Ark. Teacher Ret. Sys. v. Goldman Sachs Grp., Inc.

18-3667
Ark. Teacher Ret. Sys. v. Goldman Sachs Grp., Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
______________

August Term 2018

(Argued: June 26, 2019 | Decided: April 7, 2020)

Docket No. 18-3667

ARKANSAS TEACHER RETIREMENT SYSTEM, WEST VIRGINIA
INVESTMENT MANAGEMENT BOARD, PLUMBERS AND PIPEFITTERS
PENSION GROUP,

Plaintiffs-Appellees,

PENSION FUNDS, ILENE RICHMAN, Individually and on behalf of all others
similarly situated,

Plaintiffs,

HOWARD SORKIN, Individually and on behalf of all others similarly situated,
TIKVA BOCHNER, On behalf of herself and all others similarly situated, DR.
EHSAN AFSHANI, LOUIS GOLD, Individually and on behalf of all others
similarly situated, THOMAS DRAFT, individually and on behalf of all others
similarly situated,

Consolidated Plaintiffs,

v.

GOLDMAN SACHS GROUP, INC., LLOYD C. BLANKFEIN, DAVID A.
VINIAR, GARY D. COHN,

Defendants-Appellants,
 SARAH E. SMITH,

Consolidated Defendant.
______________

Before:
WESLEY, CHIN, and SULLIVAN, Circuit Judges.

This is a class action lawsuit brought by shareholders of Defendant-
Appellant Goldman Sachs Group, Inc. The shareholders allege that Goldman and
several of its executives committed securities fraud in violation of § 10(b) of the
Securities Exchange Act of 1934 and Rule 10b–5 promulgated thereunder by
misrepresenting Goldman’s freedom from, or ability to combat, conflicts of
interest in its business practices. The shareholders argue that several high-profile
government fines and investigations revealed the truth of Goldman’s flawed
conflicts management to the market thereby reducing its share price.
Several years ago, the United States District Court for the Southern District
of New York (Crotty, J.) certified a shareholder class under Federal Rule of Civil
Procedure 23(b)(3). In 2018, we vacated the class certification order, holding that
the district court had failed to apply the “preponderance of the evidence” standard
for determining whether Goldman had rebutted a legal presumption, known as
the Basic presumption, that the shareholders relied on Goldman’s alleged
misstatements in purchasing its stock at the market price. We remanded for the
court to apply the correct standard and to consider Goldman’s evidence intended
to rebut the Basic presumption.
On remand, the district court certified the class once more. Goldman argues
on legal and evidentiary grounds that this decision was an abuse of discretion. On
the law, Goldman contends that the court misapplied the inflation-maintenance
theory for demonstrating price impact. It also argues that we should modify the
theory to exclude what it terms “general statements.” On the evidence, Goldman
argues that the court erroneously rejected its rebuttal evidence in holding that it
failed to rebut the Basic presumption.
The district court applied the correct legal standard and we find no abuse of
discretion in its weighing of Goldman’s rebuttal evidence. We AFFIRM. Judge
Sullivan dissents in a separate opinion.

2
 _________________

ROBERT J. GIUFFRA, JR. (Richard H. Klapper, David M.J. Rein,
Benjamin R. Walker, Jacob E. Cohen, on the brief), Sullivan &
Cromwell LLP, New York, NY, for Defendants-Appellants.

THOMAS C. GOLDSTEIN, Goldstein & Russell, P.C., Bethesda, MD
(Kevin K. Russell, Goldstein & Russell, P.C., Bethesda, MD;
Spencer A. Burkholz, Joseph D. Daley, Robbins Geller Rudman
& Dowd LLP, San Diego, CA; Thomas A. Dubbs, James W.
Johnson, Michael H. Rogers, Irina Vasilchenko, Labatow
Sucharow LLP, New York, NY, on the brief), for Plaintiffs-
Appellees.

Lewis J. Liman, Cleary Gottlieb Steen & Hamilton LLP, New York,
NY (Jared M. Gerber, Lina Bensman, Cleary Gottlieb Steen &
Hamilton LLP, New York, NY; Steven P. Lehotsky, U.S.
Chamber Litigation Center, Washington, D.C., on the brief), for
Amicus Curiae Chamber of Commerce of the United States of America
in Support of Defendants-Appellants.

Todd G. Cosenza (Maxwell A. Bryer, on the brief), Willkie Farr &
Gallagher LLP, New York, NY, for Amici Curiae Former United
States Securities and Exchange Commission Officials and Securities
Scholars in Support of Defendants-Appellants.

Michael C. Keats, Fried, Frank, Harris, Shriver & Jacobson LLP, New
York, NY, for Amici Curiae Economic Scholars in Support of
Defendants-Appellants.

Jonathan K. Youngwood, Simpson Thacher & Bartlett LLP, New
York, NY (Craig S. Waldman, Joshua C. Polster, Daniel H.
Owsley, Simpson Thacher & Bartlett LLP, New York, NY; Ira
D. Hammerman, Kevin M. Carroll, Securities Industry and
Financial Markets Association, Washington, D.C.; Gregg
Rozansky, Bank Policy Institute, Washington, D.C., on the brief),
for Amici Curiae Securities Industry and Financial Markets

3
 Association and Bank Policy Institute in Support of Defendants-
Appellants.

Deepak Gupta, Gupta Wessler PLLC, Washington, D.C. (Gregory A.
Beck, Gupta Wessler PLLC, Washington, D.C.; Salvatore J.
Graziano, Jai K. Chandrasekhar, Bernstein Litowitz Berger &
Grossmann LLP, New York, NY, on the brief), for Amici Curiae
Securities Law Scholars in Support of Plaintiffs-Appellees.

Marc I. Gross, Pomerantz LLP, New York, NY (Jeremy A. Lieberman,
Pomerantz LLP, New York, NY; Ernest A. Young, Apex, NC,
on the brief), for Amici Curiae Procedure Scholars in Support of
Plaintiffs-Appellees.

J. Carl Cecere, Cecere PC, Dallas, TX (David Kessler, Darren Check,
Kessler Topaz Meltzer & Check LLP, Radnor, PA, on the brief),
for Amicus Curiae National Conference on Public Employee
Retirement Systems in Support of Plaintiffs-Appellees.

________________

WESLEY, Circuit Judge:

This is the second time this securities class action has arrived at our doorstep

on a Rule 23(f) appeal. The first time we took the case, the United States District

Court for the Southern District of New York (Crotty, J.) had certified under Rule

23(b)(3) a shareholder class suing Goldman Sachs Group, Inc. and a handful of its

executives (collectively, “Goldman”) for securities fraud. We vacated the class

certification order, holding that the district court did not apply the

“preponderance of the evidence” standard for determining whether Goldman had

4
rebutted a legal presumption, known as the Basic presumption, that the

shareholders relied on Goldman’s allegedly material misstatements in choosing to

purchase its stock at the market price. See Ark. Teachers Ret. Sys. v. Goldman Sachs

Grp., Inc. (ATRS I), 879 F.3d 474, 484–85 (2d Cir. 2018); see also Basic Inc. v. Levinson,

485 U.S. 224, 245–48 (1988). We also held that the court erroneously declined to

consider some of Goldman’s evidence of “price impact”—that is, the question of

whether the revelation that Goldman’s statements were false affected its share

price. See ATRS I, 879 F.3d at 485–86.

On remand, the district court ordered additional briefing and held an

evidentiary hearing. After concluding that Goldman failed to rebut the Basic

presumption by a preponderance of the evidence, the court certified the class once

more. See In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461 (PAC), 2018 WL

3854757 (S.D.N.Y. Aug. 14, 2018). We again granted Goldman’s petition for

permission to appeal under Rule 23(f).

The question before us is whether the district court abused its discretion by

certifying the shareholder class, either on legal grounds or in its application of the

Basic presumption. For the following reasons, we hold that it did not.

5
 BACKGROUND

Factual Background

The facts giving rise to this lawsuit are discussed at length in our prior

opinion. See ATRS I, 879 F.3d 478–82. All that is required here is an abridged

version.

Between 2006 and 2010, Goldman made the following statements about its

business practices:

Our reputation is one of our most important assets. As we have
expanded the scope of our business and our client base, we
increasingly have to address potential conflicts of interest, including
situations where our services to a particular client or our own
proprietary investments or other interests conflict, or are perceived to
conflict, with the interest of another client . . . .

We have extensive procedures and controls that are designed to
identify and address conflicts of interest . . . .

Our clients’ interests always come first. Our experience shows that if
we serve our clients well, our own success will follow. . . .

We are dedicated to complying fully with the letter and spirit of the
laws, rules and ethical principles that govern us. Our continued
success depends upon unswerving adherence to this standard. . . .

Most importantly, and the basic reason for our success, is our
extraordinary focus on our clients. . . .

Integrity and honesty are at the heart of our business.

6
J.A. 87–88, 93 (alterations omitted). The Plaintiffs-Appellees (“shareholders”)—

individuals and institutions holding shares of Goldman’s common stock—allege

that these statements were false because Goldman made them while knowing that

it was riddled with undisclosed conflicts of interest.

The conflicts at issue here surround several collateralized debt obligation

(“CDO”) transactions involving subprime mortgages. Chief among them is the

Abacus 2007 AC-1 (“Abacus”) transaction. Publicly, Goldman marketed Abacus

as an ordinary asset-backed security, through which investors could buy shares in

bundles of mortgages that the investors, and presumably Goldman, hoped would

succeed. But behind the scenes, Goldman purportedly allowed the hedge fund

Paulson & Co. to play an active role in selecting the mortgages that constituted the

CDO. And Paulson, which bet against the success of the Abacus investment

through short sales, chose risky mortgages that it “believed would perform poorly

or fail.” Id. at 59. The alleged plan worked, and Paulson made roughly $1 billion

at the expense of the CDO investors (who are not the plaintiffs here). Goldman

ultimately admitted that it failed to disclose Paulson’s role in the portfolio

selection, and it reached a $550 million settlement with the SEC—the largest-ever

penalty paid by a Wall Street firm at the time. See generally Press Release, SEC,

7
Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime

Mortgage CDO (July 15, 2010), https://www.sec.gov/news/press/2010/2010-

123.htm. Goldman allegedly engaged in similar conduct with respect to three

other CDOs. At times, Goldman allegedly represented to its investors that it was

aligned with them when it was in fact short selling against their positions.

Early Litigation History

In 2011, the named plaintiffs filed a class action complaint in the United

States District Court for the Southern District of New York, seeking under Federal

Rule of Civil Procedure 23(b)(3) to represent a class of all individuals and entities

that acquired shares of Goldman’s common stock between February 5, 2007 and

June 10, 2010. They alleged that Goldman and several of its directors violated

§ 10(b) of the Securities Exchange Act of 1934 and Rule 10b–5 promulgated

thereunder. See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b–5. The crux of their claim is

that Goldman’s representations about being conflict free artificially maintained an

inflated stock price and that the revelations of Goldman’s conflicts, such as those

presented by the SEC in its complaint against Goldman concerning the Abacus

deal, were “corrective disclosures” that caused the market to devalue their

8
Goldman shares. 1 They noted, for example, that Goldman’s share price dropped

13% when the SEC filed a securities-fraud complaint against Goldman in

connection with the Abacus transaction, and that it dropped even further on two

later dates when news broke that several federal agencies were investigating

Goldman for its role in the other conflicted transactions. In the shareholders’ view,

these announcements revealed to the market that Goldman had created “clear

conflicts of interest with its own clients” by “intentionally packag[ing] and

s[elling] . . . securities that were designed to fail, while at the same time reaping

billions for itself or its favored clients by taking massive short positions” in the

same transactions. J.A. 49. They claim that they lost over $13 billion as a result of

Goldman’s fraud.

Goldman moved to dismiss the complaint under Federal Rules of Civil

Procedure 9(b) and 12(b)(6). It argued that the alleged misstatements were not, as

the securities law requires, “material.” 2 This was because, in Goldman’s view, the

1A “corrective disclosure” is an announcement or series of announcements that reveals
to the market the falsity of a prior statement. See Lentell v. Merrill Lynch & Co., 396 F.3d
161, 175 n.4 (2d Cir. 2005).
2The six elements of securities fraud are “(1) a material misrepresentation or omission by
the defendant; (2) scienter; (3) a connection between the misrepresentation or omission

9
statements were too general and vague for a reasonable shareholder to have relied

on them in determining the value of Goldman’s stock. Thus, Goldman argued, the

statements had no impact on its stock price, and any loss the shareholders suffered

was due to something other than the corrective disclosures. The district court

largely disagreed, holding that most of Goldman’s statements presented an

actionable question of materiality. See Richman v. Goldman Sachs Grp., Inc., 868 F.

Supp. 2d 261, 276, 280 (S.D.N.Y. 2012). The court did, however, agree with

Goldman that some of its statements were immaterial as a matter of law; it

dismissed the complaint to the extent it relied upon those statements. See id. at

274. The court subsequently denied Goldman’s motions for reconsideration of,

and an interlocutory appeal from, the order denying the motion to dismiss. See In

re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461 (PAC), 2014 WL 2815571, at

*6 (S.D.N.Y. June 23, 2014) (reconsideration); In re Goldman Sachs Grp., Inc. Sec.

Litig., No. 10 Civ. 3461 (PAC), 2014 WL 5002090, at *3 (S.D.N.Y. Oct. 7, 2014)

(appeal).

and the purchase or sale of a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners, LLC v.
Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008).

10
 Class Certification and the First Appeal

Following discovery, the shareholders moved for class certification. To

certify a class under Rule 23 of the Federal Rules of Civil Procedure, the named

plaintiffs must demonstrate (1) that the class is so numerous that joinder is

impracticable, (2) that at least one question of law or fact is common to the class,

(3) that the class representatives’ claims are typical of the classwide claims, and

(4) that the class representatives will be able to fairly and adequately protect the

interests of the class. See Fed. R. Civ. P. 23(a). Goldman did not contest that these

requirements were met. Instead, it focused on an additional prerequisite for

classes primarily seeking money damages, found in Rule 23(b)(3), that common

questions of law or fact predominate over individual questions that pertain only

to certain class members. See id. 23(b)(3).

Facially, securities fraud appears to be a bad fit for the predominance

requirement because the key question is whether each individual shareholder

relied on a defendant’s misstatement in choosing to purchase its stock. But under

Basic Inc. v. Levinson, 485 U.S. 224, courts may presume reliance on a classwide

basis if the plaintiffs “establish certain prerequisites—namely, that [the]

defendants’ misstatements were publicly known, their shares traded in an efficient

11
market, and [the] plaintiffs purchased the shares at the market price after the

misstatements were made but before the truth was revealed.” ATRS I, 879 F.3d at

481; see Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), 573 U.S. 258, 268

(2014). 3 The idea behind Basic is that investors presume that theoretically efficient

markets, such as the New York Stock Exchange or Nasdaq, incorporate all public

information—including material misstatements—into a share price. See 485 U.S.

at 246; see generally 7 William B. Rubenstein, Newberg on Class Actions

§§ 22:16, 22:81 (5th ed.).

Plaintiffs seeking to invoke the Basic presumption need not directly prove

that the defendant’s statements had price impact—that is, an effect on its share

price. See Halliburton II, 573 U.S. at 278–79. They may instead rely on the

requirements for invoking the Basic presumption as an “indirect proxy” for a

showing of price impact. See id. at 281. “But an indirect proxy should not preclude

. . . a defendant’s direct, more salient evidence showing that the alleged

misrepresentation did not actually affect the stock’s market price and,

consequently, that the Basic presumption does not apply.” Id. at 281–82; see also

3Materiality is also a prerequisite for Basic, but class members need not prove it prior to
class certification. See Halliburton II, 573 U.S. at 276.

12
Basic, 485 U.S. at 248 (noting that “[a]ny showing that severs the link between the

alleged misrepresentation and . . . the price received (or paid) by the plaintiff . . .

will be sufficient to rebut the presumption of reliance” because “the basis for

finding that the fraud had been transmitted through market price would be

gone”).

Goldman attempted to rebut the Basic presumption in several ways. It

introduced an event study designed to show that its alleged misstatements had no

impact on its share price. 4 It also argued that the market did not react on several

dozen occasions before the corrective-disclosure dates when media outlets

reported on its alleged conflicts of interest; and, thus, the market was indifferent

to this information when it appeared in the corrective disclosures. Under

Goldman’s theory, its share price declined solely because of new information

4An event study isolates the stock price movement attributable to a company (as opposed
to market-wide or industry-wide movements) and then examines whether the price
movement on a given date is outside the range of typical random stock price fluctuations
observed for that stock. If the isolated stock price movement falls outside the range of
typical random stock price fluctuations, it is statistically significant. If the stock price
movement is indistinguishable from random price fluctuations, it cannot be attributed to
company-specific information announced on the event date. See Mark L. Mitchell & Jeffry
M. Netter, The Role of Financial Economics in Securities Fraud Cases: Applications at the
Securities and Exchange Commission, 49 Bus. Law. 545, 556–69 (1994); In re Vivendi, S.A. Sec.
Litig., 838 F.3d 223, 253–56 (2d Cir. 2016).

13
contained in the corrective disclosures: that several federal agencies were

enforcing the securities laws against Goldman with investigations and fines for

the same allegedly fraudulent trading practices.

The district court rejected Goldman’s theory and certified the class. See In

re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461 (PAC), 2015 WL 5613150

(S.D.N.Y. Sept. 24, 2015). We vacated this decision on appeal. See ATRS I, 879 F.3d

at 478. We began our analysis by noting Goldman’s concession that the

shareholders successfully invoked the Basic presumption. Id. at 484. But as to the

rebuttal stage, we found that the district court failed to apply the “preponderance

of the evidence” standard, which our Court had clarified in an intervening

decision. Id. at 485 (citing Waggoner v. Barclays PLC, 875 F.3d 79, 101 (2d Cir. 2017)).

We also found that, in making this determination, the court mistakenly concluded

that certain price-impact evidence Goldman had sought to introduce was

irrelevant under Rule 23. Id. at 486. We remanded for the court to reconsider,

under the correct standard and with this additional evidence, whether Goldman

could rebut the Basic presumption. Id. We offered no views on the merits of that

question or the sufficiency of Goldman’s rebuttal evidence. Id.

14
 Proceedings on Remand

On remand, the district court accepted supplemental briefs from the parties

and held an evidentiary hearing and oral argument. It framed the issue as whether

Goldman could “demonstrate[], by a preponderance of the evidence, that the

alleged misstatements had no price impact.” In re Goldman, No. 10 Civ. 3461

(PAC), 2018 WL 3854757, at *2.

Although Goldman bore the burden of persuasion, the district court first

looked to the shareholders’ evidence intended to show the shortcomings of

Goldman’s rebuttal argument. It characterized the shareholders’ claims as resting

on an “inflation-maintenance” theory: that “the misstatements themselves did not

inflate the stock price, [but] allegedly served to maintain an already inflated stock

price.” Id. 5 The court credited evidence from Dr. John D. Finnerty, the

shareholders’ expert who testified at the evidentiary hearing, “that the news of

Goldman’s conflicts on the . . . corrective disclosure dates negatively impacted

5 This theory is sometimes referred to as the “price-maintenance theory,” and what we
term “inflation-maintaining statements” are sometimes called “price-maintaining
statements.” We use the “inflation” language because it is more precise and the phrase
“price-maintenance” also has currency in antitrust law. See also Vivendi, 838 F.3d at 258
(dubbing this doctrine the “inflation-maintenance theory”).

15
Goldman’s stock price.” Id. at *4. It concluded that “Dr. Finnerty’s model, at the

very least, establishes a link between the news of Goldman’s conflicts and the

subsequent stock price declines.” Id.

The district court then turned to evidence presented by two of Goldman’s

experts to rebut the Basic presumption. The first expert, Dr. Paul Gompers, cited

news articles published on thirty-six dates prior to the corrective disclosures

discussing aspects of Goldman’s conflicts. Asserting that the content of the reports

was no different than the content of the corrective disclosures, and noting that

Goldman’s share price did not meaningfully move on the dates of the reports, Dr.

Gompers concluded that the market was indifferent to the news of Goldman’s

conflicts. The court found this evidence was “not persuasive.” Id. Although it

agreed (as did Dr. Finnerty) that Goldman’s stock price did not move on the thirty-

six dates, it found that “[t]he absence of price movement, . . . in and of itself, is not

sufficient to sever the link between the first corrective disclosure and the

subsequent stock price drop.” Id. This was because “the [Abacus] complaint was

the first to expose hard evidence of Goldman’s client conflicts” by its inclusion of

“direct quotes from damning emails . . . [and] internal memoranda, disclosing

hard evidence that Goldman had indeed engaged in conflicts to its own

16
advantage.” Id. at *5. The court found that this hard evidence and other “material

information” about “the nature and extent of Goldman’s client conflicts” “had not

been described in any of the 36 more generic reports on conflicts.” Id. at *4. 6 It

found that Dr. Gompers did not “credibly explain[] how such hard evidence did

not contribute to the price decline following the first corrective disclosure.” Id. at

*5.

The district court was similarly unpersuaded by Goldman’s second expert,

Dr. Stephen Choi. Dr. Choi presented an event study concluding that, because

“the conflicts were reported on 36 separate occasions with no price movement, the

. . . price drops [following the corrective disclosures] must have been due

exclusively to the news of enforcement activities [such as the Abacus complaint].”

Id. at *3 (citation omitted). Dr. Choi identified three “factors” descriptive of the

Abacus complaint: it was not accompanied by a concurrent resolution, it included

scienter-based allegations, and it charged an individual defendant in addition to

Goldman. Id. He used a data set of 117 enforcement actions and identified four

6 The court noted that the articles “vary significantly” and that, while some “suggest
possible or theoretical conflicts[,] . . . others appear to be a cri de couer from sworn enemies
. . . [or] not damaging or revelatory, but rather commendatory . . . prais[ing] Goldman for
managing its conflicts and still outperforming competitors.” Id. at *4 n.6.

17
involving these same factors. The average share price decline following those four

enforcement events was 8.07%. Because Goldman’s share price declined by 9.27%

following the Abacus disclosure, and Dr. Choi found that the 1.2% difference was

not statistically significant, he opined that the entire price drop was due to the

news of the enforcement action, rather than the revelation of Goldman’s conflicts.

The district court found that “Dr. Choi’s conclusion [was] not supported by

his event study.” Id. at *5. To begin, it noted that Dr. Choi looked only at the

Abacus complaint and did not examine the other corrective disclosures; the court

found there was “no good reason to extend [his] findings” to those disclosures. Id.

The court also found Dr. Choi’s three “factors” were “arbitrary characteristics,”

emphasizing that Dr. Choi conceded “he was the first person to use [the factors]

together” and that the factors “are not generally accepted in the field.” Id. The

court then explained that the four enforcement events from Dr. Choi’s study were

different than the Abacus event because they did not involve allegations of

mismanagement of conflicts of interest or companies with comparable size or

operations to Goldman. The court further found the event study did not account

for the misconduct allegations underlying each event. It also noted that Dr. Choi’s

study did not produce statistically significant results because it looked to the

18
average price decline of only four events (out of a population of 117) with a large

variance: declines of 3.34%, 3.73%, 8.13%, and 17.09%. Finally, the court faulted

Dr. Choi for comparing the Goldman price decline to the four events using a two-

sample t-test, which some authorities have explained “is not appropriate for small

samples drawn from a population that is not [statistically] normal.” Id. at *6

(quoting Butt v. United Bhd. of Carpenters & Joiners of Am., 2016 WL 3365772, at *1

(E.D. Pa. June 16, 2016) (quoting Federal Judicial Center, Reference Manual on

Scientific Evidence (3d ed.))).

In light of Goldman’s deficient evidence, and reaffirming that “Dr.

Finnerty’s opinion demonstrate[ed] the price impact of [the] alleged

misstatements,” the district court held that Goldman “failed to rebut the Basic

presumption by a preponderance of the evidence.” Id. at *6. It certified the class.

Id. We granted Goldman’s petition for interlocutory appeal.

DISCUSSION

“[W]e review the [district court’s] grant of class certification for an abuse of

discretion, and the legal conclusions underlying that decision de novo.” ATRS I,

879 F.3d at 482 n.7. “When a case involves the application of legal standards, we

19
look at whether the [district court’s] application ‘falls within the range of

permissible decisions.’” Id. (quoting Waggoner, 875 F.3d at 92).

Goldman argues for reversal on two general grounds. First, it contends that

the district court misapplied the inflation-maintenance theory, which it asks us to

modify. Second, based largely on the court’s evidentiary findings, Goldman argues

that the court abused its discretion by holding that Goldman failed to rebut the

Basic presumption by a preponderance of the evidence.

I. The District Court Correctly Applied the Inflation-Maintenance
Theory, and We Reject Goldman’s Invitation to Narrow It.

In the classic § 10(b) case, a corporation’s shareholders allege that a

corporation, in financial statements or through its officers, made false statements

that caused them to overvalue its stock. As noted above, the question of whether

the statements actually affected the market price is called “price impact.” We have

held that two types of false statements can have price impact. See In re Vivendi,

S.A. Sec. Litig., 838 F.3d 223, 257 (2d Cir. 2016). The first category is inflation-

introducing statements. Shareholders relying on an inflation-introduction theory

claim that the corporation’s false statements “introduced” inflation into its share

price because the market believed them to be true and reacted accordingly. See id.

20
 The second category is inflation-maintaining statements. These statements

have price impact not because they introduce inflation into a share price, but

because they “maintain” it. See id. Imagine, for example, that major media outlets

report a false rumor that a record label plans to sell a secretly recorded Beatles

album containing a dozen unreleased songs. Although the record company

played no role in starting or spreading this rumor, its share price increases from

$60 to $70 because the market believes the rumor and thinks the album will be

profitable. Not wanting to disappoint the public, the company’s CEO confirms

the rumor even though she knows it is false. While the CEO’s misstatement does

not move the record company’s share price—which stays at $70 because the

market has already incorporated the album’s predicted profits—the statement is

fraudulent because it maintains the artificial inflation. Had the CEO told the truth,

the share price would have returned to $60. The “inflation-maintenance” theory

allows shareholders to claim they relied on statements like these when suing for

securities fraud.

Our original case on the inflation-maintenance theory is Vivendi, 838 F.3d

223. There, we joined the Seventh and Eleventh Circuits in holding that “theories

of ‘inflation maintenance’ and ‘inflation introduction’ are not separate legal

21
categories.” Id. at 259 (quoting Glickenhaus & Co. v. Household Int’l, Inc., 787 F.3d

408, 418 (7th Cir. 2015), and citing FindWhat Inv’r Grp. v. FindWhat.com, 658 F.3d

1282, 1316 (11th Cir. 2011)). On that basis, we held, “securities-fraud defendants

cannot avoid liability for an alleged misstatement merely because the

misstatement is not associated with an uptick in inflation.” Id.

Goldman raises two objections to the district court’s application of the

inflation-maintenance theory: (A) in its view, the theory applies only when alleged

misstatements prop up “fraud-induced inflation” and the court failed to make a

finding to this effect; and (B) the court erred by finding that what Goldman

describes as “general statements” can ever satisfy the inflation-maintenance

theory.

The Inflation-Maintenance Theory Does Not Require
Proof of Fraud-Induced Inflation, and the District Court
Applied the Correct Standard in Concluding that
Goldman’s Share Price Was Inflated.

It should be apparent that a statement cannot maintain price inflation unless

the price is already inflated. See id. at 255. Accordingly, a court allowing plaintiffs

to claim inflation maintenance must make a finding of price inflation. The parties

22
agree on this basic principle. But Goldman would add that the price inflation must

have been “fraud-induced.” It draws this putative rule from Vivendi. 7

Vivendi said no such thing. In fact, the sentence from which Goldman plucks

“fraud-induced” contradicts Goldman’s claim. “Artificial inflation is not necessarily

fraud-induced, for a falsehood can exist in the market (and thereby cause artificial

inflation) for reasons unrelated to fraudulent conduct.” Id. at 256 (emphasis

added). Accordingly, “the question of . . . liability for securities fraud . . . does

[not] rest on whether the market originally arrived at a misconception about the

model’s safety on its own, or whether the company led the market to that

misconception in the first place.” Id. at 259. 8

7 Appellant Br. 29 (“Although a stock’s price can be inflated for any number of reasons,
the securities laws are concerned only with ‘fraud-induced’ inflation, Vivendi, 838 F.3d at
256, which is ‘the difference between the stock price and what the price would have been
if the defendants had spoken truthfully,’ Glickenhaus, 787 F.3d at 418.”).
8The Vivendi defendant made essentially the same argument as Goldman in opposing the
adoption of the inflation-maintenance theory. In rejecting it, we explained its
inconsistency with the theory.
[I]t is hardly illogical or inconsistent with precedent to find that a statement
may cause inflation not simply by adding it to a stock, but by maintaining
it. Were this not the case, companies could eschew securities-fraud liability
whenever they actively perpetuate (i.e., though affirmative misstatements)
inflation that is already extant in their stock price, as long as they cannot be
found liable for whatever originally introduced the inflation. Indeed, under

23
 Thus, the actual issue is simply whether Goldman’s share price was inflated.

Goldman argues that the district court made no finding to this effect. We disagree.

This Court, like every Court of Appeals that has adopted the inflation-

maintenance theory, has held that if a court finds a disclosure caused a reduction

in a defendant’s share price, it can infer that the price was inflated by the amount

of the reduction. See id. at 255 (“The best way to determine the impact of a false

statement is to observe what happens when the truth is finally disclosed and use

that to work backward, on the assumption that the lie’s positive effect on the share

price is equal to the additive inverse of the truth’s negative effect.” (quoting

Glickenhaus, 787 F.3d at 415)).

The district court found that “[t]he inflation was demonstrated on [the

corrective-disclosure] dates, when the falsity of the misstatements was revealed.”

In re Goldman, No. 10 Civ. 3461 (PAC), 2018 WL 3854757, at *2. It also credited Dr.

Finnerty’s testimony that “the price declines following these corrective disclosures

Vivendi’s approach, companies (like Vivendi) would have every incentive
to maintain inflation that already exists in their stock price by making false
or misleading statements.
Vivendi, 838 F.3d at 258.

24
were caused by the news of Goldman’s conflicts.” Id. We find no abuse of

discretion in the court’s finding that the inflation maintained by Goldman’s

statements equaled the price drop caused by the corrective disclosures.

We Decline Goldman’s Request to Narrow the Inflation-
Maintenance Theory.

Although these findings satisfy the inflation-maintenance doctrine,

Goldman asks us to narrow the doctrine’s focus. Under Goldman’s proposed

revision, what it terms “general statements” would be legally insufficient as

evidence of price impact. Plaintiffs relying on such statements would be unable

to invoke the Basic presumption of classwide reliance and would therefore be

unable to demonstrate under Rule 23(b)(3) that classwide issues (i.e., reliance on

the defendant’s misstatements) predominate over individual issues.

Goldman’s theory is as follows. In its view, “[c]ourts have applied the

narrow price maintenance theory only in two ‘special circumstances.’” Appellant

Br. 35 (citation omitted). 9 The first is “‘unduly optimistic statement[s]’ about

9Although Goldman repeatedly frames inflation maintenance as a “narrow” alternative
to inflation introduction, this is incorrect. In the wake of the Supreme Court’s 2014
decision in Halliburton II, securities plaintiffs invoked the inflation-maintenance theory in
20/28 (71%) of federal district court cases involving a defendant’s attempt to rebut the

25
specific, material financial or operational information made to ‘stop[] a [stock]

price from declining.” Id. (quoting Schleicher v. Wendt, 618 F.3d 679, 683 (7th Cir.

2010)). The second is statements “falsely ‘convey[ing] that the company ha[s] met

market expectations’ about a specific, material financial metric, product, or event.”

Id. (quoting In re Scientific-Atlanta, Inc. Sec. Litig., 571 F. Supp. 2d 1315, 1340–41

(N.D. Ga. 2007)). Unsurprisingly, Goldman argues that neither special

circumstance accounts for the alleged misstatements at issue here.

In effect, what Goldman has done is surveyed nationwide inflation-

maintenance cases (some Rule 23 decisions, some not), claimed that each case fits

one of its special circumstances, and thereby concluded that these are the only

permissible applications of the theory. The problem for Goldman is that none of

these cases held that the inflation-maintenance theory applies so narrowly, at the

Rule 23 stage or otherwise. Nor do they distinguish “general” statements from

Basic presumption. See Note, Congress, the Supreme Court, and the Rise of Securities-Fraud
Class Actions, 132 Harv. L. Rev. 1067, 1077 (2019). In all twenty of those cases, the district
court held that the defendant failed to rebut the Basic presumption. Id.

26
“specific” ones. They simply apply the theory, which every Court of Appeals to

adopt it has held covers all material misstatements, to the facts before them.10

Goldman concedes that ATRS I “did not address whether general

statements, like those challenged here, are capable of maintaining inflation in a

stock price as a matter of law” for the purpose of class certification. Id. at 48. It

characterizes the issue as one of “first impression in this Circuit.” Id. In its view,

we should adopt this rule because the Supreme Court’s decision in Halliburton II

allows lower courts to consider evidence of price impact at the Rule 23 stage, and

so-called general statements like those at issue here “are incapable of maintaining

inflation in a stock price for the same reasons that those statements are immaterial

as a matter of law (as well as fact).” Id. (citing Halliburton II, 573 U.S. at 283).

We reject Goldman’s proposed revision of our inflation-maintenance

doctrine.

10It is unsurprising that Goldman’s survey of Rule 23 cases did not uncover ones
involving truly general statements. As explained below, courts regularly dismiss
securities claims predicated on such statements under Rule 12(b)(6) because they are too
immaterial to induce reliance. Because courts virtually never entertain contested Rule 23
motions prior to the conclusion of the pleading stage, class certification opinions rarely
involve what Goldman deems to be impermissibly general statements. Put differently,
Rule 12(b)(6) weeds out unmeritorious cases before they ever get to the Rule 23 stage.

27
 As noted earlier, one of the elements a securities plaintiff must prove to

succeed on her claim is that the defendant’s misstatements were “material”

enough to induce the reliance of reasonable shareholders. But “materiality . . . is

not an appropriate consideration at the class certification stage.” ATRS I, 879 F.3d

at 486. “Because a failure of proof on the issue of materiality . . . does not give rise

to any prospect of individual questions overwhelming common ones, materiality

need not be proved prior to Rule 23(b)(3) class certification.” Amgen Inc. v.

Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 474 (2013).11

Goldman is not formally asking for a materiality test. But its “special

circumstances” test would commandeer the inflation-maintenance theory by

essentially requiring courts to ask whether the alleged misstatements are, in

11Goldman argues that it can challenge materiality at the Rule 23 stage. In its view, Amgen
held only that Rule 23 courts “need not” consider materiality, not that they may not do so.
To whatever extent Amgen is ambiguous, Halliburton II is clear that Rule 23 courts may not
consider materiality. See 573 U.S. at 282 (“[M]ateriality . . . should be left to the merits stage,
because it does not bear on the predominance requirement of Rule 23(b)(3).” (emphasis
added)). And ATRS I conclusively settled the matter in this circuit.

28
Goldman’s words, “immaterial as a matter of law.” Appellant Br. 48. This is the

precise question posed by materiality. 12

Goldman’s authority for what constitutes an impermissibly “general

statement” provides further evidence that its “special circumstances” test is really

a means for smuggling materiality into Rule 23. Its brief contains a table of nearly

a dozen cases holding that “general statements . . . about business principles and

conflicts controls are too general to cause a reasonable investor to rely upon them.”

Id. at 43–46 (quotation marks and citation omitted). But every one of these cases

is the dismissal of a securities claim under Rule 12(b)(6) on the ground that the

alleged misstatements were too general to be material.13 None of them concern

12 See, e.g., United States v. Litvak, 808 F.3d 160, 175 (2d Cir. 2015) (“Where the
misstatements are so obviously unimportant to a reasonable investor that reasonable
minds could not differ on the question of their importance, we may find the
misstatements immaterial as a matter of law.” (emphasis added, quotation marks and
citation omitted)).
13See, e.g., In re UBS AG Sec. Litig., No. 07 Civ. 11225 (RJS), 2012 WL 4471265, at *36
(S.D.N.Y. Sept. 28, 2012) (holding on a motion to dismiss that “the statements are non-
actionable puffery and do not constitute material misstatements”), aff’d sub nom., 752 F.3d
173 (2d Cir. 2014); Indiana Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 97–98 (2d Cir. 2016)
(holding on a motion to dismiss the challenged statements do not “ris[e] to the level of
materiality required to form the basis for assessing a potential investment”).

29
the issue here of whether so-called general statements that made it past the

pleading stage can survive under Rule 23.

Of course, just because something looks like materiality does not mean it is

materiality. Price impact also resembles materiality, but defendants may attempt

to disprove it at class certification. See Halliburton II, 573 U.S. at 282. But here, we

need not elevate function over form. There are three compelling reasons for

rejecting Goldman’s argument.

First, and most fundamentally, Goldman’s proposed rule is difficult to

square with Rule 23(b)(3). Whether alleged misstatements are too general to

demonstrate price impact has nothing to do with the issue of whether common

questions predominate over individual ones. While Goldman’s test might weed

out potentially unmeritorious claims, Rule 23 is not a weed whacker for merits

problems. As the Supreme Court explained in Amgen:

Although we have cautioned that a court’s class-certification analysis
must be “rigorous” and may “entail some overlap with the merits of
the plaintiff’s underlying claim,” Wal-Mart Stores, Inc. v. Dukes, 564
U.S. 338, 351 (2011) (internal quotation marks omitted), Rule 23 grants
courts no license to engage in free-ranging merits inquiries at the
certification stage. Merits questions may be considered to the extent—
but only to the extent—that they are relevant to determining whether
the Rule 23 prerequisites for class certification are satisfied.

30
568 U.S. at 465–66 (emphasis added). 14 This is why materiality is irrelevant at the

Rule 23 stage. Win or lose, the issue is common to all class members. Id. at 468.

The same is true here, in no small part because Goldman’s test is materiality

by another name. If general statements cannot maintain price inflation because no

reasonable investor would have relied on them, then the question of inactionable

generality is common to the class. For that reason, “the class is entirely cohesive:

It will prevail or fail in unison. In no event will the individual circumstances of

particular class members bear on the inquiry.” Id. at 460.

Second, Goldman’s formulation of the inflation-maintenance theory is at

odds with Vivendi. That opinion, relying on the Seventh and Eleventh Circuits

whose doctrine it adopted, noted that “theories of ‘inflation maintenance’ and

‘inflation introduction’ are not separate legal categories.’” Vivendi, 838 F.3d at 259

(quoting Glickenhaus, 787 F.3d at 418). 15 Goldman’s proposed rule, by applying

only to inflation-maintaining statements, would make inflation maintenance and

See also, e.g., Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 81 (2d Cir. 2015) (applying
14

Amgen’s rule); Fezzani v. Bear, Stearns & Co. Inc., 777 F.3d 566, 569–70 (2d Cir. 2015) (same).
15See also Vivendi, 838 F.3d at 259 (quoting FindWhat, 658 F.3d at 1316, for the proposition
that “[t]here is no reason to draw any legal distinction between fraudulent statements
that wrongfully prolong the presence of inflation in a stock price and fraudulent
statements that initially introduce that inflation”).

31
inflation introduction “separate legal categories.” Goldman points to no authority

holding that “general statements” like those supposedly at issue here are legally

insufficient to establish inflation introduction.

Third, this Court has implicitly rejected Goldman’s “special circumstances”

test. Waggoner, a Rule 23(f) appeal allowing shareholder plaintiffs to invoke the

inflation-maintenance theory, involved claims that a high-ranking Barclays trader

told a magazine that it “monitored activity in [a certain high-frequency exchange]

and would remove traders who engaged in conduct that disadvantaged [its]

clients.” 875 F.3d at 87. The trader elsewhere stated that the high-frequency

system was “built on transparency” and “had safeguards to manage toxicity, and

to help its institutional clients understand how to manage their interactions with

high-frequency traders.” Id. (citation, quotation marks, and brackets omitted).

It is true that Barclays’ statements were about a specific high-frequency

exchange, while Goldman’s challenged statements were more generally about its

controls for handling conflicts of interest. But Goldman’s alleged lack of, or

disregard for, these controls is the specific problem that led to the corrective

disclosures. See, e.g., J.A. 5716 (quoting Goldman as alleging to have “extensive

procedures and controls that are designed to identify and address conflicts of

32
interest”). That Barclays mentioned a specific exchange does little to distinguish

its statements from those at issue here; each is an alleged misrepresentation about

general business practices.

***

We are not blind to the widespread understanding that class certification

can pressure defendants into settling large claims, meritorious or not, because of

the financial risk of going to trial. See, e.g., In re Rhone-Poulenc Rorer Inc., 51 F.3d

1293, 1298 (7th Cir. 1995) (Posner, J.). Rule 23’s in terrorem effect is the reason

Congress authorized interlocutory appeals under Rule 23(f). See Fed R. Civ. P. 23

advisory committee’s note (1998).

Referencing these legitimate policy concerns, Goldman argues that rejecting

its theory would open the floodgates to unmeritorious litigation by allowing

courts to certify classes that it believes should lose on the merits. Specifically, it

argues that “[i]f allegations of misconduct caused a stock to drop, then investor

plaintiffs could just point to any general statement about the company’s business

principles or risk controls and proclaim ‘price maintenance.’” Appellant Br. 52–

53.

33
 This would indeed be troubling. But our law already beats back this parade

of horribles in three meaningful ways.

First, materiality challenges are fair game under Rule 12(b)(6). Dismissal at

that early stage of the litigation prevents the case from ever reaching Rule 23. As

Goldman’s table of materiality cases demonstrates, courts regularly dismiss

securities complaints because the challenged statements were too general to have

induced reliance. In fact, the district court in this case dismissed some of the alleged

misstatements for this very reason. See Richman, 868 F. Supp. 2d at 274. As to the

statements before us now, the court rejected Goldman’s materiality challenge,

holding that the shareholders plausibly stated a claim for securities fraud. Id. at

279–80. Right or wrong, we lack the authority to review that decision at this time. 16

Rule 23 does not give defendants a do-over on materiality. 17

Second, the Federal Rules of Civil Procedure do offer securities defendants a

do-over on materiality prior to trial: summary judgment. Goldman has already

moved for summary judgment in the court below. See District Court Docket, ECF

16 We express no opinion on whether the misstatements at issue here are material.
17Defendants may also, as Goldman did here, seek a district court’s permission to take an
interlocutory appeal from decisions denying motions to dismiss on materiality grounds.

34
No. 168 (Nov. 6, 2015). One of its arguments is that the alleged misstatements are

immaterial as a matter of law. See id. at 15–17.

Third, even though defendants may not challenge materiality at the Rule 23

stage, they may present evidence to disprove price impact when seeking to rebut

the Basic presumption. Here, for example, Goldman presented event studies and

testimony from multiple experts. The district court found this evidence

insufficient—a finding we turn to momentarily. But in appropriate cases, courts

will decline to certify classes on this ground.

In sum, while securities class action defendants have numerous avenues for

challenging materiality, Rule 23 is not one of them. The inflation-maintenance

theory does not discriminate between general and specific misstatements.

II. The District Court Did Not Abuse Its Discretion by Holding that
Goldman Failed to Rebut the Basic Presumption by a
Preponderance of the Evidence.

Goldman’s second argument is that the district court abused its discretion

in holding that Goldman failed to rebut the Basic presumption. To the extent a

“ruling on a Rule 23 requirement is supported by a finding of fact, that finding is

reviewed under the ‘clearly erroneous’ standard.” In re Salomon Analyst

35
Metromedia Litig., 544 F.3d 474, 480 (2d Cir. 2008), abrogated on other grounds by

Amgen, 568 U.S. 455.

The plaintiff bears the initial burden of demonstrating that the prerequisites

for the Basic presumption are met. Waggoner, 875 F.3d at 95. The prerequisites a

plaintiff must prove prior to class certification are “that [the] defendants’

misstatements were publicly known, their shares traded in an efficient market, and

[the] plaintiffs purchased the shares at the market price after the misstatements

were made but before the truth was revealed.” ATRS I, 879 F.3d at 481; see

Halliburton II, 573 U.S. at 268, 276. Goldman conceded in the prior appeal that

these prerequisites are met here. ATRS I, 879 F.3d at 484.

Once the plaintiff makes this showing, § 10(b)’s reliance requirement is

presumptively satisfied. Waggoner, 875 F.3d at 95. At that point, the burden shifts

to the defendant to rebut the presumption. Id. at 101–03. It may do so by showing,

by a preponderance of the evidence, that the entire price decline on the corrective-

disclosure dates was due to something other than its alleged misstatements.

“[M]erely suggesting that another factor also contributed to an impact on a

security’s price does not establish that the fraudulent conduct complained of did

36
not also impact the price of the security.” Id. at 105. 18 The plaintiff may also, as

the shareholders did here, present evidence of price impact to demonstrate the

shortcomings of the defendant’s rebuttal evidence. But it bears repeating that to

invoke Basic, the shareholders need not prove price impact directly. See Halliburton

II, 573 U.S. at 277–79.

As outlined above, the district court applied the preponderance standard,

credited the shareholders’ expert’s theory, and rejected the theories of Goldman’s

experts. Goldman argues that the court (A) erroneously construed Goldman’s

rebuttal evidence and (B) misapplied the preponderance standard in holding that

Goldman failed to rebut the Basic presumption.

18Although this rule places a heavy burden on defendants, a more relaxed alternative
would be illogical under Basic. If a corrective disclosure decreases a defendant’s share
price on a given date, the plaintiffs have a claim for securities fraud. That other events
may have also decreased the share price on that date does not change this fact; it simply
complicates the task of determining the effect of the corrective disclosure by creating a
need to isolate it from the effects of the other events. By presuming reliance when its
prerequisites are satisfied, Basic places the burden of untangling these events on the
defendant. Thus, for a defendant to erase the inference that the corrective disclosure had
price impact—i.e., that it played some role in the price decline—it must demonstrate
under the preponderance-of-the-evidence standard, using event studies or other means,
that the other events explain the entire price drop.

37
 The District Court Did Not Misconstrue Goldman’s
Evidence in Holding that It Failed to Rebut the Basic
Presumption.

Because the Basic presumption applies, Goldman bears the burden of

rebutting it. It must show by a preponderance of the evidence that the entire price

decline on the corrective-disclosure dates was due to something other than the

corrective disclosures. See Waggoner, 875 F.3d at 105. Goldman challenges the

district court’s finding that its evidence was insufficient to satisfy this burden.

1. Goldman’s primary contention is that the district court clearly erred by

“ignor[ing] the substance of [the] press reports” preceding the corrective

disclosures that touched on its conflicts. Appellant Br. 62. In Goldman’s view, the

market’s nonreaction to these reports proved that it was indifferent to the

revelation that Goldman’s statements about being conflict free were untrue.

The district court reviewed each of the news reports and concluded by a

preponderance of the evidence that “[t]he absence of price movement [on these

dates], . . . in and of itself, is not sufficient to sever the link between the first

corrective disclosure and the subsequent stock price drop.” In re Goldman, No. 10

Civ. 3461 (PAC), 2018 WL 3854757, at *4. This was because the disclosures, and

particularly the initial Abacus complaint, “included new material information that

38
had not been described in any of the 36 more generic reports on conflicts.” Id. This

newly revealed “hard evidence of Goldman’s client conflicts” included “direct

quotes from damning emails . . . [and] internal memoranda,” as well as details

about “the manner in which Goldman . . . hid[] Paulson’s role in asset selection.”

Id. at *4–5. The court also noted that because these details were “disclosed by a

federal government agency,” they were “obviously . . . more reliable and credible

than any of the 36 media reports, especially in the presence of the denials and

rebuttals that accompanied some of the reports.” Id. at *4. The court further found

that some of the reports “were not damaging or revelatory, but rather

commendatory” praise of Goldman’s risk management. Id. at *4 n.6.

We find no clear error in the district court’s weighing of the evidence. The

court applied the correct legal standard and reasonably concluded by a

preponderance of the evidence that the corrective disclosures revealed new and

material information to the market. Goldman has no persuasive response to the

court’s findings that the “hard evidence” first revealed in the corrective

disclosures moved the market in a way that the news reports did not.

Although it is possible that Goldman’s price declined in part because the

market feared that Goldman would be fined, this is not enough to rebut the Basic

39
presumption. Moreover, there are good reasons to believe that the corrective

disclosures were more significant than Goldman makes them out to be. Because

the inflation-maintenance theory asks “what would have happened if [the

defendant] had spoken truthfully,” Vivendi, 838 F.3d at 258, Goldman’s burden is

to show that the market would not have reacted had Goldman told the truth about

its alleged failure to manage its conflicts. It is difficult to imagine that Goldman’s

shareholders would have been indifferent had Goldman disclosed its alleged

failure to prevent employees from illegally advising clients to buy into CDOs that

were built to fail by a hedge fund secretly shorting the investors’ positions. It is

therefore reasonable to assume that this disclosure would have harmed

Goldman’s reputation, causing at least some of its clients and potential clients to

seriously reconsider trusting Goldman with their money. This lost revenue would

have reduced Goldman’s bottom line and caused the market to devalue its share

price accordingly. These adverse consequences have nothing to do with the threat

of enforcement actions, and everything to do with how Goldman managed its

conflicts of interest.

2. Goldman also argues that the district court did not “address the generality

of [the corrective disclosures other than the Abacus complaint].” Appellant Br. at

40
62–63. In its view, these disclosures were “far less detailed than the press reports

of client conflicts.” Id. at 63.

It is true that the district court focused largely on the Abacus complaint. But

so did Goldman. As the court found, Dr. Choi “performed no event study

concerning stock price declines following the [other] corrective disclosures.” In re

Goldman, No. 10 Civ. 3461 (PAC), 2018 WL 3854757, at *5. The burden of rebutting

the Basic presumption was on Goldman, not the district court. The court’s finding

that the Abacus disclosure had a price impact suffices at this stage for the reasons

noted above.

3. Finally, Goldman makes a one-paragraph argument that the district court

misconstrued Dr. Choi’s event study. As noted above, the court found extensive

flaws with Dr. Choi’s study and gave little weight to his conclusions.

Goldman does not meaningfully engage with the district court’s detailed

rejection of Dr. Choi’s report. Its most substantial argument is that the court

erroneously found that Dr. Choi’s opinion rested on “the premise that the first

price decline is consistent with price declines that four other companies previously

experienced upon the news of similar enforcement events.” Id. Goldman argues

that Dr. Choi actually concluded that the price declines were “not statistically

41
significantly different.” Appellant Br. 67. Even if the court mistakenly referred to

consistency rather than a lack of statistically significant difference—and elsewhere

it used the “statistically different” terminology, see In re Goldman, No. 10 Civ. 3461

(PAC), 2018 WL 3854757, at *3—the difference is splitting hairs. Goldman does

not clearly explain how this subtle difference in terminology renders clearly

erroneous the court’s extensive reasons for rejecting Dr. Choi’s conclusions. Nor

do Goldman’s remaining arguments point to an abuse of discretion.

The District Court Correctly Applied the Preponderance
Standard in Weighing the Evidence of Price Impact.

Although Goldman bears the burden of persuasion, it focuses heavily on the

supposed lack of evidence the shareholders introduced to undermine its

contention that its statements had no price impact. 19

1. Goldman first contends that the shareholders “submitted no evidence of

fraud-induced inflation in Goldman Sachs’ stock price that the challenged

statements maintained.” Appellant Br. 55. Thus, Goldman argues, the district

19That Goldman focuses on the shareholders’ evidence, and the district court began its
analysis with this evidence, should not obscure the fact that Goldman bears the burden
of persuasion at this stage. Once the shareholders successfully invoke Basic, which
happened here, the question is not which side has better evidence, but whether the
defendant has rebutted the presumption.

42
court’s finding that the shareholders invoked Basic rested on allegations, rather

than evidence. As explained above, we reject Goldman’s contention that the

shareholders were required to submit evidence of “fraud-induced” inflation. We

therefore take Goldman’s argument as one that the shareholders failed to submit

any evidence of price inflation.

We noted in Part I that “[t]he best way to determine the impact of a false

statement is to observe what happens when the truth is finally disclosed and use

that to work backward, on the assumption that the lie’s positive effect on the share

price is equal to the additive inverse of the truth’s negative effect.” Vivendi, 838

F.3d at 255 (quoting Glickenhaus, 787 F.3d at 415). This is precisely what the district

court did:

The Court accepts Dr. Finnerty’s [the shareholders’ expert] opinion
that the news of Goldman’s conflicts on the . . . corrective disclosure
dates negatively impacted Goldman’s stock price. It is only natural
that “economically significant negative news,” such as these, would
at least contribute to the stock price declines. Defendants attempt to
undermine Dr. Finnerty’s opinion, claiming in part that the
underlying damages model is “completely made up.” That overstates
the matter. Dr. Finnerty’s model, at the very least, establishes a link between
the news of Goldman’s conflicts and the subsequent stock price declines.
That is sufficient.

43
In re Goldman, No. 10 Civ. 3461 (PAC), 2018 WL 3854757, at *4 (emphasis added,

citations omitted).

We thus find no merit in Goldman’s contention that the district court

accepted Dr. Finnerty’s model at face value or that it credited mere allegations. 20

The court reviewed the evidence, traced the price declines back to Goldman’s

alleged misstatements, and credited Dr. Finnerty’s report. For Goldman’s

In critiquing the district court’s purported lack of findings, Goldman homes in on the
20

word “allegedly” in the following passage:
[The shareholders] claim that the alleged misstatements had impact on
Goldman’s stock price. Although the misstatements themselves did not
inflate the stock price, they allegedly served to maintain an already inflated
stock price. The inflation was demonstrated on [several] dates, when the
falsity of the misstatements was revealed . . . .
In re Goldman, No. 10 Civ. 3461 (PAC), 2018 WL 3854757, at *2. This language leads
Goldman to conclude that the “[district court] gave no indication that it actually weighed
competing evidence or found facts,” and instead “accepted at face value [the
shareholders’] and their expert’s ‘alleg[ation]’ that the challenged statements ‘served to
maintain an already inflated stock price.” Appellant Br. 55 (citation omitted). But
Goldman misreads the district court’s opinion. The language it quotes unremarkably
lacks factual conclusions because it is from an impartial summary of the shareholders’
evidence—what one might call the facts section of the opinion. The court saved its
conclusions for the analysis section, where, as we have found, it made the necessary
findings.

44
argument to have any force, it would need to show that the court clearly erred by

accepting Dr. Finnerty’s findings. Goldman has failed to make this showing. 21

2. Goldman also argues that the news of its alleged conflicts could not have

caused its share price to decline on the corrective-disclosure dates because its

alleged misstatements were “consistent” with the later-revealed fact that it had

significant conflicts of interest. Specifically, Goldman contends that statements

such as “potential or perceived conflicts could give rise to litigation or enforcement

actions,” J.A. 5716, “expressly warned” the market that it might have conflicts,

meaning the market should not have been surprised to learn that Goldman was in

fact conflicted, Appellant Br. 61. This is doubtful. In effect, Goldman is arguing

that a reasonable investor would have believed its vague statement was

“consistent” with the revelation that it allegedly failed to prevent its employees

from colluding with hedge funds to trick investors into buying risky securities.

The district court did not abuse its discretion by rejecting that theory.

21Goldman additionally asserts that Dr. Finnerty’s testimony implied that on one date,
“70% of Goldman Sachs’ $20.6 billion market capitalization was ‘inflation’ maintained by
[the alleged misstatements].” Appellant Br. 58. The shareholders accuse Goldman of
cherry picking this data point using a date from the height of the financial crisis. We find
no clear error in the district court’s decision to choose one reasonable interpretation of
the evidence over another.

45
 Goldman is free to make its merits arguments at summary judgment or trial.

The issue here is simply whether the district court abused its discretion by finding

that Goldman failed to rebut the Basic presumption by a preponderance of the

evidence. We find no abuse of discretion in the court’s reasonable conclusion that

Goldman failed to meet this burden.

III. The Dissent

Our colleague Judge Sullivan disagrees with our ultimate conclusion. In his

view, Goldman and its co-defendants “offered persuasive and uncontradicted

evidence that Goldman’s share price was unaffected by earlier disclosures of

Defendants’ alleged conflicts of interest.” Dissent Op. at 1. But the issue before us

is not whether Judge Sullivan was persuaded; that task fell to Judge Crotty who

conducted the hearing, heard the testimony, carefully reviewed all the evidence

and analyzed the conclusions of the experts. Unlike Judge Sullivan, Judge Crotty

was not persuaded. Judge Crotty was clear in his reasoning and we have reviewed

it at length in our opinion through the lenses of clear error, abuse of discretion and

Goldman’s burden. See supra at 15–19, 36–46.

We also disagree with our colleague’s characterization that Goldman’s

evidence was “uncontradicted.” Goldman bore the burden of rebutting the Basic

46
presumption. Judge Crotty concluded that Goldman’s proffer simply came up

short. The shareholders pointed out, through their expert and through

comparisons of the news stories on which Goldman tied its fate here, that the

conclusions of Goldman’s experts were wanting if there were not equivalencies

between the news stories and the “corrective disclosures.” 22 Judge Crotty agreed

with the shareholders; his opinion reflects his reasoning in this regard. The

majority opinion reviews that reasoning and finds it to have a firm basis in the

facts of the record. Our dissenting friend points to no inaccuracies or

misstatements of the evidence to support his view that the district court’s

conclusions were so clearly erroneous that they require appellate correction. It

might well be that were one of us given the same task as that of the district judge

we would conclude otherwise; but we cannot say there can only be one conclusion

from the record presented.

22The dissent is quite critical of Judge Crotty’s (and our) “failure to engage” with Dr.
Choi’s analysis. See Dissent Op. at 6. Our colleague must have overlooked our
description of Judge Crotty’s concerns about Dr. Choi’s data—Dr. Choi examined only
one of three disclosures—and Dr. Choi’s employment of factors in his analysis that Dr.
Choi himself conceded were not “generally accepted in the field.” In re Goldman, No. 10
Civ. 3461 (PAC), 2018 WL 3854757, at *5–6. Judge Crotty had other concerns with the
value of Dr. Choi’s analysis as set forth above. See supra at 17–19.

47
 Lastly, our colleague seems exceptionally eager to take on “the generic

statements on which [the shareholders’] claims are based.” Dissent Op. at 8. His

assertion that those statements are too general as a matter of law seems to endorse

Goldman’s view that price maintenance cases are limited to more specific

statements related to performance or corporate expectations. We disagree and

have explained why in our opinion. 23

What the dissent really wants to do is to revisit the question of whether the

statements are too general as a matter of law to be deemed material. Judge

Sullivan would inject materiality into our Rule 23 analysis in the name of limiting

the types of statements that can be considered for price maintenance. 24 The

question of whether the statements on which plaintiffs rely were not material as a

matter of law will be addressed by the district court at an appropriate time. But

23 See supra Section I.B.
24The fact is that this argument is just a redux of Goldman’s unsuccessful Rule 12(b)(6)
argument to dismiss and its motion to reconsider that loss in the district court. “[T]he
Court cannot say that Goldman’s statements that it complies with the letter and spirit of
the law and that its success depends on such compliance, its ability to address ‘potential’
conflict of interests, and valuing its reputation, would be so obviously unimportant to a
reasonable investor.” Richman, 868 F. Supp. 2d at 280; see also In re Goldman, No. 10 Civ.
3461 (PAC) 2014 WL 2815571 at *2–6.

48
for now, the procedural posture of the case and our understanding of binding

precedent from this Court and the Supreme Court preclude reaching the matter.

If acknowledging that limitation while further recognizing that some (but perhaps

not all) 25 will view the merits of the shareholders’ claim through our colleague’s

lens is “tiptoeing,” see Dissent Op. at 8–9, then so be it. Careful footwork is often

required in intricate judicial tasks.

CONCLUSION

We AFFIRM the judgment of the district court and REMAND for further

proceedings consistent with this opinion.

25 One wonders if the folks who bought Goldman shares, thinking that Goldman
assiduously guarded against conflicts of interests in its dealings with those it advised on
financial matters, would be concerned not only with the fines the SEC and DOJ had in
mind once specific details of Goldman’s fiduciary failures came to light, but also with the
financial implications to Goldman’s bottom line once those who took Goldman’s advice
knew it was tainted and had cost them millions or billions of losses in worthless
Goldman-endorsed investments. Goldman’s specific assertions that it was conflict free
might be seen as connected to a decision to buy, or hold on to, Goldman stock. See supra
at 40–41.

49
RICHARD J. SULLIVAN, Circuit Judge, dissenting:

It is difficult to criticize the majority’s cogent and highly logical opinion,

except to suggest that it perhaps misses the forest for the trees. In my view, the

district court misapplied the Basic presumption in its analysis of price impact,

essentially turning the presumption on its head. Because Defendants offered

persuasive and uncontradicted evidence that Goldman’s share price was

unaffected by earlier disclosures of Defendants’ alleged conflicts of interest –

thereby severing the link that undergirds the Basic presumption – I would reverse

the lower court’s ruling and decertify the class.

As an initial matter, I agree with the majority’s conclusion in Section I that

the district court did not misapply the inflation-maintenance theory of price

impact. Whatever the merits or flaws of that theory, it is clearly the law of this

circuit and not for this panel to revisit. See In re Vivendi Sec. Litig., 838 F.3d 223, 258

(2d Cir. 2016). Nevertheless, I believe that the majority uncritically accepted the

district court’s conclusions regarding what rebuttal evidence is necessary to

overcome the Basic presumption. Though the Basic standard is well-established, it

bears repeating: “[I]f a plaintiff shows that the defendant’s misrepresentation was

public and material and that the stock traded in a generally efficient market, he is
entitled to a presumption that the misrepresentation affected the stock price;”

moreover, “if the plaintiff also shows that he purchased the stock at the market

price during the relevant period, he is entitled to a further presumption that he

purchased the stock in reliance on the defendant’s representation.” Halliburton Co.

v. Erica P. John Fund, Inc. (Halliburton II), 573 U.S. 258, 279 (2014). Once the Basic

presumption has been invoked, however, a defendant may then rebut it “through

‘any showing that severs the link between the alleged misrepresentation and either

the price received (or paid) by the plaintiff, or his decision to trade at a fair market

price.’” Waggoner v. Barclays PLC, 875 F.3d 79, 95 (2d Cir. 2017) (emphasis added)

(quoting Halliburton II, 573 U.S. at 269).

In support of its initial opposition to class certification, Goldman did not

dispute that Plaintiffs were able to invoke the Basic presumption. See Arkansas

Teachers Ret. Sys. v. Goldman Sachs Grp., Inc. (ATRS I), 879 F.3d 474, 484 (2d Cir.

2018). Instead, Goldman argued that it was able to rebut the presumption with

evidence demonstrating the lack of price impact following earlier disclosures of

the alleged conflicts. Id. The district court found that Goldman had not rebutted

the presumption; we vacated and remanded, directing the district court to

“determin[e] whether defendants established by a preponderance of the evidence

2
that the misrepresentations did not in fact affect the market price of Goldman

stock.” Id. at 486.

On remand, the district court held an evidentiary hearing at which Goldman

offered the testimony of two experts to demonstrate that the alleged misstatements

did not affect the stock price. The first, Dr. Paul Gompers, testified that 36 news

reports – including stories on the front pages of The New York Times and The Wall

Street Journal -- had in fact already revealed the supposed falsity of the alleged

misrepresentations prior to the three “corrective disclosure” dates, with no

discernible impact on the price of Goldman’s shares. The second, Dr. Stephen

Choi, testified that the stock price declined on the corrective disclosure dates

entirely due to the news that the SEC and Department of Justice had commenced

enforcement actions against the company – not due to the revelation that Goldman

had allegedly misrepresented its approach to conflicts of interest, which, as Dr.

Gompers demonstrated, had already been revealed to the market. Plaintiffs called

one expert, Dr. John Finnerty, to refute Defendants’ experts’ testimony. Although

Dr. Finnerty principally testified that the market for Goldman stock was efficient

– a point that Defendants did not dispute – Dr. Finnerty also conclusorily asserted

that the 36 earlier news reports did not impact the share price because some of the

3
reports included “denials” from Goldman, while others were less detailed than

the three corrective disclosures alleged in the complaint.

Based on this testimony and the experts’ reports, the district court

concluded that Goldman had again failed to rebut the Basic presumption and

certified the class. In particular, the district court relied on Dr. Finnerty’s

testimony, such as it was, to announce that “[t]he absence of price movement

[following the earlier disclosures] . . . is not sufficient to sever the link between the

first corrective disclosure [alleged in the complaint] and the subsequent stock price

drop.” In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10-cv-3461 (PAC), 2018 WL

3854757, at *4 (S.D.N.Y. Aug. 14, 2018). I disagree.

First, the district court, and Dr. Finnerty, relied primarily on the “efficient

market” theory, which alone is insufficient to refute persuasive rebuttal evidence

regarding the lack of price impact. As set forth in his January 30, 2015 report, Dr.

Finnerty was retained to determine whether Goldman’s stock traded in an efficient

market – a necessary precursor to Plaintiff’s invocation of the Basic presumption.

But Defendants never disputed the efficiency of the market; they presumed as

much. Rather, they presented evidence of 36 earlier news reports that revealed the

falsity of the misstatements alleged in the complaint and yet never moved the

4
stock price. They argued, without contradiction, that the lack of movement in the

share price – in an efficient market – proved that the later drop was caused by

something other than the disclosure of the alleged conflicts of interest. Neither Dr.

Finnerty nor the district court could refute that conclusion or explain the lack of

price movement from the earlier disclosures. 1

Second, Dr. Finnerty made no serious attempt to refute Dr. Choi’s analysis,

let alone his conclusion that the stock drop was caused by the announcement of

the SEC and DOJ enforcement actions rather than the underlying factual

allegations. Instead of differentiating between the price impact of the conflict

disclosures and the price impact of the enforcement actions, Dr. Finnerty did his

best to conflate them, arguing that the two were inextricably intertwined. In the

words of Dr. Finnerty:

My analysis demonstrates that the description of Goldman’s conduct
embodied in those three regulatory actions is inextricably tied to the
actions themselves. To put it at a very simple level, if you were telling
my students what the take-away is, is you can't have a fraud charge
without the fraud – without the behavior – and particularly, the SEC

1 Dr. Finnerty’s attempt to differentiate the 36 news reports from the three corrective
disclosures by saying that the news reports were accompanied by “denials” from
Goldman was equally conclusory and unpersuasive, particularly since many of the news
reports did not include denials at all. See Joint App’x at 5284 –5437; see also id. at 3146–96
(Plaintiffs’ Summary of News Reports); id. at 2951–57 (Defendants’ Summary of News
Reports).

5
 enforcement action does lay out the behavior that is the basis for the
fraud charge.

Joint App’x at 8196. But this failure to engage with Dr. Choi undermined the very

purpose of the evidentiary hearing, which was designed to “determin[e] whether

defendants established by a preponderance of the evidence that the

misrepresentations did not in fact affect the market price of Goldman stock.”

ATRS I, 879 F.3d at 486. Although the district court was at times highly critical of

Dr. Choi’s studies, it accepted Dr. Finnerty’s opinions at face value when it

concluded that “[i]t is only natural that economically significant negative news,

such as [the conflicts reiterated in the enforcement actions], would at least

contribute to the stock price declines.” In re Goldman, 2018 WL 3854757, at *4

(internal quotation marks omitted). But in addition to being wholly conclusory,

that observation was largely beside the point, since it offered no clear explanation

for why the market only moved after the 37th recital of fraud allegations.

Of course, the majority correctly notes, as we held in Waggoner v. Barclays,

that Plaintiffs were not required to prove that news of enforcement actions had no

effect on price. 875 F.3d at 104–05. In Waggoner, the plaintiffs – who were also

proceeding under a price-maintenance theory – invoked the Basic presumption,

prompting the defendants to argue that the stock price decline “was due to

6
potential regulatory action and fines, not the revelation of any allegedly concealed

truth.” Id. at 104 (internal quotation marks omitted). The district court disagreed,

and we affirmed, finding that the “record support[ed] the district court’s

conclusion that such a concern was merely a contributing factor to the decline.”

Id. In particular, we noted that the defendants’ expert conceded that the

“corrective disclosure . . . may have had a bigger impact on . . . price . . . due to the

announcement of the New York Attorney General’s lawsuit and that some of the

price reaction was independent of the specific allegations.” Id. (alterations and

internal quotation marks omitted).

But the key difference between this case and Waggoner is that Defendants

here have demonstrated that the prior disclosures – as set forth in 36 separate news

reports over as many months – had no impact on Goldman’s stock price. Indeed,

as the district court expressly acknowledged, “Dr. Finnerty concede[d] that

Goldman's stock price did not move on any of the 36 dates on which the falsity of

the alleged misstatements was revealed to the public.” In re Goldman, 2018 WL

3854757, at *4 (emphasis added). Thus, unlike the defendants in Waggoner,

Goldman introduced hard evidence that “sever[ed] the link between the alleged

misrepresentation and . . . the price . . . paid by the plaintiff.” Waggoner, 875 F.3d

7
at 95 (quoting Halliburton II, 573 U.S. at 269). If such evidence can be neutralized

by the mere assertion that the SEC’s repackaging of those disclosures must have

“at least contribute[d] to the stock price declines,” In re Goldman, 2018 WL 3854757,

at *4, then the Basic presumption is truly irrebuttable and class certification is all

but a certainty in every case.

Finally, I think it’s fair for this court to consider the nature of the alleged

misstatements in assessing whether and why “the misrepresentations did not in

fact affect the market price of Goldman stock.” ATRS I, 879 F.3d at 486. Although

the majority concedes that “[p]rice impact . . . resembles materiality” and may be

“disprove[n] . . . at class certification,” it then strains to avoid looking at the

statements themselves for fear that such a review amounts to “smuggling

materiality into Rule 23.” Maj. Op. at 29, 30. I disagree.

Candidly, I don’t see how a reviewing court can ignore the alleged

misrepresentations when assessing price impact. Here, the obvious explanation

for why the share price didn’t move after 36 separate news stories on the subject

of Goldman’s conflicts is that no reasonable investor would have attached any

significance to the generic statements on which Plaintiffs’ claims are based. The

majority tiptoes around this fact, noting on the one hand that “courts regularly

8
dismiss securities complaints [at the motion to dismiss stage] because the

challenged statements were too general to have induced reliance,” while tepidly

insisting that “[w]e express no opinion on whether the misstatements at issue here

are material,” since “[r]ight or wrong, we lack the authority to review [the district

court’s materiality findings] at this time.” Id. at 34 & n.16. I don’t believe that such

rigid compartmentalization is possible, much less required by Amgen, Halliburton

II, or ATRS I. Once a defendant has challenged the Basic presumption and put

forth evidence demonstrating that the misrepresentation did not affect share price,

a reviewing court is free to consider the alleged misrepresentations in order to

assess their impact on price. The mere fact that such an inquiry “resembles” an

assessment of materiality does not make it improper.

Here, the generic quality of Goldman’s alleged misstatements, coupled with

the undisputed fact that “Goldman's stock price did not move on any of the 36

dates on which the falsity of the alleged misstatements was revealed to the public,”

In re Goldman, 2018 WL 3854757, at *4, clearly compels the conclusion that the stock

drop following the corrective disclosures was attributable to something other than

the misstatements alleged in the complaint. The most obvious explanation,

consistent with Dr. Choi’s report, is that the drop was caused by news that the SEC

9
and DOJ were pursuing enforcement actions against Goldman. But even without

Dr. Choi’s testimony, the fact remains that Plaintiffs offered no hard evidence,

expert or otherwise, to refute Goldman’s proof severing the link between the

alleged misrepresentation and the price paid by Plaintiffs for Goldman shares. It

therefore seems clear that Defendants “established by a preponderance of the

evidence that the misrepresentations did not in fact affect the market price of

Goldman stock.” ATRS I, 879 F.3d at 486.

Accordingly, I would reverse the finding of the district court with respect to

the Basic presumption and decertify the class.

10