May 28, 2020

Submitted on behalf of several law professors and former SEC officials, the brief argues the recent split-panel ruling could leave companies that make generic disclosures unable to rebut the Basic presumption at the class certification in securities fraud cases.

On May 22, Willkie filed an amicus brief in the U.S. Court of Appeals for the Second Circuit on behalf of several law professors and former SEC officials in support of defendant-appellant Goldman Sachs’ petition for panel rehearing or rehearing en banc in the Arkansas Teacher Retirement System, et al. v. Goldman Sachs Group, Inc., et al. securities case – one of the most high-profile securities cases in the country. This amicus brief has received widespread media coverage from, among others, Reuters.

This high-profile case presents the exceptionally important question of whether defendants can actually rebut the fraud-on-the-market presumption created in Basic Inc. v. Levinson, 485 U.S. 224 (1988), in opposing class certification. The Second Circuit panel majority affirmed the district court’s granting of class certification, despite the fact that defendants had presented convincing evidence that there was no price inflation caused by Goldman’s alleged misstatements, and that the alleged misstatements were too generic in nature to have maintained inflated stock prices. Willkie argued that this ruling represents an unprecedented expansion of the price maintenance theory and practically renders the Basic presumption difficult to rebut. The brief also argued that a rehearing now is especially important given the ongoing COVID-19 crisis, as the ruling could leave companies that make generic disclosures about mitigating risk with respect to COVID defenseless against plaintiffs’ class certification arguments. Alison Frankel of Reuters called this argument “intriguing,” adding that Willkie’s amicus brief pointed out that “the 2nd Circuit decision takes on heightened significance as companies cope with COVID-19 – an argument that just might give the judges of the 2nd Circuit – who are historically resistant to en banc rehearings – a reason to think twice about Goldman’s petition.”

The Willkie team was led by partner Todd Cosenza, along with partner Charles Cording and associate Madeleine Tayer.

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