## Facts

- Putative class of Goldman Sachs shareholders alleged violations of Exchange Act § 10(b) and Rule 10b-5 based on public statements about integrity and conflict management.
- The challenged statements were largely high-level “business principles” assertions (e.g., clients come first, dedication to ethical conduct, reputation as a key asset) and some more conflicts-focused statements (e.g., extensive controls to identify and address conflicts).
- Plaintiffs alleged these statements were false or misleading given undisclosed conflicts in certain CDO transactions during the 2007–08 period, including the Abacus transaction.
- Plaintiffs proceeded on an inflation-maintenance theory, claiming the statements maintained an already inflated stock price.
- Plaintiffs attributed later stock drops to corrective events, including an SEC enforcement action, related reporting, and subsequent settlements, which allegedly revealed the conflicts.
- After multiple certifications, vacaturs, and remands (including Supreme Court guidance on considering “genericness” at class certification and the defendant’s burden to show no price impact), the district court again certified a Rule 23(b)(3) class.
- Defendants appealed the third certification order under Rule 23(f).

## Issues

1. Whether defendants rebutted the Basic presumption of classwide reliance by proving, by a preponderance of the evidence, that the alleged misstatements had no price impact.
2. Whether the district court clearly erred in weighing the generic nature of the alleged statements against the specificity of the asserted corrective disclosures when assessing price impact.
3. Whether, absent the Basic presumption, individual reliance issues would predominate such that Rule 23(b)(3) class certification was improper.

## Decision

- The Second Circuit reversed the class certification order and remanded with instructions to decertify the class.
- Defendants rebutted the Basic presumption by a preponderance of the evidence because the record showed an insufficient link between the alleged misstatements and the later price declines.
- The district court clearly erred by discounting the significance of the generic, aspirational “business principles” statements in the price-impact analysis.
- Although the district court did not clearly err in rejecting certain alternative corrective-disclosure dates proposed by defendants, that point did not cure the central error in the overall price-impact assessment.
- The court acknowledged inflation-maintenance as a permissible theory but held it failed on these facts because the mismatch between generic statements and specific disclosures broke the price-impact link needed to preserve the presumption of classwide reliance.

## Legal Principles

- In an efficient market, Basic permits a presumption of classwide reliance for public misrepresentations, but defendants may rebut the presumption at class certification by proving lack of price impact by a preponderance of the evidence.
- The generic nature of an alleged misrepresentation is probative of price impact at class certification and must be weighed against the specificity and content of alleged corrective disclosures tied to price drops.
- Inflation-maintenance can establish price impact, but it requires a plausible, evidentiary link between the challenged statements and the later decline; specific enforcement-related revelations may not establish that link when the challenged statements are highly generic.
- If the Basic presumption is rebutted, individualized reliance issues generally predominate, defeating Rule 23(b)(3) predominance.

## Conclusion

The Second Circuit ordered decertification because defendants proved that Goldman’s highly generic “business principles” statements lacked price impact, breaking the connection required for inflation-maintenance and rebutting the Basic presumption, so individualized reliance would predominate under Rule 23(b)(3).


Arkansas Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 77 F.4th 74 (2d Cir. 2023)