Goldman Sachs: Common Sense Prevailed in the 2nd Circuit Webinar Recap

On August 10, 2023, the Second Circuit Court of Appeals reversed the S.D.N.Y. class certification order in Goldman Sachs effectively decertifying the securities class action and cementing the directives of the Supreme Court pertaining to price impact evidentiary requirements to rebut the presumptions of reliance. The ruling empowers district court Judges with data-driven price impact evidence to determine whether a causal link exists between the statements investor plaintiffs allege defendants misrepresented and the resulting decline in stock price from allegedly related corrective disclosures. The webinar will provide the audience with a basic overview of Goldman’s price impact standards and how specialized data science can support defendant’s in motion to dismiss and class certification contests to increase the probability of rebutting the presumptions of reliance to limit high severity losses on open securities class actions. Attendees will learn what stock price impact means in the context of class certification of Rule 10b-5 claims and gain a better understanding of why this decision is so important for defendants and insurance carriers, particularly in an event-driven ecosystem.

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A speaker from this webinar, Nessim Mezrahi, provided some commentary on this session, sharing key takeaways in the Professional Liability field. See the remarks below.

Why is this topic important for professional liability practitioners?

The Goldman Sachs decision in the 2^nd Circuit is the culmination of a decade-long class certification battle that led to class decertification effectively eliminating billions of dollars in potential settlement losses for the insured and participating D&O insurance carriers.

The ruling in Goldman Sachs empowers the Federal Judiciary with all record evidence relevant to price impact  to assess the link between back-end price drop and front-end misrepresentation to effectively test whether plaintiffs alleged misleading generic and potentially generalized statements match the alleged revelation of truth that allegedly prompted a decline in stock price.   

The ruling in Goldman Sachs delivers greater return on investment on a legal defense that applies a price impact strategy to limit accumulated loss severity as evidenced by the recent ruling in ExxonMobil in the 5^th Circuit. 

Takeaway:  Practitioners stand to make a notable impact on limiting potential settlement losses on active securities class actions by learning how to apply and interpret the results of event study analyses to evaluate the validity of plaintiffs securities claims that allege violations of Rule 10b-5 and the Exchange Act by Directors and Officers of U.S. public companies.

What are the top takeaways from this webinar discussion? 

A strong price impact defense that comports with the Supreme Courts Mismatch Framework has a greater likelihood of rebutting the presumption of reliance than a Market Inefficiency defense on fraud-on-the-market claims as evidenced by the result in Goldman Sachs in the 2^nd Circuit.

A price impact defense has a greater return on investment even if the Court deems the market for the Defendants common stock to be informationally efficient and the class is certified.  The Court in ExxonMobil in the 5^th Circuit cut Plaintiffs alleged Class Period by ~76% and disqualified six (6) alleged corrective disclosures that exhibited an absence of price impact.  The result was a remarkable reduction in potential settlement losses based on price impact defenses afforded by the ruling in Goldman Sachs.

A price impact defense requires the application of event study analysis to evaluate stock price reaction of the alleged misstatements (front-end) and the allegedly related corrective disclosures (back-end).

Takeaway:  Some established D&O insurance carriers now offer event study cost endorsement on event study analyses to support a robust price impact defense.

If someone is interested in learning more about this topic are there other resources you would recommend for more information? 

SAR publishes the quarterly SCA Rule 10b-5 Exposure Report that identifies and quantifies the impact of non-conforming stock drops based on claim-specific event study results according to investor plaintiffs preliminary pleadings to assess securities class action loss severity more accurately.  Practitioners may access the reports and other thought leadership pieces on price impact defenses, here: https://www.sarlit.com/thought-leadership

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Meet the Speakers