Rebutting Presumption Of Reliance: Lessons From 2nd Circ.

By Brad Karp, Susanna Buergel, Andrew Ehrlich and Audra Soloway (January 22, 2018, 2:51 PM EST) -- In Arkansas Teachers Retirement System v. Goldman Sachs Group Inc., No. 16-250 (2d Cir. Jan. 12, 2018), the Second Circuit vacated the certification of a securities fraud class action due to two errors by the district court in its rejection of defendants' rebuttal of the fraud-on-the-market presumption of reliance. First, the Second Circuit held that the district court's statement that the defendants had failed to "conclusively" prove a "complete absence of price impact" created doubt as to whether the district court had correctly applied the preponderance standard. Second, the Second Circuit held that the district court should have considered the defendants' evidence that Goldman Sachs' stock price did not drop on 34 dates — prior to the plaintiffs' alleged corrective disclosure dates — on which news sources reported alleged conflicts of interest in Goldman Sachs' collateralized debt obligation business....

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