86 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 87 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C S E C “clients’ interests always come first,” and that “[i]ntegrity and honesty are at the heart of [its] business.” The plaintiffs also challenged statements in the “Risk Factors” section of Goldman Sachs’ Form 10-K, which stated that Goldman Sachs “ha[s] extensive procedures and controls that are designed to identify and address conflicts of interest, including those designed to prevent the improper sharing of information among our businesses.” According to the plaintiffs, these statements “maintained an already-inflated stock price” during the class period from 2007 to 2010 and were later revealed to be false and misleading when the market learned that Goldman Sachs was the subject of SEC and DOJ investigations relating to its practices in connection with certain transactions, including certain collateralized debt obligation transactions involving subprime mortgages, resulting in damages in excess of $13 billion. On remand, the United States District Court for the Southern District of New York again certified the class, finding a sufficient match between the generic front-end statements and the later specific disclosures. In March 2022, the United States Court of Appeals for the Second Circuit again granted discretionary appellate review of the class certification ruling by the district court under Rule 23(f) of the Federal Rules of Civil Procedure. In August 2023, in Arkansas Teachers Retirement System v. Goldman Sachs Group Inc., 77 F.4th 74 (2d Cir. 2023), Goldman Sachs prevailed, and the Second Circuit reversed the district court’s decision and decertified the class. The Second Circuit explained that, in inflation maintenance cases, “a plaintiff cannot (a) identify a specific back-end, price-dropping event, (b) find a front-end disclosure bearing on the same subject, and (c) assert securities fraud, unless the front-end disclosure is sufficiently detailed in the first place. The central focus, in other words, is ensuring that the front-end disclosure and back-end event stand on equal footing; a mismatch in specificity between the two undercuts a plaintiff’s theory that investors would have expected more from the front-end disclosure.” Thus, the Second Circuit held that “a searching price impact analysis must be conducted where (1) there is a considerable gap in frontend-back-end genericness … (2) the corrective disclosure does not directly refer … to the alleged misstatement, and (3) the plaintiff claims … that a company’s generic risk disclosure was misleading by omission.” In the Goldman case, the Second Circuit concluded that “a searching review of the record leaves us with the firm conviction that there is an insufficient link between the corrective discourses and the alleged misrepresentation. Defendants have demonstrated, by a preponderance of the evidence, that the misrepresentations did not impact Goldman’s stock price, and, by doing so, rebutted [the] presumption of reliance.” Following remand, the action was voluntarily dismissed with prejudice. The Goldman decision confirms that price impact can be a potent second line of defense after a motion to dismiss in event-driven securities litigation, and it may well prove to be dispositive. Delaware Supreme Court Confirms MFW Framework For Shifting the Standard of Review from Entire Fairness to Business Judgment in All Conflicted Controller Transactions On April 4, 2024, the Delaware Supreme Court issued its much anticipated decision in In re Match Group, Inc. Derivative Litigation, — A.3d — (Del. Apr. 4, 2024), concerning the Securities Litigation The Goldman decision confirms that price impact can be a potent second line of defense after a motion to dismiss in event-driven securities litigation, and it may well prove to be dispositive.
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