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SCOTUS Finds While Defendants Carry the Burden of Proof in Overcoming Basic’s Presumption of Reliance, Defendants May Address the Generic-Nature of Alleged Misstatements at the Class Certification Stage Wednesday, June 23, 2021
On Monday, June 21, 2021, the U.S. Supreme Court issued its much-awaited decision on the federal securities laws in
Goldman Sachs Grp. v. Arkansas Teachers’ Retirement Sys., No. 20-222. For the past several years, the Court has addressed important issues affecting the securities bar, and this year was no different. The Court’s decision addressed two important questions that often affect parties at the class-certification stage: (1) whether a court may consider the generic nature of an alleged misrepresentation for purposes of rebutting
Edwards v. Vannoy rewrites
The Supreme Court this morning handed down an opinion in
Edwards v. Vannoy, No. 19–5807 (S. Ct. May 17, 2021) (available here), which holds that the
Ramos jury-unanimity rule . does not apply retroactively on federal collateral review. Justice Kavanaugh wrote the opinion for the Court, and it starts this way:
Last Term in
Ramos v. Louisiana, 590 U. S. (2020), this Court held that a state jury must be unanimous to convict a criminal defendant of a serious offense.
Ramos repudiated this Court’s 1972 decision in
Apodaca v. Oregon, 406 U.S. 404, which had allowed non-unanimous juries in state criminal trials. The question in this case is whether the new rule of criminal procedure announced in
3 that a defendant must have the opportunity to rebut this presumption by demonstrating that the statements at issue did not impact the stock price. However, lower courts have struggled to apply these decisions due to the lack of guidance on the showing required to rebut the presumption.
Goldman challenges the Second Circuit’s decision to uphold class certification in an inflation-maintenance theory securities fraud class action. Under the inflation-maintenance theory, plaintiffs can claim that misstatements kept a company’s stock price artificially high, rather than causing the price to decrease. Importantly, under this theory, defendants likely cannot look to evidence that the price did not increase initially after the misstatement, but rather may need to rely on evidence that the statement was too generic to impact the price. In oral argument, Goldman asserted that the Second Circuit committed two legal errors. First, Goldman argued that “the court refused to consider the
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Loss causation – the causal connection between a
defendant s fraudulent conduct and a plaintiff s economic
loss – is a required element of a federal securities fraud
claim.
1 A typical securities class action is brought on
behalf of investors who contend they purchased a company s
stock in reliance on corporate misstatements. The investors allege
that they purchased their shares at a price artificially inflated
by the misstatements, and then suffered damage when the truth about
the misstatements was revealed to the market and the stock price
dropped.