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

Pension funds including the Arkansas Teacher Retirement System (collectively, the funds) (plaintiffs) brought a securities-fraud class action in federal district court against The Goldman Sachs Group and former Goldman Sachs executives (collectively, Goldman) (defendants). The funds alleged securities fraud under an inflation-maintenance theory, asserting that Goldman had maintained an artificially inflated stock price by repeatedly making generic statements about Goldman’s ability to manage conflicts of interest based on Goldman’s purported internal procedures and policies. The funds claimed that these statements were false or misleading because Goldman actually had several undisclosed conflicts of interest and that when the truth about the conflicts was revealed, Goldman’s stock price dropped, causing the funds to suffer losses. The funds sought certification of a class of shareholders based on a presumption—recognized by the United States Supreme Court in Basic Inc. v. Levinson—that in trading a company’s shares, investors have relied on a company’s public material misrepresentations because those misrepresentations would be reflected in the shares’ market price in an efficient market. Goldman sought to rebut the Basic presumption, and thereby defeat class certification, by showing a lack of price impact (i.e., that any alleged misrepresentations had no impact on Goldman’s stock prices). The district court certified the class, and the Second Circuit affirmed. The United States Supreme Court granted certiorari. Before the Supreme Court, Goldman argued that the Second Circuit had erred by (1) treating the generic nature of Goldman’s alleged misrepresentations as irrelevant to price impact and (2) requiring Goldman to bear the burden of persuasion on price impact.