Is the Rebuttable Fraud-on-the-Market Presumption in Securities Class Litigation Actually Rebuttable?

Abstract

This article discusses and analyzes issues that the Supreme Court will address in Goldman Sachs Group, Inc. et al. v. Arkansas Teacher Retirement System, et. al argued on March 29, 2021. This appeal from the Second Circuit again addresses the so-called “fraud-on-the-market presumption” that is available to plaintiffs in securities fraud litigation. The application of the presumption permits securities fraud plaintiffs to avoid having to plead and prove individual investor reliance in a Rule 23(b)(3) damage class action, thereby enabling class certification. When a plaintiff invokes the presumption, defendants have the opportunity to rebut the presumption. This Goldman Sachs case is the fourth time in the past decade that the Supreme Court has undertaken to articulate and clarify the requirements of the fraud-on-the-market presumption. In the three prior appeals, the Court upheld the continued use of the fraud-on-the-market presumption. In theory, defendants may rebut the presumption if the defendant can show that its alleged misstatements failed to impact a security’s price. In this appeal the Court will address how lower courts should address a defendant’s claim that the generic nature of its alleged misstatements failed to impact a security’s price. In addition, the Court will determine the parties relative burdens of production and persuasion when the parties seek to invoke or rebut application of the presumption.