to remind us they challenged in their
complaint a December 2009 Goldman press releaseâissued in response to a
December 24, 2009, New York Times article detailing Goldmanâs questionable business
practicesâin which Goldman asserted, inter alia, that âits CDOs were fully disclosed and
well known to [CDO] investors.â Appellees Br. at 45 n.7 (quoting Compl. Âś 124).
Plaintiffs make little attempt to flesh out their theory of liability based on this statement,
perhaps because the district court previously rejected plaintiffsâ claim for relief based on
the press release. See Richman v. Goldman Sachs Grp., Inc., 868 F. Supp. 2d 261, 274
(S.D.N.Y. 2012). In any event, we generally regard an argument as waived when it
appears only in a footnote. See United States v. Botti, 711 F.3d 299, 313 (2d Cir. 2013).
12
Specifically, plaintiffs target three dates in 2010 when they claim the false
nature of the business principles and conflicts disclosure statements was revealed
to the market. Broadly, they focus on what they characterize as the disclosure of
concealed conflicts of interest infecting several collateralized debt obligation
(âCDOâ) transactions involving subprime mortgages. In essence, they allege that,
publicly, Goldman touted various CDOs as long-term investment opportunities to
investors when, in fact, Goldman was betting on them to fail.
First, and featured most heavily throughout this litigation, on April 16, 2010,
the SEC initiated an enforcement action against Goldman and one of its employees
regarding a CDO transaction known as Abacus 2007 AC-1 (the âAbacus
Complaintâ). See generally Press Release, SEC, Goldman Sachs to Pay Record $550
Million to Settle SEC Charges Related to Subprime Mortgage CDO (July 15, 2010),
https://www.sec.gov/news/press/2010/2010-123.htm. The SEC accused Goldman
and its employee of committing securities fraud. It targeted Goldmanâs failure to
disclose in its marketing materials to various institutional customers that the
hedge fund Paulson & Co. played an active role in the CDOâs asset selection
process, and for telling those investors that Paulson held a long interest in the
13
Abacus CDO when, in fact, Paulson was short. The next day, Goldmanâs stock
price declined 12.79% from $184.27 to $160.70 per share.
Second, on April 30, 2010, Goldmanâs stock price dropped another 9.39%
following a report from The Wall Street Journal that Goldman was under
investigation by the Department of Justice (âDOJâ) for its purported role in
unspecified CDOs. Finally, on June 10, 2010, various media outlets reported that
the SEC was investigating Goldmanâs conduct in another transaction, Hudson
Mezzanine Funding 2006; a further 4.52% decline in the price of Goldman stock
followed.
Neither the DOJ nor the SEC took further action related to the second two
corrective disclosures. As to the first corrective disclosure, the Abacus Complaint
culminated in a consent judgment under which Goldman agreed to pay
$550 million, and, without âadmitting or denying the allegations in the
complaint . . . acknowledge[d]â that the Abacus marketing materials were
âincompleteâ and that it was a âmistakeâ for Goldman to state that the reference
portfolio was âselected byâ ACA Management LLC âwithout disclosing the role
of Paulson.â J.A. 665.
14
In plaintiffsâ view, these corrective disclosures revealed to the market that
Goldmanâs statements about its conflicts management practices and business
principles were false. Goldman, they say, lied about having extensive practices
and procedures in place to manage its conflicts of interest, or otherwise knowingly
failed to disclose mishaps in their conflicts protocol. 2 As a result of Goldmanâs
fraud, plaintiffs claim that they lost over $13 billion.
2Plaintiffsâ theory of falsity has evolved throughout this lawsuit. For example, although
plaintiffs alleged in their complaint that âGoldmanâs warnings to shareholders regarding
potential conflicts of interest omitted the fact that it was indeed aware of the existence of
such conflicts at the time,â J.A. 53, plaintiffsâ counsel appeared to abandon that theory at
oral argument, acknowledging that âeverybody knew that [Goldman] had conflicts,â
Oral Arg. Audio at 1:11:30, Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc (No 22-484). On
appeal, plaintiffs instead claim that the filing of the Abacus Complaint revealed to the
market that âGoldman doesnât have effective practices and procedures in placeâ to
manage conflicts. Id. at 48:30. They press the same argument in their brief. See Appellees
Br. at 44, 57.
It strains credulity to say that the corrective disclosures revealed to the market that
Goldman lied about having extensive procedures and controls designed to address
conflicts of interest. The district court did not make such a finding. Nor does the
post-disclosure market commentary offered by plaintiffs come anywhere close to
supporting that inference; no report cited by them questions the extensiveness of
Goldman conflicts procedures. Dr. Finnerty, plaintiffsâ class certification expert, did not
espouse that view. The record, in short, provides no support for that theory.
Accordingly, we consider as plaintiffsâ theory that the challenged statements were
misleading because Goldman failed to disclose, in choosing to speak on its business
practices and, in particular, its approach to conflicts management, that it was actively
mismanaging conflictsâa theory plaintiffs have offered throughout this litigation, and
which the district court considered. See, e.g., Special Appendix (âS.A.â) at 17; J.A. 4707.
15
Litigation History
1. Goldmanâs Motion to Dismiss
Much of the early action in this case proceeded in line with a typical
securities litigation. Following the filing of plaintiffsâ complaint, Goldman moved
to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6). In pertinent
part, it pressed a materiality argument: the alleged misrepresentations, Goldman
argued, were too vague and general for a reasonable shareholder to have relied on
them in determining the value of Goldmanâs stock. Thus, it continued, those
statements did not influence plaintiffsâ investment decision-making, and any loss
they suffered was unrelated to them.
The district court saw it differently. Although it agreed that some of
Goldmanâs statements were immaterial as a matter of lawâand dismissed the
complaint to the extent it relied upon those statementsâit held that the business
principles and conflicts statements were not âso obviously unimportant to a
reasonable investorâ as to be immaterial as a matter of law. Richman v. Goldman
Sachs Grp., Inc., 868 F. Supp. 2d 261, 271, 280 (S.D.N.Y. 2012). With respect to those
statements, the district court denied Goldmanâs motion to dismiss, and thereafter
denied Goldmanâs motions for reconsideration of, and an interlocutory appeal
16
from, that order. See In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461, 2014
WL 2815571, at *6 (S.D.N.Y. June 23, 2014) (reconsideration); In re Goldman Sachs
Grp., Inc. Sec. Litig., No. 10 Civ. 3461, 2014 WL 5002090, at *3 (S.D.N.Y. Oct. 7, 2014)
(interlocutory appeal).
2. Class Certification
Having survived defendantsâ threshold attack, plaintiffs moved to certify a
class of shareholder plaintiffs. Class certification under Federal Rule of
Civil Procedure 23 is dictated by certain requirements, many of which are not at
issue here. To the point, Goldman did not dispute that (1) the named plaintiffsâ
class is so numerous that joinder is impracticable, (2) at least one question of law
or fact is common to the class, (3) the class representativesâ claims are typical of
the class wide claims, and (4) the class representatives, here, the pension funds,
will be able to fairly and adequately protect the interests of the class. See Fed. R.
Civ. P. 23(a). Goldman did, however, maintain that plaintiffs failed to satisfy
Rule 23âs additional hurdle for classes primarily seeking money damages. That
requirement, set forth in Rule 23(b)(3), demands that common questions of law or
fact predominate over individual questions that pertain only to certain class
members.
17
In this lawsuit, Rule 23(b)(3)âs predominance requirement has been, and in
this appeal remains, center stage. Under the Rule, analysis of whether questions
of law or fact common to class members predominate âbegins, of course, with
the . . . underlying cause of action.â Erica P. John Fund, Inc. v. Halliburton Co.
(Halliburton I), 563 U.S. 804, 809 (2011). Like many securities scrap-ups, the parties
here join issue on the element of relianceâthat is, whether plaintiffs relied upon
the alleged misrepresentations. 3
As previewed above, to satisfy their class certification obligation of
demonstrating class-wide reliance, plaintiffs invoked the Basic presumption,
asking the district court to presume that all class members relied upon defendantsâ
misstatements, as reflected in its price, in choosing to buy Goldman stock. 4
3The six elements of securities fraud are â(1) a material misrepresentation or omission by
the defendant; (2) scienter; (3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.â Halliburton I, 563 U.S. at 810 (internal
citations omitted).
4For purposes of this appeal, the parties do not dispute that the other prerequisites to the
Basic presumption are satisfied, that is, that defendantsâ purported misstatements were
publicly known, its shares traded in an efficient market, and plaintiffs purchased the
shares at the market price after the misstatements were made but before the truth was
revealed. Additionally, although materiality is an additional prerequisite under Basic,
class members need not prove it prior to class certification. See Halliburton Co. v. Erica P.
John Fund, Inc. (Halliburton II), 573 U.S. 258, 276 (2014).
18
Again, Basic rests on what is referred to as the âfraud-on-the-marketâ
theoryâthat a stock trading on theoretically efficient markets like the New York
Stock Exchange or Nasdaq, incorporates all public, material information,
including material misrepresentations, into its share price. Basic, 485 U.S. at 246.
More simply, the misrepresentationâthe fraudâis âon the market.â See id.
Without the Basic presumption, classes pursuing claims of securities fraud would
face the onerous task of demonstrating each class member was aware of, and
bought the companyâs stock based on, an alleged misrepresentation. That burden
would splinter classes along class member-specific lines, undermining the
purpose of the class action device, and all but dooming securities claims from
proceeding under Rule 23. Basic is therefore a saving grace for classes: they need
not directly prove that the defendantâs statements impacted its share price.
Instead, satisfaction of Basicâs prerequisites serves as an âindirect proxyâ for a
showing of price impact. See Halliburton II, 573 U.S. at 278â81.
Importantly, however, the presumption is rebuttable. â[A]n indirect proxy
should not preclude . . . a defendantâs direct, more salient evidence showing that
the alleged misrepresentation did not actually affect the stockâs market price and,
consequently, that the Basic presumption does not apply.â Id. at 281â82 (emphasis
19
added). Throughout what the district court aptly characterized as a âprolonged
interlocutory appeals saga,â In re Goldman Sachs Grp., Inc. Sec. Litig., 579 F. Supp.
3d 520, 522 (S.D.N.Y. 2021), Goldman has steadfastly attempted to do just that.
a. Round One: Goldmanâs First Appeal
In its initial response to plaintiffsâ Rule 23 motion, Goldman laid the
groundwork for the evidence that, in the present appeal, it continues to rely on to
show an absence of price impact.
Goldman introduced, first, an event study 5 conducted by its chief price
impact expert, Dr. Paul Gompers, demonstrating that the business principles
statements and conflicts disclosure did not cause a significant uptick in Goldmanâs
stock price. Second, Goldman identified 36 datesâall prior to the corrective
5 As we previously explained, an event study âisolates the stock price movement
attributable to a company (as opposed to market-wide or industry-wide movements) and
then examines whether the price movement on a given date is outside the range of typical
random stock price fluctuations observed for that stock.â Ark. Tchr. Ret. Sys. v. Goldman
Sachs Grp., Inc. (ATRS II), 955 F.3d 254, 261 n.4 (2d Cir. 2020), vacated and remanded, 141 S.
Ct. 1951 (2021) (citing Mark L. Mitchell & Jeffry M. Netter, The Role of Financial Economics
in Securities Fraud Cases: Applications at the Securities and Exchange Commission, 49 BUS.
LAW. 545, 556â69 (1994)); In re Vivendi, 838 F.3d at 253â56. If the isolated stock price
movement falls outside the range of typical random stock price fluctuations, it is
statistically significant. ATRS II, 955 F.3d at 261 n.4. If the stock price movement is
indistinguishable from random price fluctuations, it cannot be attributed to company-
specific information announced on the event date. See id.
20
disclosure datesâon which media outlets discussed, in varying degrees of detail,
transactions which, according to the reports, raised questions about Goldmanâs
ability to manage conflicts of interest.
Goldmanâs view on the significance of these pre-disclosure reports was
fleshed out by Dr. Gompers. He explained that the pre-disclosure reports
implicated the same topics covered by the challenged statements and, just like
plaintiffsâ alleged corrective disclosures, called the reliability of the challenged
statements into question. Building from there, Dr. Gompers opined that because
these pre-disclosure reportsâviewed by him as alternative corrective
disclosuresâcaused no statistically significant price decrease, the price drop that
did occur following plaintiffsâ offered corrective disclosures must have been caused
by something other than any corrective effect that they had upon the challenged
statements.
Goldman relied on another expert, Dr. Stephen Choi, to press an alternative
explanation. Dr. Choi conducted an event study focusing on the first corrective
disclosure, the April 2010 filing of the SECâs Abacus Complaint. He pointed to
qualities of that enforcement actionâso-called âseverity factorsââwhich, in his
view, accounted for the entirety of the price decline that followed. To buttress that
21
opinion, he identified four out of a group of 117 enforcement events bearing
similar qualities, whose announcements to the market resulted in significant drops
in those companiesâ stock prices. Goldman relied on Dr. Choiâs submissions to
argue that the price drop in April 2010 was caused entirely by the news of the
enforcement action itself, rather than the revelation of Goldmanâs client conflicts.
Of course, plaintiffs countered defendants at every turn. They did so
through their sole expert, Dr. John D. Finnerty, who, as discussed in more detail
below, disputed the methods and conclusions of Goldmanâs experts.
The district court disagreed with Goldman and certified the class. See In re
Goldman Sachs Group, Inc. Securities Litig., No. 10 Civ. 3461, 2015 WL 5613150
(S.D.N.Y. Sept. 24, 2015). In relevant part, the district court discredited
Dr. Gompersâ event study, observing that under plaintiffsâ inflation-maintenance
theory, the challenged statements could have maintained, rather than caused, an
already inflated stock price. Id. at *6. It also declined to consider Goldmanâs
evidence regarding the pre-disclosure reports, concluding that such evidence was
either âan inappropriate truth on the market defenseâ or an argument for
materiality that the court âw[ould] not considerâ at the class certification stage. Id.
(internal quotation marks omitted). Finally, it found Dr. Choiâs submissions
22
unconvincing, explaining that alternative explanations regarding the cause of the
price declines did not rule out that the corrective effect of each disclosure on the
challenged statements may have been a contributing cause. Id.
Ultimately, the district court held that while a defendant can rebut the Basic
presumption by a preponderance of the evidence, Goldman had failed to do so
because it did not provide âconclusive evidence that no link exists between the
price decline [of Goldmanâs stock] and the misrepresentations.â Id. at *4 n.3, *7.
ATRS I. The first time this case arrived at our doorstep, we vacated and
remanded. Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS I), 879 F.3d 474
(2d Cir. 2018). We held that defendants seeking to rebut the Basic presumption
must do so by a preponderance of the evidence, and that it was unclear whether
the district applied that standard. Id. at 485.
Second, we held it was error for the district court to conclude that it could
not consider the pre-disclosure reports. Id. We also encouraged the district court
to hold an evidentiary hearing, which, in advance of its initial class certification
decision, it had deemed unnecessary. Id. at 486.
23
b. Round Two: We Affirm
On remand, the district court received supplemental briefing, held a class
certification evidentiary hearing, and, ultimately, certified the class a second time.
In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461, 2018 WL 3854757, at *2
(S.D.N.Y. Aug. 14, 2018). Defendants called Drs. Gompers and Choi, who offered
testimony in line with their expert submissions. Plaintiffs, meanwhile, called
Dr. Finnerty, who, consistent with his submissions, offered rebuttals to
defendantsâ experts.
In the end, the district court again credited Dr. Finnertyâs opinion that the
alleged misrepresentations maintained an already-inflated stock price, finding
that he had established a causal link between the alleged misrepresentations and
the price decline following the three alleged corrective disclosures. Id. at *4.
Defendantsâ experts, it continued, did not sufficiently sever that link. In
pertinent part, the district court distinguished the pre-disclosure reports from
plaintiffsâ corrective disclosures; it found that although the former may have
reported and suggested âGoldmanâs conflicts in the ABACUS deal, the ABACUS
Complaint was the first to detail it.â Id. at *4. Those detailsâand the fact that the
charges were brought by Goldmanâs principal regulatorââobviously rendered the
24
[Abacus Complaint] more reliable and credible than any of the 36 media
reports . . . .â Id.
As for Dr. Choiâs event study, the district court again largely discounted it.
It noted that the study concerned only the Abacus Complaint, but not the second
and third corrective disclosures, and that, in any event, the severity factors were
arbitrary and not well-established methods of measurement. It concluded that
defendants had failed to rebut the Basic presumption. Id. at *5â6.
ATRS II. We granted Goldman leave to pursue another interlocutory
appeal, and, ultimately, affirmed. See Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc.
(ATRS II), 955 F.3d 254 (2d Cir. 2020), cert. granted, 141 S. Ct. 950 (2020), and vacated
and remanded, 141 S. Ct. 1951 (2021).
That time, however, Goldman principally pressed a hardline rule: general
statements, as a matter of law, are incapable of maintaining inflation in a stock
price. Id. at 266. We disagreed; in our view, Goldmanâs proposed rule too closely
resembled a materiality analysis, which, as we then understood Supreme Court
precedent, was off-limits at the class certification stage. Id. at 269.
We also concluded that the district court did not abuse its discretion in
certifying the class. Id. at 274. Goldman primarily took issue with the district
25
courtâs analysis of the 36 dates of pre-disclosure reporting, but we found no clear
error in the district courtâs findings.
Judge Sullivan dissented. He would have accorded more weight to those
pre-disclosure reports, which he said demonstrated that when the market learned
about Goldmanâs conflicts, it did not negatively react. See id. at 278 (Sullivan, J.,
dissenting). In his view, âthe generic quality of Goldmanâs alleged misstatements,
coupled with the undisputed fact that Goldmanâs stock price did not move on any
of the 36 dates on which the falsity of the alleged misstatements was revealed to
the public, clearly compels the conclusion that the stock drop following the
corrective disclosures was attributable to something other than the misstatements
alleged in the complaint.â See id. at 278â79 (Sullivan, J., dissenting) (internal
quotation marks and citation omitted).
c. The Supreme Courtâs Decision in Goldman
The Supreme Court granted Goldmanâs petition for certiorari. Before the
Court, however, defendants abandoned their rule-based argument, and, notably,
plaintiffs conceded that, as a factual matter, the generic nature of a
misrepresentation often is important evidence of price impact that courts should
consider at class certification. Goldman, 141 S. Ct. at 1958. Plaintiffs further
26
conceded that courts can consider expert testimony and use âtheir common sense
in assessing whether a generic misrepresentation had a price impact,â id. at 1960,
and that such considerations are appropriate at class certification even though they
might also be relevant to materiality, see id.
As previewed above, the Court agreed with the parties, and offered
guidance as to how genericness concerns should fit into cases proceeding under
the inflation-maintenance theory of price impact. It acknowledged that, under the
theory, courts generally look to the back-end price drop as a proxy for front-end
inflation.
However, the Court added:
[T]hat final inferenceâthat the back-end price drop equals front-end
inflationâstarts to break down when there is a mismatch between the
contents of the misrepresentation and the corrective disclosure. That
may occur when the earlier misrepresentation is generic (e.g., âwe
have faith in our business modelâ) and the later corrective disclosure
is specific (e.g., âour fourth quarter earnings did not meet
expectationsâ). Under those circumstances, it is less likely that the
specific disclosure actually corrected the generic misrepresentation,
which means that there is less reason to infer front-end price
inflationâthat is, price impactâfrom the back-end price drop.
Goldman, 141 S. Ct. at 1961. As such, it explained, the âgeneric nature of a
misrepresentation often will be important evidence of a lack of price impact,
particularly in cases proceeding under the inflation-maintenance theoryâ id., and
27
that is true âregardless whether that evidence is also relevant to a merits question
like materiality,â id. at 1960. Concluding that it was unclear whether we
considered that evidence, the Supreme Court vacated our judgment and
remanded for further proceedings consistent with its opinion. See Goldman, 141 S.
Ct. at 1963.
ATRS III. Upon remand, we noted that in evaluating the partiesâ competing
price impact evidence, the district court did not discuss the generic nature of
Goldmanâs alleged misrepresentations, nor the submissions of a third Goldman
expert, Dr. Laura Starks, relevant to that inquiry. Ark. Tchr. Ret. Sys. v. Goldman
Sachs Grp., Inc. (ATRS III), 11 F.4th 138, 143 (2d Cir. 2021) (internal citation
omitted). We concluded that the fact intensive questions raised by Goldman were
better evaluated by the district court in the first instance. We vacated the district
courtâs order and remanded, directing the district court to âconsider all record
evidence relevant to price impact and apply the legal standard as supplemented
by the Supreme Court.â Id. at 143â44.
28
3. Round Three: The Decision Below
That brings us to the present appeal. On remand, the district court stayed
the course andâin the decision Goldman now appealsâcertified plaintiffsâ class
for a third time. In re Goldman, 579 F. Supp. 3d at 520.
Much of the evidence before the district court, as well as the district courtâs
analysis of it, should by now be familiar. Because it is discussed extensively below,
it needs only brief mentioning here. On plaintiffsâ side of the ledger, the district
court again found âpersuasive[]â plaintiffsâ evidence establishing a link between
(a) the revelatory nature of the corrective disclosures regarding Goldmanâs
conflicts of interest and (b) the subsequent stock price declines. Id. at 531.
Specifically, it credited Dr. Finnertyâs focus on the âconduct underlying the
reported enforcement actions, not merely the actions themselves.â Id. at 532
(alteration omitted).
Turning to defendantsâ experts, the district court noted it had previously
declined to credit Dr. Gompersâ opinion regarding the lack of abnormal price
movement associated with the pre-disclosure reports, and reasoned that neither
the Supreme Courtâs nor our remand had any bearing on its previous findings.
Thus, the district court âagain decline[d] to credit Dr. Gompersâ conclusions.â Id.
29
On the same tack, reconsideration of Dr. Choiâs event study did not alter the
district courtâs view of it, which remained âunaffected by the updated direction
from above.â Id. It reiterated that âDr. Choiâs methodology was novel, unreliable,
and thoroughly outpaced by the conclusions he derived therefrom.â Id.
The court then turned to âthe heart of the partiesâ post-appeal dispute: the
extent of the alleged misstatementsâ generic nature.â Id. at 533. Noting that
defendants had abandoned their ââgenericnessâ-as-a-matter-of-lawâ test, it began
by considering the genericness, âas a matter of fact,â of the challenged statements.
Id. On this issue, the district court considered, for the first time, the opinions
offered by Goldmanâs expert, Dr. Laura Starks, as well as Dr. Finnertyâs rebuttals
to them. In the end the district court sided with Dr. Finnerty, finding that the
statementsâ generic nature did not render them incapable of inducing investor
reliance. See id. at 534.
Finally, the district court applied the Supreme Courtâs mismatch sliding
scale and found that the alleged misstatements âare not so exceedingly more
generic than the corrective disclosures that they vanquish the otherwise strong
inference of price impact embedded in the evidentiary record.â Id. at 537. The
âcomfortable, though certainly not boundless, gap in genericness,â it explained,
30
âfails to satisfy Defendantsâ burden to demonstrate a complete lack of price impact
attributable to the alleged misstatements.â Id. at 538. It certified the class.
For a third time, we granted defendants leave to pursue an interlocutory
appeal of that order.
DISCUSSION
âWe review a district courtâs grant of class certification for abuse of
discretion,â Levitt v. J.P. Morgan Sec., Inc., 710 F.3d 454, 464 (2d Cir. 2013),
reviewing de novo âthe conclusions of law underlying that decisionâ and ââfor clear
error the factual findings underlyingââ its ruling, such as the courtâs price impact
determination, id. (quoting Teamsters Loc. 445 Freight Div. Pension Fund v.
Bombardier Inc., 546 F.3d 196, 201 (2d Cir. 2008)). âUnder the clear error standard,
we may not reverse [a finding] even though convinced that had [we] been sitting
as the trier of fact, [we] would have weighed the evidence differently.â Atl.
Specialty Ins. Co. v. Coastal Envtl. Grp. Inc., 945 F.3d 53, 63 (2d Cir. 2019) (alterations
in original) (internal quotation marks and citations omitted). Rather, a finding is
clearly erroneous only if although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm conviction that a
31
mistake has been committed.â Id. (internal quotation marks and citations
omitted); see also ATRS III, 11 F.4th at 142.
Goldman presses three principal arguments on appeal. First, it contends the
district court understated the genericness of the alleged misrepresentations and,
in setting them against the more detailed corrective disclosures, failed to
meaningfully apply the Supreme Courtâs mismatch framework. Second, Goldman
challenges the district courtâs application of the inflation-maintenance theory; it
claims that by using the price drop following the detailed, specific corrective
disclosures as a proxy for the inflation-maintaining capacity of the broad, generic
misrepresentations, the district court improperly extended the theory. These
arguments have merit.
Finally, though less forcefully this time around, Goldman maintains the
district court again misweighed Dr. Gompersâ and Dr. Finnertyâs expert
submissions, and in doing so made untenable credibility findings. We begin there,
because although that argument does not carry the day, the district courtâs analysis
on this front gives important context to why we agree with Goldmanâs first two
arguments. In the end, the district courtâs class certification decision cannot stand.
32
I. The district court did not clearly err in rejecting defendantsâ
characterization of the 36 dates of pre-disclosure reporting as
alternative corrective disclosure dates.
Careful application of the Supreme Courtâs guidance in Goldman requires a
clear understanding of plaintiffsâ theory regarding the tie between the corrective
disclosures and the alleged misrepresentationsâwhy, according to them, there are
grounds to infer that the back-end news actually corrected the front-end
misstatements. The dueling submissions of Drs. Finnerty and Gompers regarding
the significance of the 36 dates of pre-disclosure reporting bear directly on that
issue.
Although the two experts maintained differing views on the significance of
the pre-disclosure reports, their respective analyses shared common ground: the
price declines on the alleged corrective disclosure dates, they agreed, were
attributable to âGoldman-specificâ information. J.A. 3908, 3912, 3915. However,
in order to determine what Goldman-specific information caused the stock price
decline on the corrective disclosure dates, Dr. Gompers focused on 36 dates on
which various articles, all published before the filing of the Abacus Complaint,
reported broadly on Goldman and concerns of conflicts of interest.
33
Dr. Gompers viewed the 36 pre-disclosure dates as âalternative corrective
disclosure dates,â J.A. 3806, because the information contained in the articles âwas
similar to the information released on the alleged corrective disclosure dates in
that it indicated to market participants that Goldman allegedly favored itself over
its clients, or favored one client over another,â J.A. 1532. Building from there,
Dr. Gompers explained that because Goldmanâs stock did not decline in response
to similar information revealed by the pre-disclosure articles, the price decline on
the three disclosure dates must have been due to news of the enforcement action
in and of itself.
In that sense, Dr. Gompers opined that the pre-disclosure reports
âdisentangle[d] how much [of the price decline] was due to [the] conflict news.â
J.A. 4602. Unlike the three corrective disclosure dates, which contained both
âconflicts newsâ and ânews of an enforcement action,â id., the pre-disclosure
reports discussed only news implicating Goldmanâs conflicts management. The
pre-disclosure reports, for Dr. Gompers, are simply a better match.
Through Dr. Finnerty, plaintiffs offered various rebuttals. For example,
Dr. Finnerty argued that any potential price impact was âthwarted by Goldmanâs
repeated denialsâ as set forth in many of the articles. J.A. 2043. Dr. Finnerty also
34
opined that the Abacus Complaint revealed âsignificant new information
concerning the severity of Goldmanâs misconduct in issuing the Abacus CDO,â
J.A. 2044, which, for him, uncovered for the first time âthe truth about Goldmanâs
fraudulent conduct regarding its conflicts of interest,â id., and the fact that
Goldman had âfailed to manage its conflicts of interest,â J.A. 4707.
On the whole, Dr. Finnerty pegged as futile Dr. Gompersâ efforts to
disentangle the price impact caused by the news of the enforcement action itself
from the conduct underlying it. Dr. Finnerty explained that â[t]he enforcement
actions or investigations are inextricably tied to the content [and] . . . the fact that
[the SEC] embodied [the conduct] in an enforcement action document raises . . . in
the minds of investors, the severity level.â J.A. 657.
The district court ultimately credited Dr. Finnertyâs opinion. It noted that it
had previously declined to credit Dr. Gompersâ view of the pre-disclosure reports,
and that because âthe updated direction from the Supreme Court and Second
Circuit has no bearing on these factual findings,â it would âreiterate[], and
restate[], its grounds only in brief.â In re Goldman, 579 F. Supp. 3d at 532.
It found that (1) unlike the pre-disclosure reports, the Abacus Complaint
was the first public account to detail and document those conflicts with hard
35
evidence, including incriminatory emails and memoranda authored by Goldman
employees; (2) âthe underlying source of the disclosureâthe SECâlent extra
credibility and gravitas unequaled in the prior reports; and (3) the disclosure was
unencumbered by any of the denials or mitigating commentary that had rendered
prior reports less jarring.â Id.
Goldman begins its press by arguing that the district court erred in crediting
Dr. Finnertyâs views of the pre-disclosure reports. It did not. The district court
recognized correctlyâor, at least, not clearly erroneouslyâa qualitative difference
in the respective buckets of news. The Abacus Complaint contained details which
substantiated its allegations of wrongdoing; the pre-disclosure reports,
meanwhile, discussed the transactions, but only generally alleged that Goldman
had acted unlawfully, or was otherwise guilty of wrongdoing. It was not clearly
erroneous to recognize that, in pointing its finger at Goldman, the SEC had details
to back it up.
Nor did the district court err in finding that the SECâs name lends a certain
amount of credibility or gravitas to the allegations underlying the Abacus
Complaint, and, therefore that, as a matter of common sense, denying wrongdoing
in the face of an SEC enforcement action is likely to have less of a thwarting effect
36
on potential stock price declines than denying more general claims made by media
outlets. The district court recognized what, at minimum, is not clearly erroneous:
the filing of an enforcement action is a different kind of event than the publishing
of a news story. The two events ring of different tenors.
By the same token, the district court did not misstep in finding unpersuasive
Goldmanâs efforts to disentangle and separately quantify the price decline
attributable to, on the one hand, the conduct underlying the enforcement action,
and, on the other hand, the news of the enforcement action itself. The SECâs
decision to charge Goldman was precisely because of the nature of the conduct. As
Dr. Finnerty opined, the enforcement action âsignals the greater severity than if an
enforcement action hadnât been filed, but an enforcement action is never going to
get filed unless the misbehavior or alleged misbehavior occurred in the first
place . . . [t]hatâs why you canât separate them.â J.A. 658. It was not clear error to
credit that opinion.
Still, that gets us only so far. While the district court did not clearly err in
rejecting Goldmanâs invitation to view the pre-disclosure reports as alternative
corrective disclosure dates, that focuses our analysis on the corrective disclosures
as alleged by plaintiffsâbut it does not resolve it. Likewise, even accepting as true
37
(or not clearly erroneous) the district courtâs view that the conduct (conflicts
management) described in the Abacus Complaint is intertwined with the chargeâ
in other words, that the price drop occurred because of bothâthat establishes, at
most, that the corrective disclosures, like the alleged misrepresentations, concern
the subject of conflicts management.
The question remains whether, in light of the Supreme Courtâs guidance in
Goldman, it was clear error for the district court to rely on that subject-matter match
to use the back-end price drop as a proxy for front-end inflation allegedly
maintained by what the district court acknowledged were comparatively generic
misstatements. Again, a back-end price drop is, at most, âbackward-looking,
indirect evidence,â In re Allstate Corp. Sec. Litig., 966 F.3d at 613, of the price impact
âat the time of purchase,â id. at 611. âData from later times may be relevant to this
inquiry, but only insofar as they help the district court determine the information
impounded into the price at the time of the initial transaction.â Id. at 612. In our
view, the genericness and mismatch inquiries go to the value of the back-end price
drop as indirect evidence of a front-end, inflation-maintaining price impact, an issue
at which the parties direct most of their efforts.
38
II. The district court clearly erred in assessing the generic nature of
business principles statements, but not the conflicts disclosure.
Goldman argues the district court failed to appreciate the generic nature of
the challenged statements. It faults the district court for discrediting Dr. Laura
Starks, who, Goldman says, correctly observed that the alleged misrepresentations
âdo not provide information that bears on a companyâs future financial
performance or valueâ and âare also too general to convey anything precise or
meaningfulâ that can be used in investment decision-making. J.A. 2608. Goldman
insists that in finding as a matter of fact that â[t]he alleged misstatements were not
so generic as to diminish their power to maintain pre-existing price inflation,â In
re Goldman, 579 F. Supp. 3d at 534, the district court glossed over and minimized
the genericness analysis.
The district courtâs findings on this issue go to a baseline question: how
generic are the alleged misrepresentations? Beginning there makes sense; it is a
practical, threshold factual inquiry to the ensuing Goldman-driven analysis of
whether there is a gap in specificity between a set of misstatements and corrective
disclosures.
The district court conducted that initial inquiry by separating the statements
in two buckets, one consisting of the business principles statementsâsuch as
39
âintegrity and honesty are at the heart of our business,â which it acknowledged
âpresent as platitudes when read in isolationââand the other containing the
âmore specificâ conflicts disclosure. 6 In re Goldman, 579 F. Supp. 3d at 534. With
respect to the former, it found that âeven the more generic statements, when read
in conjunction with one another (and particularly in conjunction with statements
specifically concerning conflicts), may reinforce misconceptions about Goldmanâs
business practices, and thereby serve to sustain an already-inflated stock price.â
Id. As to the more specific conflicts disclosure, the court found that âthe statements
concerning Goldmanâs conflicts . . . are quite a bit more specific in form and focus
than, say assurances that â[i]ntegrity and honesty are at the heart of our business.ââ
Id. The district courtâs answer to the preliminary inquiry: not so generic.
Business Principles Statements
With respect to the business principles statements, the district courtâs
genericness analysis is untenable.
6 Again, plaintiffs focus on Goldmanâs representation in its conflicts disclosure that it
âha[s] extensive procedures and controls that are designed to identify and address
conflicts of interest, including those designed to prevent the improper sharing of
information among our businesses.â J.A. 3278.
40
The district court found that the business principles category of
statementsâstatements such as âintegrity and honesty are at the heart of our
businessâââpresent as platitudes when read in isolation.â Id. There is no need to
second-guess that factual finding; nor was it clearly erroneous to find, as the
district court did, that when read as a whole the business principles statements are
somewhat more specific. See id. From there however, the district court overstated
their specificity by finding that these âmore generic statements, when read . . .
particularly in conjunction with statements specifically concerning conflicts[], may
reinforce misconceptions about Goldmanâs business practices.â Id.
That finding was clearly erroneous. The business principles and conflicts
statements were separately disseminated to shareholders in separate reports at
separate times, 7 and plaintiffs offered no evidence, either through Dr. Finnerty or
otherwise, to support a finding that, notwithstanding that space in medium and
time, investors would still conjunctively consume those statements. True, a
statement can be materially misleading when âthe defendantsâ representations,
7 For instance, plaintiffs allege in their complaint that Goldman released its 2007
Form 10-K, containing the conflicts disclosure, on January 29, 2008, J.A. 139, and released
its 2007 Annual Report, containing its business principles, on March 8, 2008, J.A. 141.
41
taken together and in context, would have mislead a reasonable investor.â Altimeo
Asset Mgmt. v. Qihoo 360 Tech. Co., 19 F.4th 145, 151 (2d Cir. 2021) (quoting Rombach
v. Chang, 355 F.3d 164, 172 n.7 (2d Cir. 2004)). But the relevant âcontextâ is not a
separately disseminated misstatementâat least where, as here, the statements do
not obviously compliment or implicate the same topicsâbut the reality of the
companyâs affairs or condition at a time when a misstatement was made.
So, for example, a companyâs statement that its distribution market is
âhighly competitive,â might be actionable when considered within the context that
the company did not actually operate in a competitive market and instead
colluded with its competitors to fix prices. See In re Henry Schein, Inc. Sec. Litig.,
No. 18 Civ. 01428, 2019 WL 8638851, at *12 (E.D.N.Y. Sept. 27, 2019). Or, a
companyâs statement that it has âdemonstrated successful acquisition and
integration capabilitiesâ might be actionable when, at the time the statement was
made, the company had already fired key integration staff and was dealing with
a poor integration of a newly acquired company. City of Omaha Police & Fire Ret.
Sys. v. Evoqua Water Techs. Corp., 450 F. Supp. 3d 379, 412 (S.D.N.Y. 2020). Case
law does not suggest, however, that investors read one statement in conjunction
42
with separately disseminated statements, at least where, as here, those statements
do not obviously build off one and other.
Plaintiffs offer no meaningful rebuttal. Instead, they claim that âthe
business-principle[s] statements, while more generic, are not challenged standing
alone but as reinforcing the conflict statements.â Appellees Br. at 39. That bald
assertion is unsupported by any citation to the record, nor, upon our independent
of review of it, is there any suggestion that the business principles statements were
consumed by investors as piggybacking off the conflicts disclosure. To the
contrary, plaintiffsâ complaint alleges that they comprise, on their own, the âthird
category of false and misleading statements.â J.A. 95. In any event, by that logic,
an exceedingly generic statement could always withstand, for example, motions
to dismiss or for summary judgment by seeking shelter under a more specific
statement, so long as the more specific statement implicates broad topics such as
integrity or honesty. Securities law provides no such cover.
âA finding is âclearly erroneousâ when although there is evidence to support
it, the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.â Dist. Lodge 26, Intâl Assân of
Machinists & Aerospace Workers, AFL-CIO v. United Techs. Corp., 610 F.3d 44, 51 (2d
43
Cir. 2010) (internal citation omitted). The record evidence here provides no
support for reading the business principles statements in conjunction with the
conflicts disclosure. Accordingly, doing so was clear error.
Keeping in mind that a class certification genericness analysis pursuant to
Goldman was, for the district court, and is, for us, new and uncharted territory, it
is appropriate to pause to consider the implications of the error identified. In the
normal course, that error would almost certainly require remand. Erroneously
assessing a misrepresentationâs genericness would necessarily infect the ensuing
mismatch inquiryâit would proceed from the wrong starting point.
However, the balance of the district courtâs analysis, including its mismatch
inquiry, centers on the conflicts disclosure. Apart from acknowledging that the
business principles statements âequate roughly, in terms of genericness, to the
Supreme Courtâs prototype,â 8 In re Goldman, 579 F. Supp. 3d at 538, it did not
meaningfully discuss them further. To be sure, the district courtâs choice in focus
is no fault of its own; throughout this litigation the conflicts disclosure has been
center stage. Still, the district court acknowledged a gap in genericness even
8 That protype: âwe have faith in our business model.â Goldman, 141 S. Ct. at 1961.
44
between the two sets of alleged misrepresentationsâthat is, that the conflicts
disclosure is âquite a bit more specific in form and focus,â id. at 534, than the
business principles statements. Plaintiffs likewise agree that their best shot at
success is the conflicts disclosure; their counsel conceded at oral argument that,
standing on its own, a claim based on the business principles statements would
face a decidedly tough road to recovery. See Oral Arg. Audio at 1:07:16, Ark. Tchr.
Ret. Sys. v. Goldman Sachs Grp., Inc (No 22-484). 9 In short, if the district courtâs
mismatch analysis, centered as it is on the conflicts disclosure, cannot withstand
scrutinyâand, as explained below, it cannotâthen plaintiffsâ claim based on the
business principles statements must also fail. Accordingly, there is no need to
remand for the district courtâs reconsideration of the genericness of the business
principles statements.
Conflicts Disclosure
As an initial matter, however, there is no merit to Goldmanâs claim that, in
labeling the conflicts disclosure as, essentially, less generic than the business
principles statements, the district court similarly understated that statementâs
9 Plaintiffsâ counsel acknowledged that âif this was a case just about the business
principles, we would have a very, very significant problem.â Id.
45
generic nature. Not so. The district court assessed the conflicts disclosure, and,
again, found that it was âquite a bit more specific in form and focusâ than the
business principles statements. In re Goldman, 579 F. Supp. 3d at 534. Goldman
insists that is not enough; it contends that the district court failed to meaningfully
consider our materiality case law, which, it claims, would have spotlighted the
generic nature of the conflicts disclosure.
It is true that Goldman gives courts a green light to assess a statementâs
generic nature by referencing case law bearing on materiality. More specifically,
Goldman permits courts to look to those cases for guidance as to whether, as a
factual matter, courts have labeled comparable statements as generic. For
example, our own materiality cases often feature claims based on a companyâs risk
disclosures, and our discussion in those cases often centers on whether the risk
disclosures are sufficiently specific to evoke investorsâ reliance. 10 Those cases have
examined, on one end, a detailed description of a companyâs environmental
compliance efforts, recounting the companyâs pollution abatement equipment,
10See, e.g., Plumber & Steamfitters Loc. 773 Pension Fund v. Danske Bank A/S, 11 F.4th 90, 103
(2d Cir. 2021); Singh v. Cigna Corp., 918 F.3d 57, 60 (2d Cir. 2019); Meyer v. Jinkosolar
Holdings Co., 761 F.3d 245, 247â50 (2d Cir. 2014); ECA, Loc. 134 IBEW Joint Pension Tr. Of
Chicago v. JP Morgan Chase Co., 553 F.3d 187, 205â06 (2d Cir. 2009).
46
water treatment efforts, and around-the-clock environmental monitoring teams,
Jinkosolar Holdings, 761 F.3d at 247, and, on the other, more generic representations
that a company has âestablished policies and procedures to comply with
applicable requirements,â Singh, 918 F.3d at 61.
Of course, the overarching question in those casesâmaterialityâdiffers
from the price-impact analysis at issue here, yet both inquiries task courts with
considering an alleged misrepresentationâs generic nature. Courts can look to
those cases to answer whether a set of challenged statements are, as a matter of
fact, generic.
Goldman complains that the district court failed to do that here.
Again: not so. The district court made clear that it considered cases bearing on
materiality to the extent they presented issues overlapping with the price impact
analysis. See In re Goldman, 579 F. Supp. 3d at 535 n.17. We take the district court
at its word. Goldman bemoans that the district court relegated that point to a
footnote, but that provides no occasion to impose specific stylistic mandates on
district courts as they navigate this tricky area of law.
47
III. The district courtâs price impact analysis was based on an erroneous
application of the inflation-maintenance theory.
Although its attack on the district courtâs threshold inquiry regarding the
generic nature of the conflicts disclosure is without merit, we agree with Goldman
that, having conducted that factual assessment, the district court then erred in
applying Vivendiâs inflation-maintenance theory to weigh the partiesâ evidence
regarding the extent to which that disclosure might, in practice, maintain
Goldmanâs stock price. Review of the district courtâs factual findings is limited to
clear error, but whether a legal standardâhere, the inflation-maintenance
theoryâhas been incorrectly applied to those findings is an issue of law to be
reviewed de novo. See In re Initial Public Offerings Sec. Litig., 471 F.3d 24, 32 (2d Cir.
2006) (âWe will apply the abuse-of-discretion standard both to [the district
courtâs] ultimate decision on class certification as well as her rulings as
to Rule 23 requirements, bearing in mind that whether an
incorrect legal standard has been used is an issue of law to be reviewed de novo.â).
In this portion of its analysis, the district court began by crediting Goldmanâs
expert, Dr. Starks, who opined that the alleged misrepresentations were âunlikely,
in a vacuum, to consciously influence investor behavior . . . .â In re Goldman, 579
F. Supp. 3d at 534. Ultimately, however, the district court found Dr. Starksâ
48
opinion to be of âlimited use[].â Id. It explained that âthe proper measure of
inflation maintenance by a company that chooses to speak âis not what might have
happened had a company remained silent, but what would have happened if it
had spoken truthfully.ââ Id. (quoting In re Vivendi, 838 F.3d at 258).
Proceeding from that principle, the court credited âDr. Finnertyâs analysis
that truthful, contrary substitutes for the alleged misstatements would have
impacted investorsâ subsequent decision-making,â and found that âas Dr. Finnerty
concluded, â[t]his is precisely what happened here when investors learned in April
and June 2010 the details and severity of Goldmanâs misconduct, and Goldmanâs
stock was devalued accordingly.ââ Id. (quoting J.A. 2816). To the same tune, it
faulted Goldman for failing to present evidence âpurporting to demonstrate,
under the test set forth in Vivendi, that if Goldman had replaced the alleged
misstatements with the alleged truth about its conflicts, its stock price would have
held fast.â Id. at 535.
Goldman contends that the district courtâs rendition of the
inflation-maintenance theory is overly expansive. Correct. Specifically, our cases
applying the theory establish its limits; the district courtâs interpretation pushed
the inflation-maintenance theory well beyond them.
49
a. The inflation-maintenance theory under Vivendi, Waggoner, and
Goldman
Waggoner. Our recent application of the inflation-maintenance theory in
Waggoner v. Barclays PLC highlights the tension at work with applying the
inflation-maintenance theory to the facts of this case. There, in order to quell
âconcerns that high-frequency traders may have been front runningâ other traders
on a specific Barclays trading platform, Barclaysâ officers made numerous
statements to assure investors the platform was âsafe fromâ aggressive trading
practices, and that it âwas taking steps to protectâ institutional investors on those
platforms by monitoring and removing aggressive traders who violated the
platformsâ special protections. 875 F.3d 79, 87 (2d Cir. 2017). In the end, upon the
filing of a complaint by the New York Attorney General (the âNYAG Complaintâ)
alleging securities fraud under state law, investors learned that those
representations were allegedly false because, according to the State, no special
protections existed, and, in fact, Barclays favored rather than removed aggressive
traders. Id. at 88.
Waggoner is particularly illuminating given the similarity between the
corrective disclosure there and here; both took the form of an enforcement action.
Unlike here, however, Waggoner presented a tight fit between corrective disclosure
50
and misrepresentation: the NYAG Complaint targeted the same trading platform
discussed by Barclays in their misleading statements, and took aim at the same or
similar statements underlying the claims subsequently pressed by plaintiffs in
Waggoner, alleging that those statements were false or misleading. Compare id. at
87â88, with Summons and Complaint at 6, 8â11, People ex rel. Schneiderman v.
Barclays Capital, Inc. et al., No. 451391/2014 (N.Y. Sup. Ct. June 25, 2014), Dkt. No. 1,
2014 WL 2880709. There was no question in Waggoner that the corrective
disclosure directly implicated not just the same topic, but the alleged
misstatements themselvesâa notable distinction from the
misrepresentation-corrective disclosure relationship here.
Waggoner is therefore an easy inflation-maintenance case. The companyâs
affirmative false statements were expressly identified as such by the corrective
disclosure. By expressly and specifically negating the alleged false statement, the
truthful substitute for the lie was identified by the corrective disclosure itself.
Vivendi. The link between misstatement and disclosure was equally strong
in Vivendi. There, the companyâs repeated statements regarding its comfortable
liquidity situation were later contradicted by a body of informationâincluding
several downgrades to its debt rating, public reports regarding the companyâs lack
51
of transparency about its large debt obligations, and, ultimately, the
announcement that the company faced massive refinancing needs that would
require a fire sale of assetsâall of which revealed that its cash flow was anything
but strong. See In re Vivendi, 838 F.3d at 235â37.
As in Waggoner, among the various disclosures identified by the plaintiffs in
Vivendi were back-end reports or investigations expressly implicating the alleged
misstatements. See Amended Complaint at œœ 132, 146, In re Vivendi Universal,
S.A. Sec. Litig., No. 02 Civ. 5571, (S.D.N.Y. July 8, 2009), ECF No. 904, 2009 WL
2611656. Simply, the companyâs lie that it had abundant cash flow was made
apparent by a cascade of news revealing its crippling debt obligations. In both
Vivendi and Waggoner, the strong link between misrepresentation and corrective
disclosure provided sturdy ground to use the back-end price drop as a proxy for
front-end inflation. The back-end disclosuresâ corrective effect upon the
affirmative misrepresentations was obvious.
To be sure, not all the corrective disclosures in Vivendi expressly referenced
the alleged misrepresentations. For example, the companyâs back-end
announcement revealing its massive refinancing needs did not expressly recant its
earlier statements regarding its comfortable cash situation. See In re Vivendi, 838
52
F.3d at 237. Yet there can be little doubt that even those corrective disclosures
directly rendered false the companyâs affirmative misrepresentations. It is also
true that Vivendiâs misrepresentation regarding its âstrong free cash flow,â id. at
235, or its âfree operational cash flow . . . far above . . . objectives,â id., might
plausibly be labeled more generic than, for example, later announcements from
the company describing the companyâs specific refinancing needs. We do not
suggest that the inflation-maintenance theory requires a precise match. It may
frequently be the case that what is corrective about a âcorrective disclosureâ is
situated among details which, in the aggregate, make for a somewhat more
specific back-end disclosure.
And yet, Vivendi accounts for that possibility. Its application of the
back-endâfront-end inference rested on a finding that, had the company spoken
truthfully regarding its debt problems at an equally generic level, the market would
have reacted. We described, as a truthful substitute for the companyâs ârosy
picture of its liquidity state,â the âmisgivings its executives were sharing behind
the scenes,â which included statementsâless specific than the corrective
disclosure newsâthat the company was in âdangerâ of a downgrade, or that its
liquidity situation was âtense.â Id. at 235, 258. Vivendi therefore directs that where
53
the corrective disclosures do not expressly identify the alleged misrepresentation
as false (as in Waggoner), the âtruthful substituteâ should align in genericness with
the alleged misrepresentation. 11
Goldman. The Supreme Courtâs guidance in Goldman adds more to the mix.
Even under a proper application of Vivendiâs equally-generic-truthful-substitute
formula, plaintiffs might still attempt to (a) identify a highly specific corrective
disclosure, and (b) identify and extract a generic truth purportedly embodied
therein, in order to (c) craft a link between a generic misrepresentation and specific
corrective disclosure. For example, plaintiffs could point to news detailing a
companyâs commission of securities fraud, and then claim that nestled therein was
the more generic revelation that the companyâs earlier, general statement that it
aims to act lawfully was a lie. From there, they might still contend that the
back-end price drop is an appropriate proxy for front-end inflation.
11To be sure, with respect to the loss causation element of securities fraudâthat is, the
causal link between the alleged misconduct and the loss ultimately suffered by plaintiffâ
the âbasic [] calculusâ remains the same whether the truth is revealed in âa corrective
disclosure describing the precise fraudâ or through âevents constructively disclosing the
fraud.â Vivendi, 838 F.3d at 262. Yet the question hereâwhether there is a basis to infer
that the back-end price equals front-end inflationâis a different question than loss
causation, and, in light of Goldman, requires a closer fit (even if not precise) between the
front- and back-end statements.
54
Goldman dispels that notion. The Court explained that a gap in genericness
between misrepresentation and corrective disclosure reduces the likelihood that
investors would understand the âspecific disclosure [to have] actually corrected
the generic misrepresentation,â Goldman, 141 S. Ct. at 1961, and, in such a scenario,
the back-endâfront-end inference starts to break down. In other words, although
Vivendi somewhat solves for a back-endâfront-end space in genericness by asking
whether an equally generic, truthful substitute would have dissipated inflation,
Goldman requires that any gap among the front- and back-end statements as
written be limited. 12
b. The district court erroneously applied Vivendiâs âtruthful
substituteâ inquiry
The Goldman-Vivendi-Waggoner trio spotlights the district courtâs error
below. First, unlike both Vivendi and Waggoner, not one of the corrective
disclosures here expressly identifies either the business principles statements or
conflicts disclosure. Second, the district court acknowledged a considerable gap
12Of course, Goldman does not call into question Vivendi itself. There, any mismatch in
specificity between the misrepresentations and disclosures was minimal. Vivendiâs
affirmative, repeated representations regarding its cushy cash flow were directly
contradicted by news portraying its cash situation as anything but that. See In re Vivendi,
838 F.3d at 234â36.
55
in specificity between the corrective disclosures and alleged misrepresentations.
Therefore, the district court should have asked âwhat would have happened if [the
company] had spoken truthfully,â In re Vivendi, 838 F.3d at 258, at an equally generic
level. However, in what amounts to the crux of the district courtâs misstep, the
district court allowed the âdetails and severity,â In re Goldman, 579 F. Supp. 3d at
534, of the corrective disclosure to do the work of proving front-end price impact,
notwithstanding that the front-end statements are, according to the district courtâs
own findings, âcomfortabl[y]â more generic than the back-end disclosures, id. at
538. The district courtâs formulation of Vivendi outpaces Vivendi itself. It also fails
to heed Goldmanâs cautionary guidance that the back-endâfront-end inference
starts to âbreak down,â Goldman, 141 S. Ct. at 1961, when there is a mismatch in
genericness at the front and back ends.
Utilizing a back-end price drop as a proxy for the front-end
misrepresentationâs price impact works only if, at the front end, the
misrepresentation is propping up the priceâthat is, in the district courtâs words,
if âGoldmanâs alleged misstatements reinforced [the marketâs] misconception.â In
re Goldman, 579 F. Supp. 3d at 536. In other words, reinforcement requires some
indication that investors relied upon the conflicts disclosure as written, and, here,
56
the district court credited Dr. Starksâ opinion that investors did not. Although the
theoryâs starting point is that a misrepresentation need not be âassociated with an
uptick in inflation,â Vivendi, 838 F.3d at 259, a misrepresentation must actually
maintain inflation; it must, in other words, hold its weight in propping up the
price.
Consider, for example, an investor who reads certain statements in a
companyâs Form 10-K, and then thinks âThings seem to be going well; I think Iâll
hold onto my shares.â Although the statements did not cause that investor to buy
more stock, they informed or influenced her decision. And if the companyâs
statements are later revealed as false, liability might follow not because the
statement caused new or more inflationâthat is, caused investors to purchase
more stock (thereby increasing demand and, ultimately, raising the share price)â
but instead because the statement maintained inflation, or influenced the
investorâs decision to hold tight.
Viewed against that backdrop, the district courtâs finding that the challenged
âstatements were [not] consciously relied upon, in the moment, by investors
evaluating Goldman,â In re Goldman, 579 F. Supp. 3d at 535, begs the following
question: how, then, can it be that the statement impacted Goldmanâs stock price?
57
The district courtâs answer: because they would be relied upon had Goldman
disclosed âthe details and severity of Goldmanâs misconduct,â id. at 534, which no
one doubts did impact the price. The details and severity of the misconduct, it
says, should be substituted in place of the challenged, more generic statements.
Again, that substitution stretches the âback-end price drop equals front-end
inflationâ inference beyond its breaking pointâand certainly beyond how weâve
previously construed it. Vivendi requires that the âtruthful substituteâ align in
genericness with the alleged misrepresentation. Here, however, the district courtâs
substitute looks nothing like the original.
Likewise, Goldman requires that courts pay special attention to mismatches
in specificity between a misstatement and corrective disclosure. But by
reimagining a more specific misstatement, the district court failed to sufficiently
follow that guidance. Again, the district court found a âcomfortableâ gap in
genericness between the alleged misstatements and subsequent corrective
disclosures, but then found that it was not âboundlessâ given the fact that both
implicated conflicts of interest at Goldman and âGoldmanâs infrastructure for
managing them.â Id. at 538. It recognized, in other words, that the corrective
disclosures bore on the same subjectâconflicts of interest managementâbut did
58
not expressly or otherwise clearly refer to Goldmanâs cautionary language
regarding conflicts in the âRisk Factorsâ portion of its 10-K.
Proceeding from that match in subject matter, the district court moved
forward with its Vivendi analysis by finding that, if Goldman had disclosed in its
Risk Factors the âdetails and severity of Goldmanâs misconductâ as set forth in the
Abacus Complaint, a price drop would have followed. However, again, requiring
only a general front-endâback-end subject matter match to, effectively, concoct a
highly specific truthful substitute does not meaningfully account for the Supreme
Courtâs guidance in Goldman.
c. Our materiality cases contextualize the district courtâs
misapplication of inflation-maintenance theory, and the
heightened relevance of Goldmanâs guidance in this case.
Nor, in any event, does securities law permit plaintiffs to target generic risk
disclosures on the theory that, had the risk disclosures contained a detailed
admission of severe wrongdoing, a price drop would follow. There is no
âaffirmative duty to disclose any and all material information.â Vivendi, 838 F.3d
at 239. 13 Instead, âdisclosure is required when necessary to make statements
13Vivendi explains: âAbsent an actual statement, a complete failure to make a statementâ
in other words, a âpure omissionââis actionable under the securities laws only when the
59
made, in light of the circumstances under which they were made, not misleading.â
Jinkosolar Holdings, 761 F.3d at 250 (internal citations and alterations omitted). But
the duty to disclose more is triggered only when that which is disclosed is
sufficiently specific to evoke a reasonable investorâs reliance. See, e.g., Caiola v.
Citibank, N.A., 295 F.3d 312, 331 (2d Cir. 2002).
For example, in ECA shareholders alleged JP Morgan made numerous
misrepresentations in its annual report to shareholders regarding its âhighly
disciplinedâ risk management process. 553 F.3d at 205. The plaintiffs claimed
those statements were revealed as false in light of, in their view, the bankâs poor
financial discipline and the bankâs liability arising from the infamous WorldCom
and Enron scandals. See id. at 205â06. In rejecting plaintiffsâ claim, the court in
ECA held that âthe statements are too general to cause a reasonable investor to rely
upon them . . . these statements did not, and could not, amount to a guarantee that
its choices would prevent failures in its risk management.â Id. at 206. Indeed, since
ECA we have reaffirmed that a companyâs 10-K disclosures regarding, for
example, its compliance efforts âcan be materially misleading if âthe descriptions
corporation is subject to a duty to disclose the omitted facts.â 838 F.3d at 239 (internal
citations omitted). There is no claim in this case that Goldman was under such a duty.
60
of compliance effortsâ are âdetailedâ and âspecific.ââ Plumber & Steamfitters Loc. 773
Pension Fund, 11 F.4th at 103 (quoting Singh, 918 F.3d at 63).
In such cases, the disclosure itself acts as a gatekeeper: courts ask whether
investors would even rely on that disclosureâas writtenâsuch that they would
be misled by an omission. Were it otherwise, securities plaintiffs could find a road
to success in the rearview mirror: they would need only find negative news, such
as the revelation that a company may have committed securities fraud, and then
point to any previous disclosure from the company which touches upon a similar
subject, such as that companyâs commitment to complying with the lawâno
matter how generic that statement is. Asking whether the disclosure as written is
specific enough to evoke investor reliance avoids turning securities claims into a
game of litigation-by-hindsight.
These risk-disclosure cases highlight why the Supreme Courtâs concerns in
Goldman loom especially large here. As in ECA, plaintiffs contend that having
generally discussed risks related to conflicts of interest, Goldman should have
divulged the details surrounding its mismanagement of conflicts with respect to,
for example, the Abacus transaction. In failing to do so, plaintiffs claim,
Goldmanâs risk disclosure was misleading by omission. See J.A. 52, 477. However,
61
as explained above, such claims require special attention to the generic nature of
the disclosure. Again: the duty to disclose more is triggered only where that which
is disclosed is sufficiently specific.
Of course, in ECA and its progeny, analysis of the level of detail in the
disclosure answered whether, as written, the disclosure was material. Class
certification litigation provides no forum to relitigate materiality. See Amgen, 568
U.S. at 468. But the Supreme Courtâs guidance in Goldman directs courts to
consider issues bearing on materiality to the extent those issues overlap with the
price impact analysis, and with respect to genericness concerns, the overlap is
substantial. In cases based on the theory plaintiffs press here, a plaintiff cannot
(a) identify a specific back-end, price-dropping event, (b) find a front-end
disclosure bearing on the same subject, and then (c) assert securities fraud, unless
the front-end disclosure is sufficiently detailed in the first place. The central focus,
in other words, is ensuring that the front-end disclosure and back-end event stand
on equal footing; a mismatch in specificity between the two undercuts a plaintiffâs
theory that investors would have expected more from the front-end disclosure.
Goldmanâs guidance involves similar concerns. If a stock price decline
follows a back-end, highly detailed corrective disclosureâcontaining, for
62
example, âhard . . . incriminatoryâ evidence regarding the companyâs
wrongdoing, In re Goldman, 579 F. Supp. 3d at 532âcourts must be skeptical
whether the more generic, front-end statement propped up the price to the same
extent. As in ECA, Vivendi does not authorize plaintiffs to beef up a generic
disclosure with a healthy dose of detail and thereby transform it into something
that, as then consumed by investors, it was not.
d. Guidance moving forward
Accordingly, a searching price impact analysis must be conducted where
(1) there is a considerable gap in front-endâback-end genericness, as the district
court found here, (2) the corrective disclosure does not directly refer, as it did in
Waggoner, to the alleged misstatement, and (3) the plaintiff claims, as plaintiffs
claim here, that a companyâs generic risk-disclosure was misleading by omission.
In such cases, case law bearing on materiality can help guide courts in
considering, as a factual matter, the generic nature of the alleged
misrepresentation. Where a gap exists, courts should ask, under Vivendi, whether
a truthfulâbut equally genericâsubstitute for the alleged misrepresentation
would have impacted the stock price. Importantly, unlike the classic
inflation-maintenance caseâwhere the back-end price drop is itself the evidence
63
(albeit indirect) of the front-end price impactâthe value of the back-end proxy,
given the gap in specificity, will be diminished.
As such, courts should consider other indirect evidence of price impact,
directed at either the inflation-maintaining nature of the generic misstatement, or
the price-dropping capacity of an equally generic corrective disclosure.
Ultimately, a court must determine not just whether the defendant spoke on topics
generally important to investment decision-making, but instead whether the
defendantâs generic statements on that topic were important in that regard. 14 For
instance, pre- or post-disclosure discussion in the market regarding a generic
front-end misstatement can be a useful indicator of its inflation-maintaining
14Indeed, litigants already appear to be offering this kind of evidence. For example, in
Ferris v. Wynn Resorts Ltd., 2023 WL 2337364 (D. Nev. Mar. 1, 2023), the defendants
attempted to exploit a front-end back-end mismatch. At the front end, defendants denied
allegations of misconduct by the companyâs former chief executive office. Back-end news
detailing an alleged decades-long pattern of sexual harassment by the executive was
followed by a price decline. Defendants argued that because neither their denials nor the
allegations specifically referenced sexual misconduct, the back-end news bearing
specifically on sexual harassment could not be used as a proxy for front-end inflation.
In rejecting that argument, the district court pointed to evidence that âthe media, market
participants, and the defendants themselves immediately made the connection between
the revelationsâ and the allegations. Id. at *10. The district court identified post-
disclosure commentary specifically discussing both the back-end news, as well as the
front-end misstatements. See id. We express no view on the district courtâs analysis, but
mention that case simply to note the kind of post-Goldman evidence parties are offering
at the class certification stage.
64
capacity, as well as of the fact that a truthful, equally generic substitute would
likewise not go unnoticed by the market as an inflation dissipator.
Much of this analysis fits comfortably within the prototypical class
certification skirmish. In claims proceeding under the inflation-maintenance
theory, plaintiffs relying on the Basic presumption will likely face opposition from
defendants, who will attempt to rebut that presumption by demonstrating that the
alleged misrepresentations did not impact share price. Parties will then join issue
with respect to the generic nature of both the misstatements and corrective
disclosures, whether they match in specificity, and, if not, whether truthful,
equally generic substitutes for the challenged statements would have impacted the
stock price. Evidentiary submissions are likely to follow. Ultimately, the court
must still find whether the defendants have demonstrated, by a preponderance of
the evidence, that the alleged misstatements did not in fact impact the price of the
stock. 15
15It may be true that class certification litigation following Goldman is likely to involve
evidence that, at the summary judgment stage, might also be relevant to materiality. But
thatâs by design; Goldman directs courts to consider âall record evidence relevant to price
impact, regardless whether that evidence overlaps with materiality or any other merits
issue.â Goldman, 141 S. Ct. at 1961.
65
Although, of course, the district court did not have the benefit of our
analysis, the parties submitted a mountain of evidence that bears directly on
whether an equally generic substitute for the conflicts disclosure would have
dissipated the inflation allegedly maintained by that statement, making remand
for further factfinding unnecessary.
For example, the district court credited Dr. Finnertyâs analysis of the news
coverage and commentary surrounding the alleged corrective disclosures, which
it found âconvincingly links Goldmanâs post-disclosure plight back to the alleged
misstatements.â In re Goldman, 579 F. Supp. 3d at 536. But, while this commentary
certainly touches on the subject of conflicts of interest and suggests that the
management of them is important, it does not suggest that the market relied on the
conflicts statements to assess Goldmanâs conflicts management procedures.
To put a finer point on it, Dr. Finnerty cited a pre-disclosure investor report
providing that âGoldman is very carefulâ about conflicts and âactually has a
full-time partner monitoringâ conflicts âaccording to [a Goldman executive],â
J.A. 1228 (emphasis added)âbut not according to the conflicts disclosure.
Similarly, a pre-corrective disclosure 2007 Merrill Lynch report offered by
plaintiffs says that the âconsistency with which the firm has avoided crossing the
66
line and damaging its reputation is such that it must be doing something rightâ
with respect to managing conflicts. J.A. 782. But there is no indication that the
analyst drew that conclusion from the conflicts disclosureânor could it, as the
conflicts disclosure says nothing about how Goldman manages its conflicts other
than through âextensive procedures.â That same article says that âthe conflict
management process is clearly taken extremely seriously at the firm, since it is
viewed as not just a by-product but a key pillar of the firmâs franchise business.â
J.A. 782. Yet there is no discussion in the conflicts disclosure of âkey pillars.â
On the same tack, the pre-disclosure Merrill Lynch report says that âthe scale
and growth of its client trading and investment-banking franchise make it clear that []
conflicts have overall been well managed.â J.A. 1228, 4825 (emphasis added). The
report itself suggests that the analyst relied on something other than the conflicts
disclosure.
With respect to the post-disclosure Wall Street Journal article, the article notes
that CDOs are âriddled with potential conflicts,â and that â[t]his territory is
especially dangerous for Goldman because of the perception that it is an elite
adviser and an elite trader that can do both simultaneously while managing the
67
conflicts to the satisfaction of its clients.â J.A. 3773. But again, nothing suggests
that the market came to that realization by relying on the conflicts disclosure.
In short, although market commentary can provide insight into the kind of
information investors would rely upon in making investment decisionsâand
therefore can serve as indirect evidence of price impactâcommentary touching
upon only the same subject matter, given the contours of this case as discussed
above, cannot be enough. As we have previously put it, albeit in another context:
â[p]laintiffs conflate the importance of a bankâs reputation for integrity with the
materiality of a bankâs statements regarding its reputation. While a bankâs
reputation is undeniably important, that does not render a particular statement by
a bank regarding its integrity per se material.â ECA, 553 F.3d at 206.
On the other side of the ledger, defendants managed to sever the link
between back-end price drop and front-end misrepresentation. Goldman
introduced Dr. Starksâ analysis of 880 analyst reports published during the Class
Period (both before and after the filing of the Abacus Complaint), none of which
reference the conflicts disclosure. J.A. 2617â18. Likewise, the pre-disclosure
reports identified by Dr. Gompers, even if falling short as alternative corrective
disclosures, touch on the subject of conflicts of interest (and do so in more generic
68
terms), but do not expressly nor impliedly refer to the conflicts disclosure. As with
the market commentary identified by Dr. Finnerty, the pre-disclosure reports
might suggest that the market cared generally about how mismanaged conflicts
could damage Goldmanâs reputation, but they do not suggest that investors were
misled by Goldmanâs conflicts disclosure. Indeed, as provided above, the district
court found that investors would not consciously rely on the conflicts disclosure
in making investment decisions. 16
In summary, a searching review of the record leaves us with the firm
conviction that there is an insufficient link between the corrective disclosures and
the alleged misrepresentations. Defendants have demonstrated, by a
preponderance of the evidence, that the misrepresentations did not impact
Goldmanâs stock price, and, by doing so, rebutted Basicâs presumption of reliance.
16At most, plaintiffs identify a single post-disclosure news article expressly mentioning
the business principles statements. See J.A. 2317. Yet, as provided above, the district
court found that those statements, which it characterized as platitudes, would not have
been relied on by investors absent inclusion of the details and severity in the Abacus
Complaint. The Vivendi error remains. Moreover, defendants offered 880 pre- and
post-disclosure analyst reports which make no mention of the business principles
statements. Finally, the considerable front-endâback-end genericness gap is, based on
the district courtâs findings, even more pronounced with respect to the business
principles statements. Against that backdrop, the article fails to do the work plaintiffs
ask of it. In other casesâwithout that backdropâit might.
69
The district court clearly erred in concluding otherwise, and therefore abused its
discretion in certifying the shareholder class.
e. The concurrence
Judge Sullivan criticizes the above analysis as âcircuitous.â Concurring Op.
at 7â8. This case has a long and difficult history. The parties have substantially
changed their arguments along the way. In Judge Sullivanâs view, the linchpin
remains the 36 dates of pre-disclosure reporting and the accompanying expert
testimony. Weâll agree to disagree on that score. In any event, this is a complex
case and whatever analytical approaches might be warranted in future cases
remains to be seen. However, we take no issue with Judge Sullivanâs observation
regarding the difficult task of thinking about materiality but not ruling on it. Not
easy stuff. Someday the Supreme Court will revisit the issue. In the meantime,
we have work to do.
CONCLUSION
We REVERSE the district courtâs class certification order, and REMAND
with instructions to decertify the class.
70
RICHARD J. SULLIVAN, Circuit Judge, concurring in the judgment:
I join the majority in its bottom-line conclusion that the district court
improperly granted class certification in this long-running case. Nevertheless,
I disagree with Part I of the majority opinion, since my position all along has been
that the district court committed clear error in assessing Goldmanâs expert
evidence. I likewise disagree with Part II of the majority opinion, given my view
that the district court also clearly erred in evaluating the âgeneric natureâ of both
Goldmanâs business-principles statements and its conflicts disclosures.
Finally, while I concur in the majorityâs ultimate conclusion that the district court
erred in its class-certification ruling, I fear that the majorityâs approach needlessly
complicates what, to my mind, should be a straightforward balancing of the
several factors that bear on the question of reliance. Let me explain why.
I.
When this case came before us in 2020, I took the position that we should
reverse the lower courtâs class-certification ruling. See Ark. Tchr. Ret. Sys. v.
Goldman Sachs Grp., Inc. (ATRS II), 955 F.3d 254, 275, 279 (2d Cir. 2020) (Sullivan,
J., dissenting). This was because, in my view, âDefendants offered persuasive and
uncontradicted evidence that Goldmanâs share price was unaffected by earlier
disclosures of Defendantsâ alleged conflicts of interest,â which thereby âsever[ed]
the link between the alleged misrepresentation and the price paid by Plaintiffs for
Goldman shares.â Id. at 275, 278â79 (internal quotation marks and alterations
omitted). Back then, I felt compelled to credit Dr. Paul Gompersâs testimony
demonstrating that âprior disclosures â as set forth in [thirty-six] separate news
reports over as many months â had no impact on Goldmanâs stock price,â id. at
278, and Dr. Stephen Choiâs testimony that âthe stock drop following the
corrective disclosures was attributableâ entirely to the ânews that the SEC and DOJ
were pursuing enforcement actions against Goldman,â id. at 279. The weight of
this expert evidence, âcoupled withâ âthe generic quality of Goldmanâs alleged
misstatements,â persuaded me that Goldman had succeeded in rebutting the
presumption of reliance outlined in Basic Inc. v. Levinson, 485 U.S. 224 (1988).
Id. at 278â79.
After taking up this case, the Supreme Court did not ultimately determine
whether Goldman had rebutted all evidence of price impact. See Goldman Sachs
Grp., Inc. v. Ark. Tchr. Ret. Sys., 141 S. Ct. 1951, 1961, 1963 (2021). It nevertheless
instructed that, in âassessing price impact at class certification, courts should be
open to all probative evidence on that question â qualitative as well as quantitative
2
â aided by a good dose of common sense.â Id. at 1960â61 (internal quotation marks
omitted).
In light of the Supreme Courtâs guidance, we agreed that remand was
appropriate so that the district court could reassess the price-impact evidence
relating to the allegedly false statements. First, we acknowledged that the district
court was required âto take into account all record evidence relevant to price
impact, including the generic nature of Goldmanâs statements.â Ark. Tchr. Ret. Sys.
v. Goldman Sachs Grp., Inc. (ATRS III), 11 F.4th 138, 143 (2d Cir. 2021)
(internal quotation marks omitted). Second, we impressed upon the district court
the need to consider the report of Goldmanâs expert, Dr. Laura Starks, âwhich
focused on the generic nature of Goldmanâs statements.â Id. And third, we
recognized that the district court should consider not only âexpert testimony,â but
also apply âcommon[-]senseâ reasoning to âassess all the evidence of price
impact.â Id. (internal quotation marks omitted). I agreed to remand the case,
believing that each of these factors reinforced my prior conclusion that Goldman
had rebutted all evidence of price impact.
3
II.
Now that the district court has certified the class yet again, the majority
rightfully concludes that the latest class-certification order should be reversed
because Goldman ârebutted Basicâs presumption of relianceâ by âdemonstrat[ing],
by a preponderance of the evidence, that the [alleged] misrepresentations did not
impact Goldmanâs stock price.â Maj. Op. at 69. While I agree with this ultimate
conclusion, I worry that the majority has charted a meandering course that, in
addition to contradicting my earlier conclusions, obscures what should be an
uncomplicated inquiry. That is, we are to weigh all types of evidence of price
impact â including the âgeneric natureâ of the disputed statements, âevidence . . .
relevant to . . . materiality,â and âall [other] probative evidenceâ â whether
presented as âexpert testimonyâ or revealed as a simple matter of âcommon
sense.â Goldman, 141 S. Ct. at 1960.
A.
As one might expect, my longstanding position in this case is fully at odds
with Part I of the majority opinion, which concludes that the district court did not
clearly err in rejecting the testimony of Dr. Choi and Dr. Gompers. On this point,
not much more needs to be said beyond what has already been covered in my
prior dissent. See ATRS II, 955 F.3d at 275â79 (Sullivan, J., dissenting). It simply
4
bears noting that Dr. Choiâs event study established that the drop in Goldmanâs
share price following a corrective disclosure was entirely attributable to the
announcement of an SEC enforcement action against the company. Moreover, as
Dr. Gompers recounted without contradiction, the releases of thirty-six news
reports, beginning three years before the first corrective disclosure, revealed
Goldmanâs conflicts of interest (including ones concerning the Hudson and
Abacus transactions specifically), and yet had no measurable impact on
Goldmanâs share price. Based on this expert testimony, my view was â and
remains â that Goldman ârebut[ted]â the âpresumption of relianceâ by
âdemonstrating that news of the truth credibly entered the marketâ through these
prior disclosures and âdissipated the effects of [any] prior misstatements.â Amgen
Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 481â82 (2013) (internal quotation
marks and alterations omitted); see also Halliburton Co. v. Erica P. John Fund, Inc.
(Halliburton II), 573 U.S. 258, 279â84 (2014). 1
1 The majority correctly recognizes that, in my view, the âlinchpinâ of Goldmanâs defense
âremains the [thirty-six] dates of pre-disclosure reporting and the accompanying expert
testimony.â Maj. Op. at 70. While this may be true, it is the overwhelming evidence offered by
Goldman in its totality â that is, these prior disclosures, the exceedingly generic nature of the
alleged misstatements, its mismatch with the genericness of the more specific corrective
disclosures, and the evidence relevant to materiality â that makes this truly not a âclose case[].â
Goldman, 141 S. Ct. at 1970 (Gorsuch, J., concurring).
5
B.
I also disagree with Part II of the majority opinion, which finds âno merit to
Goldmanâs claim that . . . the district court . . . understated [the conflicts]
statement[sâ] generic nature.â Maj. Op. at 45â46. 2 For starters, common sense tells
us that the alleged misstatements in Goldmanâs Form 10-K filings were highly
generic, as they merely stated that Goldman âha[d] extensive procedures and
controls that [were] designed to identify and address conflicts of interest,â while
warning that âa failure to appropriately identify and deal with conflicts of interest
could adversely affect [the companyâs] businessâ and lead to âlitigation,â
âenforcement actions,â and âdamage[]â to its âreputation.â J. Appâx at 3278.
According to the district court, this language attested to âGoldmanâs specific
approach to conflicts managementâ and its âsufficient conflicts procedures.â
Sp. Appâx at 23, 26â27 (emphasis added). And while the majority avoids reversal
of this finding by insisting that it was not clearly erroneous, I am still convinced
that such exceptionally âgeneralâ statements were not capable of âaffect[ing]â the
2I concur with the majority that the district court clearly erred in evaluating the genericness of
the business-principles statements. Accordingly, my concurrence is limited to a discussion of the
conflicts-of-interest statements that Goldman made in its Form 10-K filings.
6
âpriceâ of Goldmanâs âsecurit[ies].â Goldman, 141 S. Ct. at 1960 (internal quotation
marks omitted).
Indeed, when placed side-by-side, these Form 10-K statements and the
corrective disclosures are a study in contrasts. Unlike the Form 10-K statements,
the corrective disclosures â relating to the selection of the underlying assets for the
Abacus CDO by Paulson & Co. and the purchases of the Hudson CDO by
hedge-fund Dodona I LLC â were far more specific, given that they referred to
particular transactions, financial products, and industry participants.
Accordingly, â[a] good dose of common senseâ leads to the obvious conclusion
that the Form 10-K statements were highly âgeneric,â the corrective disclosures
were appreciably more âspecific,â and the âmismatchâ between the âcontentsâ of
the two was striking. Id. at 1960â61 (internal quotation marks omitted).
C.
To be clear, my disagreement with Parts I and II of the majority opinion
extends beyond these specific findings about Goldmanâs price-impact experts and
the âgeneric natureâ of the statements at issue; it also goes to the heart of the
majority opinionâs approach in assessing reliance under the Basic presumption at
class certification.
7
For one thing, the majorityâs stepwise consideration of Goldmanâs expert
testimony and the âgeneric natureâ of the statements is difficult to square with
existing precedents, which have never required courts to consider these
price-impact factors in isolation. See, e.g., Halliburton II, 573 U.S. at 279â282, 284;
Goldman, 141 S. Ct. at 1960â61. In the same vein, the circuitous path taken by the
majority â i.e., first rejecting Goldmanâs expert evidence, then affirming in part the
district courtâs genericness and materiality analyses (without addressing
mismatch), before eventually doubling back to reach the opposite conclusion after
considering mismatch and materiality in the context of our inflation-maintenance
precedents â strikes me as unnecessary and overthinks what, in my view, was a
relatively straightforward directive from the Supreme Court to assess âall
probative evidenceâ of price impact. 3 Goldman, 141 S. Ct. at 1960. Finally, to the
extent that the majority implies that a more âsearchingâ price-impact analysis is
required for inflation-maintenance cases only, Maj. Op. at 63, I strongly disagree.
Based on my reading of the Supreme Courtâs decision, courts must apply the
3 As but one example, the majority purports to stand behind the district courtâs materiality
analysis in Part I, where it ât[ook] the district court at its wordâ âthat it considered cases bearing
on materiality to the extent they presented issues overlapping with . . . price impact,â only to later
reverse course in Part III and observe during its discussion of the inflation-maintenance theory
that our materiality precedents do in fact indicate that a reasonable investor would not rely upon
the alleged misstatements. Compare Maj. Op. at 45â47, with id. at 59â62.
8
genericness, mismatch, and materiality analyses to all questions of reliance, and
not just to ones related to the inflation-maintenance theory.
D.
I offer a final observation, not as a criticism of the majority opinion, but
simply as an acknowledgment of the predicament that the Supreme Court has
created for lower courts tasked with assessing reliance at the class-certification
stage of securities actions like this one. In the span of a decade, the Supreme Court
has held that defendants may not challenge materiality at class certification,
Amgen, 568 U.S. at 480â82, while also acknowledging that materiality evidence
may be introduced to rebut price impact and reliance, Goldman, 141 S. Ct. at
1960â61. This instruction places district courts in a peculiar position.
As an initial matter, itâs hard to imagine how class-wide reliance based on
the Basic presumption can be established under Federal Rule of Civil Procedure 23
without consideration of the statementsâ materiality. To be sure, proof of
materiality for class-certification purposes is not needed because plaintiffsâ
materiality claims all rise and fall in unison, leaving no room for individualized
concerns to predominate over class ones. See Amgen, 568 U.S. at 459â60. This is
logical enough. That said, the inescapable reality is that plaintiffs must also satisfy
class-certification requirements under Rule 23 for the element of reliance. See id.
9
at 466â67, 473. Crucially, the Basic presumption is appropriate only if the
âfraud-on-the-market theoryâ holds true â that is, âinvestorsâ ârel[ied] on the
market priceâs integrityâ and material statements were readily incorporated into
share prices in an âefficient market.â Id. at 462â63, 466â67. Since, by definition,
only material statements are reflected in market prices, a showing of materiality at
the class-certification stage is needed â not to answer the merits question of
materiality â but to satisfy a precondition to the very fraud-on-the-market theory
that props up the Basic presumption of reliance. See id. at 490â91 (Thomas, J.,
dissenting).
It is difficult to conceive how a statement that is immaterial under an
objective âreasonable[-]investorâ standard could ever be relied upon by rational
investors. Basic, 485 U.S. at 231â32; see also Louis Loss et al., Fundamentals of
Securities Regulation 896 (7th ed. 2018). Further still, permitting the use of
materiality evidence to resist class certification only when it is dressed in relianceâs
clothing strikes me as needlessly exalting form over substance, since moving
forward, it stands to reason that materiality evidence will virtually always be
presented to courts tasked with resolving class-certification motions. Although
âGoldman d[id] not ask [the Supreme Court] to revisit these precedents,â Goldman,
10
141 S. Ct. at 1962, the tension between Amgen and Goldman cries out for the Court
to take another look at these decisions, since courts are now forced to navigate a
materiality-reliance twilight zone that is shrouded in considerable confusion.
Fortunately, the fog is not so dense in the case before us. I agree with the
majority that our materiality precedents support Goldmanâs position that the
corrective disclosures had no discernible price impact. See Singh v. Cigna Corp.,
918 F.3d 57, 63â64 (2d Cir. 2019) (holding that no âreasonable investor wouldâ
ârely onâ one defendantâs âForm 10-K statements as representations of satisfactory
compliance,â since they were only âsimple and generic assertionsâ about it
âhavingâ and âallocating significant resourcesâ to compliance âpolicies and
proceduresâ (internal quotation marks omitted)); see also ECA, Loc. 134 IBEW Joint
Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 205â06 (2d Cir. 2009)
(finding no materiality with regard to bankâs statements about its integrity and
risk-management capabilities). Those precedents demonstrate that âno reasonable
investor would have attached any significance to the generic statements on which
Plaintiffsâ claims are based,â ATRS II, 955 F.3d at 278 (Sullivan, J., dissenting), and
along with the expert testimony presented to the district court and a healthy dose
11
of common sense, lead us all to agree that the Basic presumption has been
sufficiently rebutted.
III.
For the reasons discussed above and in my prior dissent, see ATRS II,
955 F.3d at 275â79 (Sullivan, J., dissenting), I remain persuaded that Goldman
carried its burden of severing the link between the alleged misstatements and the
price paid by Plaintiffs for their shares, thus rebutting âthe presumption of
relianceâ that adheres where rational investors transact in an efficient market for
securities, Basic, 485 U.S. at 248. I therefore join in the majorityâs conclusion,
though not its precise reasoning, and vote to reverse the district courtâs
class-certification ruling.
12