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Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System: Supreme Court Vacates Class Certification Order in Decade-Long Class Action, Clarifying That Courts May Consider the Materiality of Alleged Misstatements in Applying Fraud-on-the-Market Pres
Wednesday, June 30, 2021
On June 21, 2021, the United States Supreme Court issued a decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System,
1 vacating a decision of the Second Circuit that affirmed certification of a securities fraud class action against The Goldman Sachs Group, Inc. The Court directed the Second Circuit to consider the “generic” nature of Goldman’s alleged misrepresentations in assessing whether Goldman had successfully rebutted the fraud on the market presumption of reliance for purposes of plaintiff’s claim under Section 10(b) of the Securities Exchange Act of 1934, and therefore, whether class certification is appropriate. In an opinion by Justice Amy Coney Barrett, the Court held that courts at class certification must consider “all evidence relevant to price impact,” which is a prerequisite to invoking the fraud-on-the-market presumption afforded to plaintiffs in an efficient market, “regardless whether that evidence overlaps with materiality or any other merits issue.” Because the Second Circuit’s opinion left “sufficient doubt” as to whether it had “properly considered the generic nature of the alleged misrepresentations,” the Court vacated and remanded the case to the lower court. A 6-3 majority of the Court also held that a defendant seeking to rebut the fraud-on-the-market presumption of reliance (also known as the Basic presumption) bears the burden of persuasion to show, by a preponderance of the evidence, that a misrepresentation did not in fact lead to a distortion of the price of a security.