Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System

The case arose from a securities fraud class action against Goldman Sachs Group, Inc. and certain executives. Plaintiffs, led by Arkansas Teacher Retirement System, alleged that Goldman made materially false statements about its conflict-of-interest controls in mortgage-backed securities, artificially inflating its stock price. The district court certified the class, and the Second Circuit affirmed, holding that defendants could not introduce evidence of lack of price impact at the class certification stage to rebut the fraud-on-the-market presumption of reliance. On June 21, 2021, the U.S. Supreme Court reversed and remanded. It held that defendants may seek to rebut the presumption at class certification by showing that the alleged misrepresentations did not affect the stock price, and the burden of persuasion is a preponderance of the evidence. The Court emphasized that the ultimate question is whether the statements actually affected the market price.

The U.S. Supreme Court vacated the Second Circuit's judgment and remanded. It held that defendants can introduce price impact evidence at class certification, with the burden of persuasion by a preponderance of the evidence, to rebut the Basic presumption. The lower court must consider whether the evidence severs the link between the alleged misrepresentation and the stock price.

Whether a defendant in a securities fraud class action may rebut the fraud-on-the-market presumption of reliance at the class certification stage by introducing evidence that the alleged misrepresentations had no price impact, and what standard of proof applies.

The ruling makes it easier for defendants to defeat securities fraud class certification by challenging price impact earlier, thereby raising the bar for plaintiffs and potentially reducing the number and settlement value of such suits. It refines the fraud-on-the-market doctrine and shifts some evidentiary burdens in class actions.