Second Circuit Further Addresses Defendants’ Burden in Rebutting Basic Presumption

On January 12, 2018, in Arkansas Teachers Retirement System v. Goldman Sachs Group, Inc., the Second Circuit Court of Appeals reaffirmed its recent holding that defendants seeking to defeat class certification by rebutting the Basic presumption of reliance must do so by a preponderance of the evidence, but clarified that defendants need not provide “conclusive evidence” that there was no link between the price decline and the alleged misrepresentation.

Moreover, the Second Circuit held that district courts deciding whether the presumption of reliance has been rebutted must consider defendants’ evidence that the alleged fraud was revealed before the purported corrective disclosures, and that there was no significant price reaction on those dates. Cleary Gottlieb filed an amicus brief in support of defendants on behalf of the United States Chamber of Commerce.

These holdings present an additional way that defendants may be able to rebut the Basic presumption at the class certification stage, and indicate that event studies remain an important tool in establishing that burden.