Supreme Court Issues Ruling in Goldman Sachs v. Arkansas Teacher Retirement System

Business Litigation Update

Date: June 28, 2021

Key Notes:

  • The Supreme Court confirmed that securities class action defendants may introduce evidence of an alleged misstatement’s generic nature as early as the class certification stage.
  • Courts may consider this evidence even if it overlaps with the ultimate merits of the case.
  • The decision may make it more difficult to certify a securities class action based on generic statements.

On June 21, 2021, the U.S. Supreme Court issued its decision in Goldman Sachs v. Arkansas Teacher Retirement System,[1] holding that, at the class certification stage, a court may consider whether a company’s alleged misstatements were too generic to have impacted its stock price. The decision may make it more difficult to certify a class action in stock-drop suits alleging securities fraud based on generic company statements.


After a 2010 SEC enforcement action against Goldman Sachs, Goldman shareholders brought a securities-fraud class action alleging that Goldman misrepresented its conflict-of-interest policies, which caused its stock price to remain artificially inflated (referred to as a price “inflation maintenance” theory). The alleged misstatements included generic, aspirational statements such as “[o]ur clients’ interests always come first” and “integrity and honesty are at the heart of our business.”

In seeking to certify the class, the shareholders invoked the fraud-on-the-market presumption articulated in Basic v. Levinson, 485 U.S. 224 (1988), which grants plaintiffs a class-wide rebuttable presumption of reliance if they show that: (1) the alleged misrepresentation was publicly known; (2) the stock traded in an efficient market; and (3) plaintiffs purchased the stock after the misrepresentation and before the truth was revealed. Goldman sought to rebut this presumption at class certification by disproving the price impact of the alleged misrepresentations.

The district court certified the class, and a split Second Circuit affirmed the certification, holding that considering a statement’s generic nature at the class certification stage would “really be a means for smuggling materiality into Rule 23,” which is “irrelevant at the [certification] stage.”[2]

The Court’s Decision

The Goldman decision is the first time the Supreme Court discussed the “inflation maintenance” theory, although it expressly refrained from ruling on the theory’s “validity.”  The Court rejected the Second Circuit’s approach, holding that the generic nature of alleged misstatements and thus their ability to impact the stock price may be considered in a class certification determination, “regardless [of] whether the evidence is also relevant to a merits question like materiality.”[3]

The Court noted the particular relevance of a misstatement’s generic nature to the price impact analysis in inflation maintenance cases, such as this one, because the inference “that [a] back-end price drop equals front-end inflation starts to break down when there is a mismatch between the contents of the misrepresentation and the corrective disclosure.” In these cases, “there is less reason to infer front-end price inflation — that is, price impact — from the back-end price drop.” Because the Second Circuit’s decision was unclear if it adequately considered the misstatements’ generic nature, the Supreme Court remanded the case, directing the Second Circuit to consider all the record evidence relevant to price impact.

The Court also confirmed that defendants bear the burden of proving by a preponderance of the evidence a lack of price impact from the alleged misstatements. The Court held that it was not enough for a defendant to simply offer some evidence relevant to price impact to rebut the Basic presumption (under a lighter “burden of production” standard), but rather they must “sever the link” between an alleged misstatement and the price paid by a plaintiff by a preponderance of the evidence (under the stricter “burden of persuasion” standard).

Implications of Goldman Sachs

The Supreme Court’s decision confirms that, at the class certification stage, courts must consider the generality and generic nature of the alleged misstatements in determining whether they impacted a company’s stock price. This is true even if consideration of the misstatements’ generic nature overlaps with the evidence and issues typically reserved for the merits stage, such as materiality.

While this decision does not provide companies with the broad victory Goldman hoped for, it establishes that, at class certification, companies will be able to present certain merits-related evidence regarding an alleged misstatement’s impact on the stock price in rebutting the Basic presumption. In cases based on generic misstatements, this will provide corporations an additional defense to class certification.

Further, despite confirming that defendants bear the burden of persuasion in rebutting the Basic presumption, the Court acknowledged that such a burden was likely be decisive only in the rare case that the price-impact evidence introduced by both parties is equally compelling.


For more information, please contact:

Renee Zaytsev


Thomas M. Ritzert

Riccardo M. DeBari

Joe Smith

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[1]  Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, No. 20-222 (June 21, 2020).

[2] Arkansas Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 955 F.3d 254, 267 (2d Cir.), cert. granted, 141 S. Ct. 950, 208 L. Ed. 2d 488 (2020).

[3] Id. at 7.