On August 26, 2021, the United States Court of Appeals for the Second Circuit vacated and remanded a district court order certifying a class of stockholders asserting securities fraud against a global financial institution (the “Company”) under the Securities Exchange Act of 1934 because it was “unclear” as to whether the district court considered the generic nature of the Company's alleged misrepresentations in its price impact inquiry in accordance with the legal standard recently clarified by the United States Supreme Court. Arkansas Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., No. 18-3667, 2021 WL 3776297 (2d Cir. Aug. 26, 2021). The Second Circuit held that on remand, the district court should consider all record evidence relevant to price impact regardless of whether that evidence overlaps with materiality or any other merits issue, as instructed by the Supreme Court.
In a decision previously covered here, in June 2021, the Supreme Court vacated and remanded the Second Circuit's decision upholding the district court's certification of a class because there was “sufficient doubt” as to whether the Second Circuit had considered the generic nature of the Company's misrepresentations. Specifically, the Supreme Court held that, in the context of class certification in a case involving claims under Section 10(b) of the Exchange Act: (i) the generic nature of a misrepresentation is important evidence of price impact that courts should consider at the class certification stage, regardless of whether that evidence overlaps with materiality and any other merits issue, and (ii) defendants bear the burden of persuasion to prove a lack of price impact by a preponderance of the evidence in order to rebut the presumption of classwide reliance established under the Supreme Court's decision in Basic Inc. v. Levinson.
The parties submitted supplemental briefing to the Second Circuit summarizing all evidence in the record relating to the price impact of the corrective disclosures, including the generic nature of the alleged misrepresentations. Upon review, the Second Circuit noted that the district court's class certification decision did not discuss either the generic nature of the alleged misrepresentations in its evaluation of the evidence relevant to price impact, or the parties' expert and rebuttal reports that focused on the generic nature of the alleged statements. The Second Circuit further held that the parties' arguments “raise fact-intensive issues better evaluated by the district court in the first instance.”
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