Prominent Law Professors Encourage Second Circuit To Uphold Heavy Burden of Establishing Lack of Price Impact at Class Certification

While the impact of the Supreme Court’s decision in Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398 (2014) is still being ruminated over by courts across the country, on August 26, 2016 and September 1, 2016, a group of eleven prominent securities law professors lent their voices to the debate by filing amici curiae briefs in both In re Goldman Sachs Group Inc. and In re Petrobras Securities, respectively, encouraging the Second Circuit panels to uphold the district court opinions granting class certification.

In In re Goldman Sachs Group Inc., the lower court granted class certification in September 2015 finding that the defendants did not satisfy their burden of rebutting the reliance presumption set forth in Basic, Inc. v. Levinson, 485 U.S. 224 (1988) by presenting “conclusive evidence” of a “complete lack of price impact.” The defendants appealed the decision arguing that the court imposed an insurmountable standard in contravention of the Supreme Court’s recent decision in Halliburton II. In the amici curiae brief, the professors asked the court to maintain the “preponderance of the evidence” burden of proof imposed on defendants when attempting to rebut the Basic presumption. The professors explained that requiring defendants to show the absence of price impact by a preponderance of the evidence best reflects the realities of modern securities markets and pays heed to Congress’s choice to leave the reliance test undisturbed.

In February 2016, the district court in In re Petrobras Securities granted class certification holding that the plaintiffs could satisfy Basic presumption through indirect factors indicating market efficiency, such as trading volume and analyst coverage. The defendants appealed the decision arguing that plaintiffs must present direct evidence of market efficiency to satisfy the indirect requirement of price impact. The professors explained that defendants bear the burden of rebutting the Basic reliance presumption and, noting that the rebuttal standard is stringent, emphasized that an event study introduced by defendants to show a lack of price impact should be subject to the same statistical burden imposed on plaintiffs at the loss causation stage of litigation.

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About Megan Sullivan

Megan M. Sullivan is a Senior Associate in Faruqi & Faruqi, LLP’s New York office and focuses her practice on securities litigation, representing plaintiffs in federal securities fraud class actions. Her successes include securing lucrative settlements in five securities class actions in the past two years alone. Please feel free to contact Megan regarding any questions concerning this blog post or any questions related to F&F’s practice areas.

Posted by Megan Sullivan

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