case 16-250, document 46, 04/27/2016, 1759194, page1 of ......16-250-cv oral argument requested in...

16-250-cvOral Argument Requested

IN THE

United States Court of AppealsFOR THE SECOND CIRCUIT

PENSION FUNDS,Plaintiff,

ARKANSAS TEACHERS RETIREMENT SYSTEM, WEST VIRGINIA INVESTMENTMANAGEMENT BOARD, PLUMBERS AND PIPEFITTERS PENSION GROUP,ILENE RICHMAN, Individually and on behalf of all others similarly situated,

(Caption continued on inside cover)

PURSUANT TO JANUARY 26, 2016 ORDER GRANTING PERMISSION TO APPEALFROM AN ORDER GRANTING CERTIFICATION OF CLASS

BY THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORKMASTER FILE NO. 1:10 CIV. 03461 (PAC)

THE HONORABLE PAUL A. CROTTY

BRIEF AND SPECIAL APPENDIX FOR DEFENDANTS-APPELLANTS SEEKING REVERSAL OF CLASS CERTIFICATION

PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 23(f)

d

RICHARD H. KLAPPERROBERT J. GIUFFRA, JR.DAVID M.J. REINSULLIVAN & CROMWELL LLP125 Broad StreetNew York, New York 10004(212) 558-4000

Attorneys for Defendants-AppellantsThe Goldman Sachs Group, Inc., Lloyd C. Blankfein, David A. Viniarand Gary D. CohnApril 27, 2016

Case 16-250, Document 46, 04/27/2016, 1759194, Page1 of 87

PABLO ELIZONDO, HOWARD SORKIN, Individually & on behalf of all otherssimilarly situated, TIKVA BOCHNER, EHSAN AFSHANI, LOUIS GOLD, THOMASDRAFT, Individually & on behalf of all others similarly situated,

Plaintiffs-Appellees,—against—

GOLDMAN SACHS GROUP, INC., LLOYD C. BLANKFEIN, DAVID A. VINIAR, GARY D. COHN,

Defendants-Appellants,

SARAH E. SMITH,Defendant.


CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, Defendant-

Appellant The Goldman Sachs Group, Inc. (“Goldman Sachs”) does not have a

parent corporation, and no publicly held company owns 10 percent or more of its

stock.


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TABLE OF CONTENTS

Page

JURISDICTIONAL STATEMENT ..................................................................... 1

ISSUES PRESENTED FOR REVIEW ................................................................ 2

STATEMENT OF THE CASE ............................................................................. 4

STATEMENT OF THE FACTS ........................................................................ 10

A. Defendants’ Challenged General Statements .................................... 10

B. Plaintiffs’ Alleged “Corrective Disclosures” .................................... 13

C. The Unrebutted Evidence that Defendants’ General Statements

Had No Impact on Goldman Sachs’ Stock Price .............................. 14

1. Goldman Sachs’ Stock Price Did Not Increase When the

Challenged Statements Were Made. ....................................... 15

2. Goldman Sachs’ Stock Price Did Not Go Down When

the Challenged Statements Were “Corrected.” ....................... 15

3. Press Reports of Government Enforcement Activity

Impacted Goldman Sachs’ Stock Price. .................................. 18

4. Plaintiffs Presented No Rebuttal Evidence of Price

Impact. ..................................................................................... 20

D. The District Court’s Decisions on the Actionability of the

Challenged Statements ...................................................................... 21

E. The District Court’s Class Certification Order ................................. 23

SUMMARY OF ARGUMENT ........................................................................... 24

STANDARD OF REVIEW ................................................................................. 27

ARGUMENT ........................................................................................................ 27


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I. THE DISTRICT COURT INVENTED AN IMPERMISSIBLY

HIGH EVIDENTIARY STANDARD FOR REBUTTING THE

BASIC PRESUMPTION. .......................................................................... 27

II. THE GENERAL STATEMENTS CHALLENGED HERE DID

NOT IMPACT GOLDMAN SACHS’ STOCK PRICE AS A

MATTER OF LAW. .................................................................................. 34

III. THE DISTRICT COURT ERRONEOUSLY DISREGARDED

DEFENDANTS’ UNREBUTTED EVIDENCE SHOWING THAT

THEIR CHALLENGED STATEMENTS HAD NO PRICE

IMPACT. .................................................................................................... 41

A. By Presenting Unrebutted Empirical Evidence that their

Challenged General Statements Had No Stock Price Impact

When Made, Defendants Rebutted the Basic Presumption of

Reliance. ............................................................................................ 42

B. Defendants Also Rebutted the Basic Presumption of Reliance

By Presenting Unrebutted Empirical Evidence that Goldman

Sachs’ Stock Price Did Not Decline When the “Truth”

Supposedly Was Revealed. ............................................................... 47

1. The District Court Erroneously Declined To “Consider”

Defendants’ Unrebutted Evidence of an Absence of Price

Impact Because that Evidence Overlapped with the

Merits. ..................................................................................... 48

2. Plaintiffs Presented No Evidence Linking the

Information Revealed on their Alleged “Corrective

Disclosure” Dates to the Alleged Misrepresentations. ........... 50

IV. THE DISTRICT COURT ALSO ERRONEOUSLY CERTIFIED

A CLASS EVEN THOUGH PLAINTIFFS’ DAMAGES

METHODOLOGY ADMITTEDLY DOES NOT MEASURE

DAMAGES FLOWING ONLY FROM THEIR THEORY OF

INJURY. ..................................................................................................... 55

CONCLUSION ..................................................................................................... 58


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TABLE OF AUTHORITIES

Page(s)

CASES

A.C. Aukerman Co. v. R.L. Chaides Construction Co.,

960 F.2d 1020 (Fed. Cir. 1992) ........................................................................ 31

Affiliated Ute Citizens of Utah v. United States,

406 U.S. 128 (1972) .......................................................................................... 40

Alaska Electrical Pension Fund v. Pharmacia Corp.,

554 F.3d 342 (3d Cir. 2009) ............................................................................. 46

Amgen Inc. v. Connecticut Retirement Plans & Trust Funds,

133 S. Ct. 1184 (2013) .............................................................. 27, 39, 40, 48, 49

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ................................................................................... passim

Boca Raton Firefighters & Police Pension Fund v. Bahash (“Boca I”),

506 F. App’x 32 (2d Cir. 2012) .............................................................. 5, 36, 37

Bondali v. Yum! Brands, Inc., 620 F. App’x 483 (6th Cir. 2015) ..................................................................... 35

Brautigam v. Blankfein,

8 F. Supp. 3d 395 (S.D.N.Y. 2014),

aff’d sub nom. Brautigam v. Dahlback, 598 F. App’x 53 (2d Cir. 2015) ........ 22

Brecher v. Republic of Argentina,

806 F.3d 22 (2d Cir. 2015) ............................................................................... 27

Bricklayers & Trowel Trades International Pension Fund v. Credit Suisse

Securities (USA) LLC,

752 F.3d 82 (1st Cir. 2014) ......................................................................... 53, 54

Brown v. Electrolux Home Products, Inc., -- F.3d --, 2016 WL 1085517 (11th Cir. Mar. 21, 2016) .................................. 34


-v-

Carpenters Pension Trust Fund of St. Louis v. Barclays

PLC (“Barclays”),

750 F.3d 227 (2d Cir. 2014) ............................................................. 5, 35, 36-37

City of Arlington v. F.C.C.,

668 F.3d 229 (5th Cir. 2012),

aff’d, 133 S. Ct. 1863 (2013) ............................................................................ 32

City of Pontiac Policemen’s & Firemen’s Retirement System v.

UBS AG (“UBS”),

752 F.3d 173 (2d Cir. 2014) ...................................................................... passim

City of Sterling Heights General Employees’ Retirement System v.

Prudential Financial, Inc.,

No. 12-5275, 2015 WL 5097883 (D.N.J. Aug. 31, 2015),

petition for appeal granted, No. 16-1090 (3d Cir. Jan. 11, 2016) .................... 30

Comcast Corp. v. Behrend,

133 S. Ct. 1426 (2013) ............................................................................... passim

Connecticut Retirement Plans & Trust Funds v. Amgen Inc.,

660 F.3d 1170 (9th Cir. 2011),

aff’d, 133 S. Ct. 1184 (2013) ...................................................................... 40, 49

Dodona I, LLC v. Goldman, Sachs & Co., -- F. Supp. 3d --, 2015 WL 5444110 (S.D.N.Y. Sept. 8, 2015) ....................... 14

ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan

Chase Co. (“JP Morgan”),

553 F.3d 187 (2d Cir. 2009) ............................................................. 5, 35, 36, 37

Erica P. John Fund, Inc. v. Halliburton Co.,

309 F.R.D. 251 (N.D. Tex. 2015),

petition for appeal granted, No. 15-11096 (5th Cir. Nov. 4, 2015) ........... 30, 49

Ganino v. Citizens Utilities Co., 228 F.3d 154 (2d Cir. 2000) ....................................................................... 48-49

Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”),

134 S. Ct. 2398 (2014) ............................................................................... passim


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IBEW Local 98 Pension Fund v. Best Buy Co.,

-- F.3d --, 2016 WL 1425807 (8th Cir. Apr. 12, 2016) ............................. passim

In re BP p.l.c. Securities Litigation,

No. 10-md-2185, 2014 WL 2112823 (S.D. Tex. May 20, 2014) ..................... 57

In re Bristol Myers Squibb Co. Securities Litigation,

586 F. Supp. 2d 148 (S.D.N.Y. 2008) .............................................................. 50

In re Credit Suisse First Boston Corp. (Lantronix, Inc.) Analyst Securities

Litigation,

250 F.R.D. 137 (S.D.N.Y. 2008) ...................................................................... 45

In re Goldman Sachs Group, Inc. Securities Litigation,

No. 10-cv-3461 (PAC), 2014 WL 2815571 (S.D.N.Y. June 23, 2014) ..... 21, 22


No. 10-cv-3461 (PAC), 2014 WL 5002090 (S.D.N.Y. Oct. 7, 2014) .............. 22


No. 10-cv-3461 (PAC), 2015 WL 5613150 (S.D.N.Y. Sept. 24, 2015) ... passim

In re IPO Securities Litigation,

471 F.3d 24 (2d Cir. 2006) ............................................................. 26, 38-39, 50

In re Moody’s Corp. Securities Litigation,

274 F.R.D. 480 (S.D.N.Y. 2011) ................................................................ 42-43

In re New Motor Vehicles Canadian Export Antitrust Litigation,

522 F.3d 6 (1st Cir. 2008) ................................................................................. 39

In re Omnicom Group, Inc. Securities Litigation,

597 F.3d 501 (2d Cir. 2010) ....................................................................... 51, 54

In re Pfizer Inc. Securities Litigation,

-- F.3d --, 2016 WL 1426211 (2d Cir. Apr. 12, 2016) ..................................... 45

In re Scientific-Atlanta, Inc. Securities Litigation,

571 F. Supp. 2d 1315 (N.D. Ga. 2007) ............................................................. 46


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Indiana Public Retirement System v. SAIC, Inc.,

-- F.3d --, 2016 WL 1211858 (2d Cir. Mar. 29, 2016) ........................... 5, 36, 38

ITC Ltd. v. Punchgini, Inc., 482 F.3d 135 (2d Cir. 2007) ....................................................................... 31, 32

Johnson v. Nextel Communications Inc., 780 F.3d 128 (2d Cir. 2015) ............................................................................. 32

Levitt v. J.P. Morgan Securities, Inc., 710 F.3d 454 (2d Cir. 2013) ....................................................................... 40, 41

Local 703, I.B. of T. Grocery & Food Employees Welfare Fund v. Regions

Financial Corp., 762 F.3d 1248 (11th Cir. 2014) ........................................................................ 46

Lupyan v. Corinthian Colleges Inc., 761 F.3d 314 (3d Cir. 2014) ............................................................................. 31

Marr v. Bank of America, N.A., 662 F.3d 963 (7th Cir. 2011) ............................................................................ 31

McIntire v. China MediaExpress Holdings, Inc.,

38 F. Supp. 3d 415 (S.D.N.Y. 2014) ................................................................ 46

Meyer v. Greene,

710 F.3d 1189 (11th Cir. 2013) ........................................................................ 54

Middleton v. Stephenson,

749 F.3d 1197 (10th Cir. 2014) .................................................................. 31, 33

Nathenson v. Zonagen Inc., 267 F.3d 400 (5th Cir. 2001) ...................................................................... 45, 46

Reese v. Bahash (“Boca II”),

574 F. App’x 21 (2d Cir. 2014) .............................................................. 5, 36, 37

Regents of University of California v. Credit Suisse First Boston

(USA), Inc., 482 F.3d 372 (5th Cir. 2007) ............................................................................ 39


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Richman v. Goldman Sachs Group, Inc.,

868 F. Supp. 2d 261 (S.D.N.Y. 2012) .............................................................. 21

Roach v. T.L. Cannon Corp., 778 F.3d 401 (2d Cir. 2015) ....................................................................... 55, 56

Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010) ...................................................................... 45-46

Scott v. General Motors Co., 605 F. App’x 52 (2d Cir. 2015) .......................................................................... 5

Sergeants Benevolent Association Health & Welfare Fund v. Sanofi-Aventis

U.S. LLP,

806 F.3d 71 (2d Cir. 2015) ............................................................................... 55

Teachers’ Retirement System of Louisiana v. Hunter,

477 F.3d 162 (4th Cir. 2007) ............................................................................ 54

Teamsters Local 445 Freight Division Pension Fund v. Bombardier Inc., 546 F.3d 196 (2d Cir. 2008) ....................................................................... 27, 33

Wal-Mart Stores, Inc. v. Dukes,

564 U.S. 338 (2011) .......................................................................................... 44

Waste Management Holdings, Inc. v. Mowbray,

208 F.3d 288 (1st Cir. 2000) ............................................................................. 44

STATUTES, RULES AND REGULATIONS

15 U.S.C. § 78j ......................................................................................................... 1

15 U.S.C. § 78aa ...................................................................................................... 1

28 U.S.C. § 1331 ...................................................................................................... 1

FED. R. CIV. P. 23(b) ....................................................................................... passim

FED. R. CIV. P. 23(f) ..................................................................................... 1, 30, 39

FED. R. EVID. 301 ............................................................................................ passim


-ix-

17 C.F.R. § 240.10b-5 .............................................................................................. 1

OTHER AUTHORITIES

Charles A. Wright & Kenneth W. Graham, Jr.,

21B Federal Practice and Procedure Evidence § 5126 ............................. 31-32

Jack B. Weinstein & Margaret A. Berger,

Weinstein’s Federal Evidence § 301.02 ........................................................... 31


JURISDICTIONAL STATEMENT

The District Court has federal question jurisdiction over this action

pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331, because Plaintiffs’ claims arise

under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5

promulgated thereunder, 17 C.F.R. § 240.10b-5. On September 24, 2015, the

District Court granted Plaintiffs’ motion for class certification. In re Goldman

Sachs Grp., Inc. Sec. Litig., 2015 WL 5613150 (S.D.N.Y. Sept. 24, 2015); (Special

Appendix (“SA”) 1-15). After Defendants timely petitioned under Federal Rule of

Civil Procedure 23(f) for leave to appeal on October 8, 2015, this Court granted the

Petition on January 26, 2016. (Joint Appendix (“JA”) 6355-56.)


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ISSUES PRESENTED FOR REVIEW

In Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), the

Supreme Court held that in opposing class certification, defendants in securities

fraud actions may rebut the Basic fraud-on-the-market presumption of classwide

reliance by showing that “the asserted misrepresentation (or its correction) did not

affect the market price of the defendant’s stock.” 134 S. Ct. 2398, 2414-16 (2014).

In this case, Plaintiffs base their securities fraud claims solely on Defendants’

general statements about Goldman Sachs’ efforts to comply with its business

principles and internal controls. In seven separate appeals, this Court has held that

analogous statements were immaterial as a matter of law and thus could have no

price impact, because no reasonable investor would rely on such statements. In

certifying a multi-year investor class seeking billions of dollars in damages, the

District Court ignored both this Court’s precedents and Defendants’ unrebutted

empirical evidence of no price impact. This appeal presents the following issues:

1. Did the District Court err in creating a virtually insurmountable

legal standard that to rebut Basic’s fraud-on-the-market presumption under

Halliburton II, Defendants must “demonstrate a complete absence of price impact”

with “conclusive evidence” (SA13 (emphasis added))?

2. Did Defendants rebut Basic’s fraud-on-the-market presumption

of reliance under Halliburton II where:


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(a) Plaintiffs’ securities fraud claims are based on

Defendants’ general statements that could not impact Goldman Sachs’

stock price as a matter of law because, as this Court has held in

finding indistinguishable statements by other financial services

companies inactionable, no reasonable investor would rely on such

statements; and

(b) Defendants presented unrebutted empirical

evidence that their challenged general statements did not impact

Goldman Sachs’ stock price, which the District Court disregarded

(including by not holding an evidentiary hearing or oral argument),

even though the Supreme Court has held that courts must consider

such evidence in certifying a class, including when the evidence

overlaps with merits evidence of materiality?

3. Did the District Court err in certifying a class where Plaintiffs’

proffered classwide damages methodology admittedly does not, as required by

Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433 (2013), “measure only those

damages” resulting from their theory that Defendants’ general statements caused

their injury?


-4-

STATEMENT OF THE CASE

In Basic Inc. v. Levinson, the Supreme Court created a rebuttable

presumption that investors trading in “well-developed” efficient markets indirectly

rely on “public material misrepresentations” through their “reliance on the integrity

of the price set by the market.” 485 U.S. 224, 245-47 (1988). In seeking to certify

a class in a securities action, plaintiffs typically rely, as in this case, on the Basic

presumption to satisfy Federal Rule of Civil Procedure 23(b)(3)’s requirement that

common questions of reliance predominate across the proposed class. In

Halliburton II, while declining to abandon the Basic presumption, the Supreme

Court made clear that in opposing class certification, defendants have the right to

rebut this presumption by “showing that the alleged misrepresentation did not

actually affect the stock’s market price”—“that is, that the misrepresentation had

no ‘price impact.’” 134 S. Ct. at 2405, 2416.

Here, Plaintiffs’ securities fraud claims rest solely on Defendants’

general statements about Goldman Sachs’ efforts to comply with its business

principles and internal controls. In seven separate appeals, five of which involved

other financial services companies—UBS, JP Morgan, Barclays and Standard &

Poor’s (“S&P”)—this Court held that analogous statements were not actionable as

a matter of law, because no reasonable investor would consider such statements as

“guarantee[s] of some concrete fact or outcome.” City of Pontiac Policemen’s &


-5-

Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 185-86 (2d Cir. 2014) (“UBS”).1

Notwithstanding this Court’s decisions, the District Court (Crotty, J.) refused to

dismiss the Consolidated Complaint or to reconsider its decision.

In opposing class certification below, Defendants rebutted the Basic

presumption under Halliburton II in two ways. First, they again pointed to this

1 See ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan

Chase Co., 553 F.3d 187, 205-06 (2d Cir. 2009) (“JP Morgan”) (statements that

bank “‘set the standard’ for ‘integrity,’” and had “highly disciplined” “risk

management processes,” were immaterial as a matter of law, because such

statements were “so general that a reasonable investor would not depend on [them]

as a guarantee that [the bank] would never take a step that might adversely affect

its reputation”); Boca Raton Firefighters & Police Pension Fund v. Bahash, 506 F.

App’x 32, 37 (2d Cir. 2012) (summary order) (“Boca I”) (holding immaterial

“generic, indefinite” statements that were “generalizations about [the] company’s

business practices and integrity,” such as that S&P “endeavor[ed] to . . . ensure[]

that the integrity and independence of [the ratings process] are not compromised

by conflicts of interest” (JA4114)); Reese v. Bahash, 574 F. App’x 21, 23 (2d Cir.

2014) (summary order) (“Boca II”) (holding that “defendants’ statements regarding

the ‘independence’ and ‘integrity’ of their ratings” were immaterial, because such

statements were “too general to cause a reasonable investor to rely upon them as a

guarantee that ratings would not be made without regard to profits, market share,

or client feedback”); Carpenters Pension Trust Fund of St. Louis v. Barclays PLC,

750 F.3d 227, 235 (2d Cir. 2014) (“Barclays”) (holding that statements

“concerning the company’s minimum control requirements” were not actionable);

Scott v. Gen. Motors Co., 605 F. App’x 52, 54 (2d Cir. 2015) (summary order)

(holding that “GM’s statement[s]” about its “reputation” and aim to “increase

vehicle profitability through monitoring of its dealer inventory levels” were

“inactionable,” because those statements were “too general to cause a reasonable

investor to rely upon them”); Ind. Pub. Ret. Sys. v. SAIC, Inc., -- F.3d --, 2016 WL

1211858, at *10 (2d Cir. Mar. 29, 2016) (holding that SAIC’s statements regarding

its “culture of high ethical standards, integrity, operational excellence, and

customer satisfaction” were inactionable as a matter of law, because such

statements were “too general to cause a reasonable investor to rely upon them”).


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Court’s then-five subsequent decisions holding that general statements

indistinguishable from those at issue here were not actionable, and hence could not

have impacted Goldman Sachs’ stock price as a matter of law. Second, Defendants

presented unrebutted empirical evidence demonstrating that Goldman Sachs’ stock

price did not (i) rise when Defendants made the challenged statements about the

Firm’s compliance with its business principles and internal controls, or (ii) fall as a

result of later “corrections” of those statements, which Plaintiffs claim occurred

when investors learned of allegations that Goldman Sachs had conflicts with

clients in connection with four collateralized debt obligation (“CDO”) transactions.

Because the District Court nonetheless certified a class seeking billions of dollars

in damages based on such general statements, this Court should reverse for at least

four separate and independent reasons:

First, in certifying the class below, the District Court contravened

Halliburton II by imposing the virtually insurmountable evidentiary burden on

Defendants to rebut the Basic presumption with “conclusive evidence” of a

“complete lack of price impact.” (SA10, 13 (emphasis added).) The District

Court’s creation of this evidentiary burden conflicts with Halliburton II, which

reiterated Basic’s holding that “any showing that severs the link between the

alleged misrepresentation and . . . the price received (or paid) by the plaintiff . . .

will be sufficient to rebut the presumption of reliance.” Halliburton II, 134 S. Ct.


-7-

at 2415 (emphasis added; ellipses in original). The District Court’s evidentiary

burden also cannot be squared with Federal Rule of Evidence 301, which governs

civil evidentiary presumptions. Under Rule 301, “the party against whom a

presumption is directed has the burden of producing evidence to rebut the

presumption,” while “the burden of persuasion . . . remains on the party who had it

originally.” FED. R. EVID. 301. Thus, after Defendants met their burden of

producing some (indeed conclusive) evidence showing the absence of price

impact, the Basic presumption of price impact disappeared, and the burden of

proving price impact by a preponderance of the evidence shifted back to Plaintiffs.

This Court should now clarify that Halliburton II requires that district courts apply

the Rule 301 evidentiary standard.

Second, had the District Court followed this Court’s decisions holding

that analogous general statements were not actionable because no reasonable

investor would rely on such statements, it necessarily would have concluded under

any evidentiary standard that the statements had no price impact as a matter of law.

A statement that is too general for a reasonable investor to rely on could not by any

standard, as a matter of law or fact, impact an issuer’s stock price as required to

sustain the Basic fraud-on-the-market presumption of classwide reliance.

Third, the District Court improperly disregarded Defendants’

unrebutted empirical evidence demonstrating that their challenged statements did


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not impact Goldman Sachs’ stock price. In certifying a class, the District Court

recognized as undisputed facts that (i) “the misstatements had no impact on the

stock price when made,” and (ii) there was “no movement in Goldman’s stock

price” on any of the “34 separate dates” prior to the alleged “corrective

disclosures” when the press reported that Goldman Sachs had conflicts with

clients, including in connection with the CDO transactions that form the basis for

Plaintiffs’ claims. (SA11.)

Notwithstanding these undisputed facts, the District Court erroneously

refused to “consider” this evidence, because it overlapped with the merits issue of

materiality. (Id.) In Halliburton II, the Supreme Court was clear: district courts

must consider “evidence that [the] alleged misrepresentation did not actually affect

the market price of the stock,” “even though such proof is also highly relevant at

the merits stage.” 134 S. Ct. at 2417. Indeed, in IBEW Local 98 Pension Fund v.

Best Buy Co., the Eighth Circuit recently reversed a class certification order,

applying the correct evidentiary burden under Halliburton II and holding that

“defendants rebutted the Basic presumption by submitting direct evidence (the

opinions of both parties’ experts) that severed any link between the alleged . . .

misrepresentations and the stock price at which plaintiffs purchased,” after which

plaintiffs “presented no contrary evidence of price impact.” -- F.3d --, 2016 WL

1425807, at *7 (8th Cir. Apr. 12, 2016).


-9-

Beyond its failure to consider Defendants’ unrebutted evidence of no

price impact, the District Court compounded its errors by accepting as “obvious”

Plaintiffs’ unsupported speculation that Goldman Sachs’ stock price must have

declined because investors learned that Defendants’ challenged general statements

about the Firm’s efforts to comply with its business principles and conflicts

controls were false. (SA11-12.) That sheer speculation was supported by no

evidence and could not override Defendants’ unrebutted evidence that the Firm’s

stock price fell because of investor reaction to reports of enforcement activity by

U.S. regulators, including the Securities and Exchange Commission’s (“SEC”)

abrupt filing of a highly publicized enforcement action alleging that Goldman

Sachs committed securities fraud in sponsoring the ABACUS 2007-AC1 CDO

(“ABACUS”)—a decline consistent with the declines in the stock prices of other

companies in response to reports of similar enforcement actions. (JA5134-45,

5180-84.)

Fourth, the District Court erred in certifying a class even though,

contrary to the Supreme Court’s decision in Comcast, Plaintiffs’ proffered

damages methodology admittedly did not “measure only those damages” resulting

from their theory that Defendants’ general statements caused the declines in

Goldman Sachs’ stock price. 133 S. Ct. at 1433; SA13-14. Instead, the District

Court accepted Plaintiffs’ unsupported prediction that they “will be able to account


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for” damages stemming from their theory of injury, while improperly imposing on

Defendants the burden to show that “disaggregation would be impossible.” (SA14

(emphasis added).)

STATEMENT OF THE FACTS

A. Defendants’ Challenged General Statements

Plaintiffs’ securities fraud claims rest solely on Defendants’ general

statements between 2007 and 2010 that described the risks inherent in Goldman

Sachs’ efforts to comply with its “conflicts of interest policies and business

practices” across nearly 100 separate businesses around the world. (SA1.) The

statements concerning conflicts of interest appeared in the “Risk Factors” section

of each of Goldman Sachs’ annual Form 10-K filings with the SEC between 2007

and 2010,2 and disclosed that:

Conflicts of interest are increasing and a failure to

appropriately identify and deal with conflicts of interest

could adversely affect our businesses.

Our reputation is one of our most important assets. As

we have expanded the scope of our businesses and our

2 Goldman Sachs’ Form 10-K filings have continued to include a similar

“Risk Factor” warning about potential conflicts of interest. (See Goldman Sachs

Form 10-K for fiscal year ended December 31, 2015 at 31, available at

http://www.goldmansachs.com/investor-relations/financials/current/10k/2015-10-

k.pdf.)


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client base, we increasingly have to address potential

conflicts of interest. . . .

* * *

We have 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.

(JA1480; see also JA1275-76, 1703-04, 2064.)

Plaintiffs also challenge Goldman Sachs’ compliance with certain

aspects of its “Business Principles” published in Goldman Sachs’ Annual Reports

to shareholders between 2007 and 2010, including:

“Our clients’ interests always come first. Our experience shows that if

we serve our clients well, our own success will follow.” (JA87 (quoting

Business Principles));

“We are dedicated to complying fully with the letter and spirit of the

laws, rules and ethical principles that govern us. Our continued success

depends upon unswerving adherence to this standard.” (Id.);

“Integrity and honesty are at the heart of our business.” (Id.); and

“Most importantly, and the basic reason for our success, is our

extraordinary focus on our clients.” (Id. (quoting Mr. Viniar’s statements

on an investor conference call).)


-12-

None of Defendants’ challenged statements referred or related to any

Goldman Sachs line of business, much less mentioned mortgages, CDOs or any

transaction. (JA87-89.) Nor did Defendants’ challenged statements about

conflicts controls and business principles describe the Firm’s approach as better

than that of its competitors, guarantee that Goldman Sachs would always

successfully resolve client conflicts, or assert that no employee would ever violate

the Firm’s business principles. To the contrary, the challenged statements

concerning conflicts of interest expressly warned:

However, appropriately identifying and dealing with

conflicts of interest is complex and difficult, and our

reputation could be damaged and the willingness of

clients to enter into transactions in which such a conflict

might arise may be affected if we fail, or appear to fail, to

identify and deal appropriately with conflicts of interest.

In addition, potential or perceived conflicts could give

rise to litigation or enforcement actions.

(JA1480 (emphasis added); see also JA1275-76, 1703-04, 2064.)

Plaintiffs nonetheless claim that those statements were false because

they purportedly were inconsistent with Goldman Sachs’ allegedly undisclosed

conflicts in connection with four CDO transactions (out of countless other

transactions) structured and sold in 2006 and 2007 by Goldman Sachs’ Mortgage


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Department to a small number of highly sophisticated institutional investors in

arm’s-length transactions. (JA85-86.)3

B. Plaintiffs’ Alleged “Corrective Disclosures”

In seeking to certify a class, Plaintiffs claim that three “corrective

disclosures” in 2010 revealed the purported falsity of Defendants’ general

statements about Goldman Sachs’ efforts to comply with its business principles

and conflicts controls4:

April 16, 2010: The SEC Files the ABACUS Lawsuit. During the

trading day on April 16, 2010, the SEC abruptly and without prior notice

filed a highly publicized enforcement action alleging that Goldman,

Sachs & Co. (the Firm’s principal U.S. broker-dealer (“GS&Co”)) and

one of its employees committed securities fraud in sponsoring the

ABACUS CDO by not disclosing to potential investors in that CDO that

3 The four CDOs are ABACUS, Hudson Mezzanine Funding 2006-1

(“Hudson”), Anderson Mezzanine Funding 2007-1 (“Anderson”) and Timberwolf I

(“Timberwolf”).

4 Plaintiffs have abandoned their claim that a fourth “corrective” disclosure

was made on April 26, 2010. (See SA3 n.2.) In their Consolidated Complaint,

Plaintiffs alleged that on April 26, 2010, the U.S. Senate Permanent Subcommittee

on Investigations “released Goldman internal emails further detailing that Goldman

made billions by betting against the CDOs it sold to its clients.” (JA139.) In

contrast with Plaintiffs’ other three alleged “corrective disclosures,” no news of

government enforcement activities was released on April 26, 2010, and the

“corrective” disclosure on that date caused no statistically significant movement in

the price of Goldman Sachs’ stock. (JA5766-67.)


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a hedge fund, Paulson & Co. Inc. (“Paulson”), “played an active and

determinative role in the asset selection process.” (JA56, 136-37.)

April 30, 2010: The Reported Criminal Investigation. Plaintiffs allege

that after the market closed “[o]n April 29, 2010 . . . the Wall Street

Journal reported that Goldman was the subject of a criminal investigation

by the Department of Justice” into unspecified mortgaged-related

matters. (JA139, 465.)

June 10, 2010: The Reported Hudson SEC Investigation. Plaintiffs

allege that “[o]n June 10, 2010,” the press “reported that the SEC was

investigating whether in connection with the Hudson CDO, Goldman

profited by ridding itself of mortgage backed securities . . . on Goldman’s

books that it knew were going to decline by selling these securities to

Goldman’s clients. . . .” (JA140.)5

C. The Unrebutted Evidence that Defendants’ General Statements

Had No Impact on Goldman Sachs’ Stock Price

In moving for class certification, Plaintiffs invoked the Basic

presumption of classwide reliance to try to satisfy Rule 23(b)(3)’s requirement that

common questions of reliance predominate across the proposed class. In response,

5 The Hudson CDO and a related CDO were the subject of a separate class

action on behalf of the CDO’s investors against Goldman Sachs affiliates and

employees. Judge Marrero granted summary judgment for defendants, finding that

no material evidence supported plaintiff’s allegations that Goldman Sachs

“structured the Hudson CDOs with the expectation that they would fail, or that

Defendants were particularly aware of an undisclosed risk of Plaintiffs’ investing

in the RMBS market.” Dodona I, LLC v. Goldman, Sachs & Co., -- F. Supp. 3d --,

2015 WL 5444110, at *3 (S.D.N.Y. Sept. 8, 2015).


-15-

Defendants sought to rebut the Basic presumption under Halliburton II by

reiterating that under this Court’s settled precedents their general statements by

definition could not have caused any price impact as a matter of law (JA737-41,

754-55), and also submitted unrebutted empirical evidence demonstrating an

absence of any such price impact.

1. Goldman Sachs’ Stock Price Did Not Increase When the

Challenged Statements Were Made.

As the District Court found, the challenged statements “had no impact

on [Goldman Sachs’] stock price when made.” (SA11; see also JA4984-92.)

2. Goldman Sachs’ Stock Price Did Not Go Down When the

Challenged Statements Were “Corrected.”

As the unrebutted evidence showed, Goldman Sachs’ stock price did

not decline when the market learned on dozens of dates—prior to Plaintiffs’

purported “corrective” disclosure dates—about Goldman Sachs’ alleged conflicts

of interest, including alleged conflicts with investors in the CDOs (SA11; JA4992-

5000, 5103-15, 5762-67):

First, virtually all of the factual allegations about the ABACUS CDO

in the SEC’s complaint were prominently reported long before April 16, 2010,

including the SEC’s central theory that GS&Co did not disclose the role of

Paulson, who assumed the short position created by the CDO, in selecting the

CDO’s reference portfolio of securities. (JA4999-5000, 5109-15.) For example,


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on December 7, 2009—more than four months before the SEC filed its

enforcement action—The New York Times asserted that “Mr. Paulson persuaded

Goldman Sachs . . . to put together securitized collateralized debt obligations . . .

filled with nasty mortgages that he could then short. Of course, nobody told the . . .

investors . . . that [the CDOs] were designed to help a man who wanted the most

toxic mortgages imaginable so he could profit when they went sour.” (JA5111.)

Goldman Sachs’ expert, Dr. Paul Gompers of the Harvard Business School,

demonstrated that none of these press reports about Paulson’s role in the ABACUS

CDO impacted Goldman Sachs’ stock price. (JA4992-5000.)

Second, the market knew virtually all the allegations about the

Hudson CDO more than six months before the June 10, 2010 report of an SEC

investigation. For example, The New York Times asserted on its front page on

December 24, 2009 that “Goldman kept a significant amount of the financial bets

against securities in Hudson, so it would profit if they failed,” thereby “put[ting]

the firm[] at odds with [its] own clients’ interests.” (JA5111.) Here again,

Dr. Gompers demonstrated that these press reports did not impact Goldman Sachs’

stock price. (JA4992-5000.)

Third, the press widely reported during the Class Period, but long

before the three alleged corrective disclosures, that Goldman Sachs allegedly had

failed to manage client conflicts in a variety of other transactions. (JA4994-5000,


-17-

5103-06.) If, as Plaintiffs claim, the SEC’s lawsuit and reports of other CDO

investigations on their three “corrective” disclosure dates revealed to the market

allegations of “abusive conduct of placing the [Firm’s] interests above its own

clients” that were “contrary to” Defendants’ general statements about Goldman

Sachs’ business principles and conflict controls (JA142), these earlier press reports

made similar allegations before the SEC filed its ABACUS complaint in April

2010. Defendants’ expert, Dr. Gompers, demonstrated that none of those earlier

reports impacted Goldman Sachs’ stock price. (JA4992-5000.)

For example, the press asserted on November 11, 2008 that Goldman

Sachs “urged some of its big clients to place investment bets against California

bonds despite having collected millions of dollars in fees to help the state sell some

of those same bonds,” and quoted a Columbia Business School professor as

concluding that the Firm had “a conflict of interest and [was] acting against the

interest of [its] customers.” (JA764-65, 772-73.) Under Plaintiffs’ theory, these

allegations should have revealed to investors the purported falsity of Defendants’

general statements about Goldman Sachs’ compliance with its business principles

and conflict controls in the same manner as the alleged corrective disclosures, but

this report had no impact on Goldman Sachs’ stock price. (Id.)6

6 Similarly, a November 19, 2009 article alleged, as Plaintiffs do here, that

Goldman Sachs had engaged in an “obvious fraud” by “packaging and selling toxic

(footnote continued . . .)


-18-

3. Press Reports of Government Enforcement Activity

Impacted Goldman Sachs’ Stock Price.

Goldman Sachs’ stock reacted adversely only when investors learned

of government lawsuits and investigations of the Firm’s mortgage-related activity.

(JA5000-14, 5134-55, 5766-70.) As Dr. Gompers demonstrated, the absence of a

statistically significant price decline on April 26, 2010—Plaintiffs’ only alleged

“corrective disclosure” date when there was no news of enforcement activity

involving Goldman Sachs—confirms that, on their other three “corrective

disclosure” dates, the market reacted to the news of the enforcement activity, not to

some revelation that Defendants’ general statements about Goldman Sachs’

compliance with its business principles and conflict controls were false. (See

JA5766-67.)

derivatives” to investors while “betting against those very products.” (JA765,

778.) That article did not impact Goldman Sachs’ stock price (see id.); neither did

a December 30, 2009 article alleging that Goldman Sachs engaged in 148 Cayman

Islands deals that were “riddled with potential conflicts of interest,” because

“Goldman created the companies that oversaw the deals, selected many of the

securities to be peddled, including mortgages it had securitized, and in several

instances placed huge bets against similar loans.” (JA766, 791.) Goldman Sachs’

stock also did not decline when a January 12, 2010 New York Times article asserted

that the Firm’s Fundamental Strategies Group “might have shared investment ideas

with the firm’s proprietary trading group or some clients before sharing them with

others,” noting that “Goldman and other firms have come under criticism for

trading ahead of, or at odds [with,] its own clients.” (JA5104.)


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Defendants’ other expert, Dr. Choi of the New York University Law

School—whose research focuses on empirical analysis of public and private

enforcement of the securities laws7—confirmed Dr. Gompers’ opinion that news of

government investigations, not revelations of the alleged falsity of Defendants’

general statements about the Firm’s compliance with its conflict controls and

business principles, caused the declines in Goldman Sachs’ stock price on

Plaintiffs’ alleged “corrective disclosure” dates.

As Dr. Choi explained, Goldman Sachs’ stock price declined because

investors feared the potentially serious consequences of government enforcement

activity, including anticipated resolution costs, potential loss of the Firm’s broker-

dealer license, an expectation of increased regulatory scrutiny, and potential new

regulatory restrictions. (JA5129-31, 5134-50.) Dr. Choi found that Goldman

Sachs’ stock price decline on April 16, 2010 after the SEC filed its ABACUS

complaint was consistent with the declines experienced by other companies in

response to news of similar enforcement actions, including where the underlying

allegations were fully in the public domain prior to the enforcement action.

(JA5134-45, 5180-84.)

7 Dr. Choi also co-directs New York University’s Pollack Center for Law &

Business, which has compiled a comprehensive database of SEC enforcement data

against public companies to assist with empirical research studies related to SEC

enforcement actions. (See JA5125.)


-20-

Moreover, contemporaneous press and analyst reports highlighted the

importance of the SEC lawsuit and related investigations, but made no reference

whatsoever to Defendants’ prior statements about Goldman Sachs’ business

principles or conflict controls. (JA5003-14, 5189-90, 5204-13.)

4. Plaintiffs Presented No Rebuttal Evidence of Price Impact.

In response to Defendants’ evidence of an absence of price impact,

Plaintiffs submitted no price impact evidence whatsoever. Plaintiffs’ expert,

Dr. Finnerty, conceded that “the market did not react” when the challenged

statements were made. (JA5511.) Plaintiffs offered only the speculative theory

“that the misstatements simply served to maintain an already inflated stock price,”

and that “the stock price dropped” on the “corrective disclosure” dates following

press reports of government investigations or enforcement actions concerning the

four CDOs. (SA11-12.) Plaintiffs’ expert conceded that “the market reacts

negatively” if “a company is accused of fraud by a regulatory body,” and agreed

that an enforcement action without a concurrent resolution (as here with the SEC’s

ABACUS lawsuit) would cause a greater market reaction because of the

“uncertainty of a case hanging out there,” yet did not attempt to measure that

impact here. (JA954-55, 958-60; see also JA884.) Tellingly, Plaintiffs never

attempted to explain why the stock declines following news of government

enforcement reflected a removal of the supposedly “maintained” artificial inflation


-21-

allegedly embedded in Goldman Sachs’ stock price as a result of the challenged

statements, rather than concern that government investigations and enforcement

actions, regardless of their outcome, can be expensive and potentially impact the

target company’s business.

D. The District Court’s Decisions on the Actionability of the

Challenged Statements

On June 21, 2012, the District Court denied Defendants’ motion to

dismiss Plaintiffs’ claims based on Defendants’ general statements, holding that

such statements were not “mere puffery or statements of opinion.” Richman v.

Goldman Sachs Grp., Inc., 868 F. Supp. 2d 261, 279-80 (S.D.N.Y. 2012) (JA376-

77). The District Court reasoned that the Consolidated Complaint sufficiently

alleged that Defendants “could not have genuinely believed [the statements] were

accurate and complete,” because of Goldman Sachs’ alleged failure to follow those

policies in connection with the four CDO transactions, out of many tens of

thousands of transactions that the Firm engages in every year. Id.8 The District

Court reiterated its view three more times,9 notwithstanding this Court’s then-five

8 The District Court dismissed Plaintiffs’ primary theory focused on Goldman

Sachs’ non-disclosure of an SEC “Wells notice” in connection with a potential

SEC enforcement action over the ABACUS CDO, correctly holding that

Defendants had no “duty to disclose receipt of a Wells notice.” Richman, 868 F.

Supp. 2d at 274-75 (JA364-70).

9 In re Goldman Sachs Grp., Inc. Sec. Litig., 2014 WL 2815571, at *5



-22-

subsequent decisions holding with respect to other financial services companies

that “general statements about reputation, integrity, and compliance with ethical

norms are inactionable ‘puffery,’ meaning that they are ‘too general to cause a

reasonable investor to rely upon them.’” UBS, 752 F.3d at 183. As this Court

explained in UBS, “Plaintiffs’ claim that these statements were knowingly and

verifiably false when made does not cure their generality, which is what prevents

them from rising to the level of materiality required to form the basis for assessing

a potential investment.” Id.

The District Court strained to distinguish this Court’s decisions on the

ground that Defendants’ statements about Goldman Sachs’ compliance with its

business principles and conflict controls were “at odds with” the Firm’s “alleged

conduct” in the four CDO transactions. Goldman, 2014 WL 2815571, at *5

(JA393).10

But, in each of those cases, plaintiffs similarly alleged that the issuer’s

(S.D.N.Y. June 23, 2014) (denying reconsideration after this Court’s decisions in

UBS, Boca I and Barclays) (JA386-94); In re Goldman Sachs Grp., Inc. Sec. Litig.,

2014 WL 5002090, at *3 (S.D.N.Y. Oct. 7, 2014) (denying certification of

interlocutory appeal) (JA395-400); SA12 n.5 (granting class certification).

10 The same general statements were the predicate for a parallel shareholder

derivative action the District Court dismissed because demand was not excused,

albeit while reiterating its view that the statements were actionable. See Brautigam

v. Blankfein, 8 F. Supp. 3d 395, 401 n.8 (S.D.N.Y. 2014). This Court affirmed,

without addressing the actionability issue. See Brautigam v. Dahlback, 598 F.

App’x 53 (2d Cir. 2015) (summary order).


-23-

conduct was “at odds” with those firms’ statements. In UBS, for example, UBS’s

disclosures about its efforts to limit investment risk were no less “at odds” with its

undisclosed exposure to tens of billions of dollars in subprime mortgage securities

than Defendants’ general disclosures about Goldman Sachs’ conflict controls

allegedly were “at odds” with the Firm’s alleged conflicts in four CDO

transactions. Nor did Goldman Sachs’ disclosures identify its conflicts controls

and business principles as a competitive advantage, or “guarantee” that its controls

would be any more effective in avoiding conflicts than UBS’s controls over taking

on excessive investment risk guaranteed that UBS would not acquire a

concentrated position in subprime securities.

E. The District Court’s Class Certification Order

After denying Defendants’ requests for an evidentiary hearing or oral

argument (JA5750), the District Court issued an opinion granting class

certification, which contained just four pages of legal analysis. (See SA10-14.)

Having again declined to follow this Court’s precedents on the nonactionability of

the challenged general statements (SA12 n.5), the District Court created its

“conclusive evidence” standard for rebutting the Basic presumption of reliance.

(SA12-13.) The District Court then dismissed as “insignificant” and declined to

“consider” Defendants’ unrebutted evidence demonstrating that the challenged

statements had no price impact either when made or when the press repeatedly


-24-

reported on Goldman Sachs’ alleged client conflicts. (SA11.) Instead, the District

Court accepted Plaintiffs’ speculation that Goldman Sachs’ stock price declined,

not in response to widely publicized reports of government enforcement activity,

but because investors finally reacted (after ignoring 34 prior press reports) to

learning that the Firm had experienced some client conflicts. (SA12.) The District

Court also rejected Defendants’ argument that Plaintiffs had failed to present the

type of damages model required by Comcast, shifting to Defendants the burden of

proving that it would be “impossible” for Plaintiffs to construct a damages model

consistent with their liability theory. (SA13-14.)

SUMMARY OF ARGUMENT

This Court should reverse the District Court’s class certification order

for each of the following four independent and sufficient reasons:

First, the District Court imposed an unprecedented and impermissibly

high burden on Defendants under Halliburton II to “demonstrate a complete

absence of price impact” with “conclusive evidence” to rebut the Basic

presumption. (SA13 (emphasis added).) No court has adopted such a high

standard for rebutting Basic, and for good reason—the District Court’s “conclusive

evidence” of a “complete absence of price impact” standard contravenes both

Halliburton II’s “any showing that severs the link” standard, 134 S. Ct. at 2415

(emphasis added), and Federal Rule of Evidence 301, which Basic recognized as


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the Rule “allocating the burdens of proof between parties” when presumptions

apply in civil cases. Basic, 485 U.S. at 245.

Second, Defendants’ general statements about Goldman Sachs’ efforts

to comply with its business principles and conflicts controls could not have had a

price impact as a matter of law under any evidentiary standard. As this Court has

held repeatedly, such general statements are not actionable because no reasonable

investor would rely on such statements. Therefore, as a matter of law, such

statements could not impact an issuer’s stock price, thereby “severing the link”

under Halliburton II.

Third, the District Court erred in disregarding Defendants’ unrebutted

evidence that (a) Goldman Sachs’ stock price did not increase when the challenged

statements were made, and (b) the information alleged by Plaintiffs to be corrective

(i.e., allegations of Goldman Sachs conflicts with clients) was both already

disclosed on at least 34 prior dates and caused no statistically significant price

reaction on the earlier disclosure dates. (SA11-13.) The District Court’s decision

to exclude price impact evidence because this evidence also bore on materiality

directly contradicted the Supreme Court’s holding in Halliburton II that

“Defendants may seek to defeat the Basic presumption at [the class certification]

stage through direct as well as indirect price impact evidence,” notwithstanding the

fact that “such proof is also highly relevant at the merits stage.” 134 S. Ct. at


-26-

2417; see In re IPO Sec. Litig., 471 F.3d 24, 41 (2d Cir. 2006) (“[S]ome or even

full overlap of [Rule 23’s] requirement[s] with a merits issue” is no bar to review

of merits issues on class certification.).

The District Court then compounded its refusal to consider

Defendants’ unrebutted price impact evidence by accepting Plaintiffs’ unsupported

speculation that the challenged statements “served to maintain an already inflated

stock price.” (SA11.) But once Defendants made a “showing that severs the link

between the alleged misrepresentation and either the price received (or paid) by the

plaintiff,” Halliburton II, 134 S. Ct. at 2408, Plaintiffs had to come forward with

evidence—not speculation—to satisfy their burden under Basic of proving, as

required by Rule 23(b)(3), that common questions of reliance predominate across

the proposed class.

Fourth, the District Court erred in holding that the failure of

Plaintiffs’ expert’s damages model to “disaggregate the losses purportedly

attributable to disclosures about government enforcement activities from those that

Plaintiffs attribute to the challenged statements” can be excused at the class

certification stage, reasoning that Plaintiffs’ failure to disaggregate damages

supposedly “would affect all class members in the same manner.” (SA14.) As the

Supreme Court in Comcast made clear, “that logic” would “reduce Rule 23(b)(3)’s

predominance requirement to a nullity.” 133 S. Ct. at 1433.


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STANDARD OF REVIEW

This Court reviews a class certification decision for “abuse of

discretion,” but “review[s] de novo any issues of law underlying the Rule 23

ruling, including the question of whether the district court applied the correct

standard of proof.” Teamsters Local 445 Freight Div. Pension Fund v.

Bombardier Inc., 546 F.3d 196, 201 (2d Cir. 2008). Because the District Court’s

class certification decision rested on erroneous holdings on governing questions of

law, this Court should review those legal holdings de novo. See Brecher v.

Republic of Argentina, 806 F.3d 22, 24 (2d Cir. 2015) (reviewing “de novo [district

court’s] conclusions of law”).

ARGUMENT

I. THE DISTRICT COURT INVENTED AN IMPERMISSIBLY HIGH

EVIDENTIARY STANDARD FOR REBUTTING THE BASIC

PRESUMPTION.

Under the Basic fraud-on-the-market presumption, “courts may

presume that investors trading in efficient markets indirectly rely on public,

material misrepresentations through their ‘reliance on the integrity of the price set

by the market.’” Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184,

1192-93 (2013). If Plaintiffs show “that the stock traded in a generally efficient

market,” that “the alleged misrepresentations were publicly known” and

“material,” and that “the plaintiff traded the stock between the time the

misrepresentations were made and when the truth was revealed,” Plaintiffs are


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entitled to two presumptions: (1) “a presumption that the misrepresentation

affected the stock price,” and (2) “a further presumption that [they] purchased the

stock in reliance on the defendant’s misrepresentation.” Halliburton II, 134 S. Ct.

at 2408, 2414. As here, these presumptions often are critical to establishing the

required element of class-wide reliance in certifying classes in securities class

actions.

In Halliburton II, the Supreme Court confirmed that Defendants, in

opposing class certification, can rebut the Basic fraud-on-the-market presumption

by showing that “the asserted misrepresentation (or its correction) did not affect

the market price of the defendant’s stock.” 134 S. Ct. at 2414. As the Supreme

Court reasoned, “[i]n the absence of price impact, Basic’s fraud-on-the-market

theory and presumption of reliance collapse,” id.:

The fundamental premise underlying the presumption is

that an investor presumptively relies on a

misrepresentation so long as it was reflected in the

market price at the time of his transaction. If it was not,

then there is no grounding for any contention that the

investor indirectly relied on that misrepresentation

through his reliance on the integrity of the market price.

Id. (internal citations and quotation marks omitted).

Rather than apply the Supreme Court’s “any showing” standard, id. at

2415, and the traditional evidentiary burdens under Federal Rule of Evidence 301,


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the District Court created its own standard, putting the impermissibly high burden

on Defendants to “demonstrate a complete absence of price impact” with

“conclusive evidence that no link exists.” (SA13 (emphasis added).) Leaving

aside that the general statements at issue here could have no price impact as a

matter of law, see Point II infra at pp. 34-38, the District Court erred in three

respects in requiring that Defendants disprove any possibility of price impact with

“conclusive evidence.”

First, the District Court contravened Basic, which made clear that its

presumption is rebuttable, and Halliburton II, which reaffirmed Basic’s promise of

rebuttability: “defendants must be afforded an opportunity before class

certification to defeat the presumption through evidence that an alleged

misrepresentation did not actually affect the market price of the stock.”

Halliburton II, 134 S. Ct. at 2417 (emphasis added). The District Court’s

“conclusive evidence” and “complete absence” standard for rebutting Basic cannot

be squared with the Supreme Court’s holding that “‘[a]ny showing that severs the

link between the alleged misrepresentation and . . . the price received (or paid) by

the plaintiff . . . will be sufficient to rebut the presumption of reliance’ because ‘the

basis for finding that the fraud had been transmitted through market price would be

gone.’” Id. at 2415-16. (emphasis added; ellipses in original).


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Second, the District Court did not follow the Federal Rules of

Evidence, which provide that defendants face only “the burden of producing

evidence to rebut the presumption,” with the “burden of persuasion . . . remaining

on the party who had it originally,” namely, Plaintiffs. FED. R. EVID. 301

(emphasis added). As Basic recognized, Federal Rule of Evidence 301 governs

“allocating the burdens of proof between parties” when rebuttable presumptions

apply in civil cases. 485 U.S. at 245. By its own terms, Rule 301 applies in all

“civil case[s], unless a federal statute or these rules provide otherwise.” FED. R.

EVID. 301. Indeed, in recently reversing a grant of class certification, the Eighth

Circuit applied the traditional evidentiary burdens under Rule 301 to price impact

determinations. Best Buy, 2016 WL 1425807, at *6.11

11

Two district courts have declined to apply Rule 301 in analyzing price

impact evidence at class certification, but those rulings relied on the Halliburton II

concurrence (which makes no mention of Rule 301, see 134 S. Ct. at 2417

(Ginsburg, J., concurring)), as well as an unfounded belief, which Defendants do

not advocate here, that under Rule 301 a plaintiff “would not be afforded an

opportunity to . . . produc[e] its own reputable expert to challenge [defendant’s].”

Erica P. John Fund, Inc. v. Halliburton Co., 309 F.R.D. 251, 258-60 (N.D. Tex.

2015); see also City of Sterling Heights Gen. Employees’ Ret. Sys. v. Prudential

Fin., Inc., 2015 WL 5097883, at *12 (D.N.J. Aug. 31, 2015) (without analysis,

adopting reasoning of Halliburton remand decision). The Fifth Circuit is now

reviewing, under Rule 23(f), the Halliburton remand decision. See Erica P. John

Fund, Inc. v. Halliburton Co., No. 15-11096, Dkt. No. 1 (5th Cir.). The Third

Circuit also granted Rule 23(f) review of City of Sterling Heights, but that appeal

has been “stayed pending the District Court’s approval of the class settlement

agreement.” City of Sterling Heights Gen. Employees’ Ret. Sys. v. Prudential Fin.,

Inc., No. 16-1090, orders dated Jan. 11, 2016 and Mar. 23, 2016 (3d. Cir.).


-31-

Once Plaintiffs invoke the presumption of price impact, Defendants

had “the burden of producing evidence to rebut the presumption.” FED. R.

EVID. 301. This Court has explained that “proffered evidence is sufficient to rebut

a presumption as long as the evidence could support a reasonable jury finding of

the nonexistence of the presumed fact.” ITC Ltd. v. Punchgini, Inc., 482 F.3d 135,

149 (2d Cir. 2007). Other Courts of Appeals have agreed that the “quantum of

evidence needed to burst an evidentiary presumption’s bubble in a civil case is

minimal,” requiring only that the “party contesting it . . . produce enough evidence

substantiating the presumed fact’s absence to withstand a motion for summary

judgment or judgment as a matter of law on the issue.” Lupyan v. Corinthian

Colleges Inc., 761 F.3d 314, 320 (3d Cir. 2014).12

After Defendants produced

12

See Middleton v. Stephenson, 749 F.3d 1197, 1200 (10th Cir. 2014) (“[A]

party produces sufficient evidence [to rebut a presumption] when it produces

‘enough evidence . . . to withstand a motion for summary judgment or judgment as

a matter of law on the issue.’”); Marr v. Bank of Am., N.A., 662 F.3d 963, 967 (7th

Cir. 2011) (“[T]o overcome the presumption created by his written

acknowledgment and thus to raise a genuine fact that would make summary

judgment inappropriate, Marr needed to produce enough evidence to permit a

reasonable jury to find that he did not receive two copies.”); A.C. Aukerman Co. v.

R.L. Chaides Constr. Co., 960 F.2d 1020, 1037 (Fed. Cir. 1992) (“[T]he evidence

must be sufficient to put the existence of a presumed fact into genuine dispute.”).

See also Jack B. Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence §

301.02 (The party rebutting a presumption must “present[] enough evidence so that

a reasonable jury could be convinced of the non-existence of the presumed fact,”

which “has been variously described as the need to come forward with ‘only some

evidence’ or the amount of evidence ‘that would be sufficient to overcome a

directed verdict.’”); Charles A. Wright & Kenneth W. Graham, Jr., 21B Federal



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sufficient evidence to “support a reasonable jury finding” that the challenged

statements had no price impact, the presumption of price impact “cease[d] to

operate.” ITC, 482 F.3d at 148-49.13

At that point, Plaintiffs bore the burden of

establishing by a preponderance of the evidence that the challenged statements

“actually affect[ed] the market price of the stock.” Halliburton II, 134 S. Ct.

at 2417.

Third, the District Court’s beyond-any-doubt standard did not

comport with this Court’s rule that “[t]he party seeking class certification bears the

burden of establishing by a preponderance of the evidence that each of Rule 23’s

requirements have been met.” Johnson v. Nextel Commc’ns Inc., 780 F.3d 128,

137 (2d Cir. 2015). As the Supreme Court made clear, “proof of price impact is

needed to ensure that the questions of law or fact common to the class will

predominate.” Halliburton II, 134 S. Ct. at 2416. Although Plaintiffs can satisfy

their burden of proving price impact indirectly by establishing the prerequisites to

Practice and Procedure Evidence § 5126 (“Most writers . . . interpret Rule 301 to

require that rebutting evidence suffice to support a finding of the non-existence of

the presumed fact.”).

13 See also City of Arlington v. F.C.C., 668 F.3d 229, 256 (5th Cir. 2012)

(“[O]nce a party introduces rebuttal evidence sufficient to support a finding

contrary to the presumed fact, the presumption evaporates, and the evidence

rebutting the presumption . . . must be ‘judged against the competing evidence . . .

to determine the ultimate question at issue.’”).


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the Basic presumption, “to maintain the consistency of the presumption with the

class certification requirements of Federal Rule of Civil Procedure 23,” Defendants

may rebut the presumption of price impact by presenting “direct, more salient

evidence showing that an alleged misrepresentation did not actually affect the

stock’s market price.” Id. at 2416-17. At that point, the presumption of price

impact disappears, and under ordinary class action rules, Plaintiffs must

affirmatively establish price impact by a “preponderance of the evidence.”

Bombardier, 546 F.3d at 202.14

Under the District Court’s “conclusive evidence” standard, the burden

of persuasion on the issue of price impact would never shift back to Plaintiffs,

because Defendants’ burden for rebuttal (“conclusive evidence”) is higher than

Plaintiffs’ burden of persuasion (“preponderance of the evidence”).15

Thus, once

14

As the Tenth Circuit aptly described when assessing for diversity

jurisdiction purposes the rebuttable presumption that a person’s “domicile, once

established, remains the same”:

[T]he party seeking to rebut [the presumption] bears only a burden

of production—not persuasion. In other words, the party seeking

to rebut the presumption need only produce sufficient evidence

suggesting that domicile has changed; the party need not prove it. .

. . And if a party successfully rebuts the presumption, it disappears

from the case, leaving us at square one: The plaintiff bears the

burden of proving diversity by a preponderance of the evidence.

Middleton, 749 F.3d at 1200.

15 The District Court professed to hold that “Defendants must demonstrate a



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Plaintiffs invoke the Basic presumption, either Defendants would prove an absence

of price impact with conclusive evidence, or Defendants would not. But that is not

the law: “The Basic presumption does not relieve plaintiffs of the burden of

proving—before class certification—that [Rule 23(b)’s predominance] requirement

is met.” Halliburton II, 134 S. Ct. at 2412.16

The District Court plainly erred in imposing on Defendants an unduly

heightened, beyond-any-doubt burden to “demonstrate a complete absence of price

impact” with “conclusive evidence that no link exists.” (SA13 (emphasis added).)

That ruling exceeds even the burden in criminal matters and cannot be squared

with Halliburton II, the Federal Rules of Evidence or the rules governing class

actions.

II. THE GENERAL STATEMENTS CHALLENGED HERE DID NOT

IMPACT GOLDMAN SACHS’ STOCK PRICE AS A MATTER OF

LAW.

While this Circuit’s standard of proof for “severing the link” under

Halliburton II deserves clarification, Defendants have satisfied any conceivable

lack of price impact by a preponderance of the evidence” (SA6 n.3) (which itself

mistakes the allocation of the burden of proof, which remains with Plaintiffs), but

then created its own standard requiring Defendants to rule out any possibility of

price impact with “conclusive evidence.” (SA13.)

16 Brown v. Electrolux Home Prods., Inc., -- F.3d --, 2016 WL 1085517, at *4

(11th Cir. Mar. 21, 2016) (“[T]he entire point of a burden of proof is that, if doubts

remain about whether the standard is satisfied, ‘the party with the burden of proof

loses.’”).


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standard because the statements on which Plaintiffs base their claims are “too

general to cause a reasonable investor to rely upon them” and hence could have no

price impact as a matter of law. UBS, 752 F.3d at 182-83; see supra at p. 5 n.1.17

The challenged statements here are no different than the analogous general

statements that this Court has repeatedly held as a matter of law too general to

provide a basis for reliance (and hence price impact):

Challenged Statements Statements Held Not Actionable

“We are dedicated to complying fully

with the letter and spirit of the laws,

rules and ethical principles that

govern us.”

UBS goes “above and beyond what laws

and regulations require” and “adheres to

high ethical standards.” (UBS, JA3584.)

“[T]he principles that guide Barclays

business” include “complying with

relevant legal and regulatory

requirements.” (Barclays, JA4179-80.)

17

No reasonable investor could construe the challenged statements as

guarantees that Goldman Sachs would always successfully resolve client conflicts,

or that no employee would ever violate the Firm’s business principles. See JP

Morgan, 553 F.3d at 206 (holding that JP Morgan’s “generalizations regarding [its]

business practices” “did not, and could not, amount to a guarantee that its choices

would prevent failures in its risk management practices,” and “a reasonable

investor would not depend on [those statements] as a guarantee that [JP Morgan]

would never take a step that might adversely affect its reputation”); Bondali v.

Yum! Brands, Inc., 620 F. App’x 483, 490 (6th Cir. 2015) (summary order) (“[A]

code of conduct is not a guarantee that a corporation will adhere to everything set

forth in its code of conduct.”).


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SAIC has a “culture of high ethical

standards, integrity, operational

excellence, and customer satisfaction.”

(SAIC, 2016 WL 1211858, at *10.)

“Integrity and honesty are at the heart

of our business.”

“Our reputation is one of our most

important assets.”

“[P]reserving UBS’s integrity is vital to

our most valuable asset—our

reputation.” (UBS, JA3546.)

“The integrity, reliability and credibility

of S&P has enabled us to compete

successfully in an increasingly global

and complex market. . . .” (Boca I & II,

JA4027-28.)

JP Morgan “‘set the standard’ for

‘integrity.’” (JP Morgan, 553 F.3d at

206.)

SAIC has a “reputation for upholding

the highest standards of personal

integrity and business conduct.” (SAIC,

2016 WL 1211858, at *10.)

“Our clients’ interests always come

first.”

UBS “put[s] the clients at the center of

all we do. . . .” (UBS, JA3645.)

“We are focused on [] supporting our . . .


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customers. . . .” (Barclays, JA4168.)

“We have extensive procedures and

controls that are designed to identify

and address conflicts of interest.”

S&P has “institutional safeguards in

place to ensure the independence and

integrity of [ratings] opinions.” (Boca I

& II, JA4089.)

UBS has established a “comprehensive

set of risk factor limits,” and “[one] of

[UBS’s] overriding risk management

goals is the avoidance of concentration

risks.” (UBS, JA3319, 3541.)

JP Morgan has “risk management

processes [that] are highly disciplined

and designed to preserve the integrity of

the risk management process.” (JP

Morgan, 553 F.3d at 205.)

This Court’s precedents should have led the District Court to deny

class certification for the same reasons this action should have been dismissed in

the first place: because Defendants’ general statements challenged here could not

have impacted Goldman Sachs’ stock price as a matter of law, Plaintiffs cannot

invoke the Basic presumption of classwide reliance. If “general statements about

reputation, integrity, and compliance with ethical norms” are not as a matter of law


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“sufficiently specific for an investor to reasonably rely on [them] as a guarantee of

some concrete fact or outcome,” UBS, 752 F.3d at 183, 185, then, by definition,

there can be “no grounding for any contention that the investor indirectly relied on

th[ose] misrepresentation[s] through his reliance on the integrity of the market

price.” Halliburton II, 134 S. Ct. at 2414. It cannot be that the same type of

general statements that this Court has repeatedly held were not actionable in cases

involving four other financial firms nonetheless are actionable, have price impact,

and permit the certification of a class seeking billions in damages in this case

against Goldman Sachs.18

This Court may review Plaintiffs’ theory of liability on this appeal.

The Supreme Court has made clear that courts are “requir[ed] [to] determin[e] that

Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.”

Comcast, 133 S. Ct. at 1433. This Court also has held that “some or even full

18

Although this Court’s most recent decision in SAIC suggested in dicta that

such statements “may in some circumstances violate the securities laws,” the SAIC

panel emphasized that the “context” would require “specific statements that

emphasize [the company’s] reputation for integrity or ethical conduct as central to

its financial condition or that are clearly designed to distinguish the company from

other specified companies in the same industry.” 2016 WL 1211858, at *10

(emphasis added). Here, the challenged statements did not compare Goldman

Sachs with competitors or specify how the Firm’s reputation for integrity affected

its financial condition. To the contrary, Defendants’ challenged statements are

indistinguishable in content and context from statements that this Court held non-

actionable when made by UBS, J.P. Morgan, Barclays and S&P in the same

industry “context.” Id.


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overlap of [Rule 23’s] requirement[s] with a merits issue” is no bar to review of

merits issues on class certification. IPO, 471 F.3d at 41. Nothing requires this

Court “to put blinders on as to an issue simply because it implicates the merits of

the case.” In re New Motor Vehicles Can. Exp. Antitrust Litig., 522 F.3d 6, 17 (1st

Cir. 2008); see also Regents of Univ. of Cal. v. Credit Suisse First Boston (USA),

Inc., 482 F.3d 372, 381 (5th Cir. 2007) (“In a Rule 23(f) appeal, th[e] court can,

and in fact must, review the merits of the district court’s theory of liability insofar

as they also concern issues relevant to class certification.”).

Nor would anything in Amgen prevent this Court from holding,

consistent with its prior decisions, that no reasonable investor would have relied on

Defendants’ challenged general statements, and hence that no class can be certified

premised on application of the Basic presumption to those statements. Amgen

expressly recognized that “[b]ecause immaterial information, by definition, does

not affect market price, it cannot be relied upon indirectly by investors who, as the

fraud-on-the-market theory presumes, rely on the market price’s integrity.” 133

S. Ct. at 1195.

Although Amgen held that “plaintiffs are not required to prove

materiality at the class-certification stage” to invoke the Basic presumption, id. at

1196 (emphasis added), Plaintiffs must plausibly allege materiality to survive

dismissal and to invoke the presumption at class certification. That is precisely


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what the Ninth Circuit held in its opinion that the Supreme Court affirmed in

Amgen: “we hold that plaintiffs need not prove materiality to avail themselves of

the fraud-on-the-market presumption of reliance at the class certification stage.

They need only allege materiality with sufficient plausibility to withstand a

12(b)(6) motion.” Conn. Ret. Plans & Trust Funds v. Amgen Inc., 660 F.3d 1170,

1177 (9th Cir. 2011) (emphasis added), aff’d, 133 S. Ct. 1184 (2013).19

In keeping with the Ninth Circuit’s decision in Amgen, this Court

recently reversed class certification where plaintiffs “failed to allege sufficiently”

that defendant had “a duty to disclose,” as required to invoke the presumption of

reliance on omissions claims under Affiliated Ute Citizens of Utah v. United States,

406 U.S. 128 (1972). Levitt v. J.P. Morgan Secs., Inc., 710 F.3d 454, 467-68 (2d

Cir. 2013). Thus, even though a “duty to disclose” was an element of the

plaintiff’s underlying securities fraud claim—just as materiality is both an element

of Plaintiffs’ claim here and a prerequisite to the Basic presumption—this Court

decided that pleading issue at class certification “notwithstanding the[] overlap

with [the] merits.” Id. at 465. This case is no different: Plaintiffs’ failure to

19

The Supreme Court framed the issue presented consistently with the Ninth

Circuit’s ruling: “Amgen contends that to meet the predominance requirement,

Connecticut Retirement must do more than plausibly plead that Amgen’s alleged

misrepresentations and misleading omissions materially affected Amgen’s stock

price.” Amgen, 133 S. Ct. at 1191.


-41-

“allege sufficiently” that a reasonable investor would rely on Goldman Sachs’

general statements “preclud[es] [them] from invoking the [Basic] presumption of

reliance . . . and thereby satisfying the predominance requirement of

Rule 23(b)(3).” Id. at 467-68.

This Court’s seven decisions holding that no investor could

reasonably rely on general statements of the sort challenged here mean that, no

matter what the standard of review, those statements could not have impacted the

price of Goldman Sachs’ stock as a matter of law. For this reason alone, this Court

should reverse and decertify the class.

III. THE DISTRICT COURT ERRONEOUSLY DISREGARDED

DEFENDANTS’ UNREBUTTED EVIDENCE SHOWING THAT

THEIR CHALLENGED STATEMENTS HAD NO PRICE IMPACT.

This case bears no resemblance to the typical securities fraud case,

where a company’s overstatement of its financial condition and prospects caused

its stock price to increase, and the later revelation of the company’s true financial

picture—often through a restatement or revised earnings guidance—caused its

stock price to fall. Here, Defendants presented unrebutted empirical evidence, as

authorized by Halliburton II, demonstrating that Goldman Sachs’ stock price did

not increase when Defendants made their general statements about the Firm’s

compliance with its business principles and conflicts controls or fall because of

later highly publicized allegations of Goldman Sachs conflicts with clients,


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including in connection with the four CDOs at issue here. (See supra at pp. 14-

20.)

A. By Presenting Unrebutted Empirical Evidence that their

Challenged General Statements Had No Stock Price Impact When

Made, Defendants Rebutted the Basic Presumption of Reliance.

As authorized by Halliburton II, Defendants demonstrated that none

of their challenged statements caused any increase in the price of Goldman Sachs’

stock on any of the 18 days when those statements were made. (JA4984-92, 5762.)

Without citing any case law, holding an evidentiary hearing or even

oral argument, the District Court dismissed Defendants’ unrebutted evidence as

“insignificant” because, according to Plaintiffs’ brief, “‘analysis of price impact

usually focuses on stock price movement at the time the truth is disclosed.’”

(SA11 (quoting Plaintiffs’ brief).) That reasoning contravenes Halliburton II’s

clear holding that the Basic presumption “could be rebutted by appropriate

evidence” that either “the asserted misrepresentation (or its correction) did not

affect the market price of the defendant’s stock.” 134 S. Ct. at 2414 (emphasis

added).

The Eighth Circuit recently rejected the District Court’s reasoning,

holding that defendants’ “evidence of no ‘front-end’ price impact rebutted the

Basic presumption.” Best Buy, 2016 WL 1425807, at *6; see also In re Moody’s

Corp. Sec. Litig., 274 F.R.D. 480, 493 (S.D.N.Y. 2011) (where “there [wa]s no


-43-

date on which any alleged misrepresentation caused a statistically significant

increase in the price,” defendants successfully “severed the link between the

misrepresentation and the price”). As in Best Buy, “the opinions of both parties’

experts” here agreed that the challenged statements caused no measurable price

impact when made, and thus alone “severed any link between the alleged . . .

misrepresentations and the stock price at which plaintiffs purchased.” Best Buy,

2016 WL 1425807, at *7; see JA948-49; 4984-92; 5511.

Alternatively, the District Court held that “Plaintiffs’ argument” that

the “misstatements simply served to maintain an already inflated stock price”

somehow overrode Defendants’ empirical evidence that the challenged statements

had no price impact when they were made (SA11), even though Plaintiffs proffered

no evidence to support their “price maintenance” theory. That ruling was clearly

erroneous for two reasons.

First, as in Best Buy, neither Plaintiffs nor their expert, Dr. John

Finnerty, performed any empirical or other analysis to determine whether

Defendants’ alleged misstatements “maintained” an already-inflated stock price;

instead, Plaintiffs and Dr. Finnerty simply claimed that the challenged statements


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did so. (JA5432-33, 5512); see Best Buy, 2016 WL 1425807, at *6.20

Such

speculation does not satisfy Rule 23.

“Rule 23 does not set forth a mere pleading standard. A party seeking

class certification must affirmatively demonstrate his compliance with the Rule.”

Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011). After Defendants

demonstrated that Goldman Sachs’ stock price did not increase when their

challenged statements were made—thereby “sever[ing] the link between the

alleged misrepresentation and the price received (or paid) by the plaintiff,”

Halliburton II, 134 S. Ct. at 2415—Plaintiffs had to come forward with evidence,

not unsupported speculation, to satisfy their burden of persuasion on the issue of

price impact. See Comcast, 133 S. Ct. at 1432 (“evidentiary proof” is necessary to

“satisfy . . . Rule 23(b)”); Best Buy, 2016 WL 1425807, at *7 (“As plaintiffs

presented no contrary evidence of price impact, they failed to satisfy the

predominance requirement of Rule 23(b)(3).”); Waste Mgmt. Holdings, Inc. v.

Mowbray, 208 F.3d 288, 298 (1st Cir. 2000) (“[A]rguments woven entirely out of

gossamer strands of speculation and surmise [cannot] tip the decisional scales in a

class certification ruling.”).

20

See JA877, 879-80, 949 (Dr. Finnerty did not attempt to determine price

impact of pre-class period statements).


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Defendants’ right to rebut the Basic presumption through evidence

that “the asserted misrepresentation . . . did not affect the market price of the

defendant’s stock,” Halliburton II, 134 S. Ct. at 2414, would be rendered

meaningless if plaintiffs could negate that rebuttal by speculating, as Plaintiffs did

below, that the “misstatements simply served to maintain an already inflated stock

price.” (SA11.) For this reason, Plaintiffs’ “price maintenance theory is patently

deficient,” as it is “based not on facts but on speculation.” In re Credit Suisse First

Boston Corp. (Lantronix, Inc.) Analyst Sec. Litig., 250 F.R.D. 137, 145 (S.D.N.Y.

2008) (on reconsideration, decertifying class).

Second, this Court has questioned, but never decided, whether an

“inflation-maintenance theory is [] legally sustainable under Rule 10b-5.” In re

Pfizer Inc. Sec. Litig., -- F.3d --, 2016 WL 1426211, at *11, *17 (2d Cir. Apr. 12,

2016). Of the courts that have endorsed such a theory, no court has applied it to

general statements, like those challenged here, that are “too open-ended and

subjective” for “an investor to reasonably rely on [them] as a guarantee of some

concrete fact or outcome.” UBS, 752 F.3d at 185-86. Some courts have permitted

plaintiffs to proceed under a price maintenance theory only in “special

circumstances,” Nathenson v. Zonagen Inc., 267 F.3d 400, 419 (5th Cir. 2001),

where either (i) defendants made “an unduly optimistic statement [to] stop[] a price

from declining (by adding some good news to the mix),” Schleicher v. Wendt, 618


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F.3d 679, 683 (7th Cir. 2010), or (ii) when “the alleged fraudulent statement

conveys that the company has met market expectations, when in fact it has not.” In

re Scientific-Atlanta, Inc. Sec. Litig., 571 F. Supp. 2d 1315, 1340-41 (N.D. Ga.

2007).21

Neither circumstance exists here. Plaintiffs do not allege that Defendants

made the challenged statement to slow or halt a stock price decline, nor did the

challenged statements confirm that Goldman Sachs met market expectations

concerning its earnings or other financial information. Plaintiffs’ speculative

“price maintenance” theory therefore fails as a matter of law.

21

See Alaska Elec. Pension Fund v. Pharmacia Corp., 554 F.3d 342, 352 (3d

Cir. 2009) (The fact that “the announcement of the results of the [] study had little

measurable effect on Pharmacia’s stock price . . . does not negate a finding of

materiality when the market was expecting that the results of the study would be

positive, and plaintiffs have presented evidence indicating precisely that,”

including an analyst report stating that “we are making no change to our forecasts,

as we had anticipated the study to corroborate the strong safety profile of the

product.”); Nathenson, 267 F.3d at 419 (“For example, if the market believes the

company will earn $1.00 per share and this belief is reflected in the share price,

then the share price may well not change when the company reports that it has

indeed earned $1.00 a share even though the report is false.”); Local 703, I.B. of T.

Grocery & Food Employees Welfare Fund v. Regions Fin. Corp., 762 F.3d 1248,

1256 (11th Cir. 2014) (“Regions’s disclosures were designed to prevent a more

precipitous decline in the stock’s price, not bring about any change to it.”);

McIntire v. China MediaExpress Holdings, Inc., 38 F. Supp. 3d 415, 434

(S.D.N.Y. 2014) (“Misstatements by an auditor confirming the accuracy of a

company’s (inaccurate) financial statements may be particularly likely to maintain

an already-inflated stock price because the market likely expects an auditor to issue

such an opinion.”).


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B. Defendants Also Rebutted the Basic Presumption of Reliance By

Presenting Unrebutted Empirical Evidence that Goldman Sachs’

Stock Price Did Not Decline When the “Truth” Supposedly Was

Revealed.

The District Court recognized that “there was no movement in

Goldman’s stock price” when press reports alleged on “34 separate dates prior to

April 16, 2010”—the first alleged corrective disclosure date—that “Goldman had

acted against clients’ interests.” (SA11.) As shown supra at pp. 15-20, these press

reports included allegations that Goldman Sachs had conflicts with clients in

connection with CDOs and in various other markets and products, such as the

municipal bond and derivatives markets. This unrebutted empirical evidence

demonstrated conclusively that on Plaintiffs’ “corrective disclosure” dates the

market reacted negatively to the overhang and uncertainty arising from

government enforcement actions, not to some supposed recognition that Goldman

Sachs’ alleged conflicts in connection with four CDOs had rendered false

Defendants’ general statements about the Firm’s business principles and conflicts

controls.22

Had Plaintiffs’ liability theory been correct, the price of Goldman

22

Plaintiffs offered no plausible explanation for why Goldman Sachs’ stock

experienced no statistically significant price decline on April 26, 2010—the only

“corrective disclosure” date with no news of enforcement activity—but did decline

on April 30, 2010, when the “corrective disclosure” comprised a newspaper

reporting rumors of a DOJ investigation without any revelation of new alleged

facts about Goldman Sachs’ conduct. (JA5766-67.)


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Sachs’ stock should have declined upon reports of these allegations on 34 earlier

dates well before the three “corrective disclosure” dates alleged here.

In certifying a class in the face of this unrebutted evidence of no price

impact, the District Court committed two additional legal errors requiring reversal.

First, the District Court contravened Halliburton II by improperly refusing to

“consider” Defendants’ price impact evidence on the grounds that the evidence

also showed that the challenged statements were not material. (SA11.) Second,

the District Court improperly held that the “link” between the “price decline and

the misrepresentation” was “obvious” based solely on Plaintiffs’ speculation that

“on the corrective disclosure dates, information revealing the misstatements to the

market was released, and the stock price dropped.” (SA12-13.)

1. The District Court Erroneously Declined To “Consider”

Defendants’ Unrebutted Evidence of an Absence of Price

Impact Because that Evidence Overlapped with the Merits.

In expressly refusing to “consider” Defendants’ unrebutted empirical

showing that the challenged statements had no price impact, the District Court,

citing only Plaintiffs’ brief in support, improperly held that Defendants’ evidence

constituted a “‘truth on the market’ defense” that “speaks to the statements’

materiality and not price impact.” (SA11.) Defendants’ evidence was not, as

Plaintiffs claim, a “truth on the market defense.” Defendants did not argue, as

prohibited by Amgen, that the “information [was] already known to the market”


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when the supposed misstatements about conflicts controls and business principles

were made. Ganino v. Citizens Utilities Co., 228 F.3d 154, 167 (2d Cir. 2000)

(describing the “truth on the market” defense).23

Instead, Defendants’ expert,

Dr. Gompers, concluded that the absence of share price declines in response to

class period disclosures of alleged Goldman Sachs client conflicts shows that the

Firm’s stock price was not “inflated” by Defendants’ general statements about its

efforts to comply with its business principles and conflicts controls.24

The District Court contravened Halliburton II by refusing to consider

Defendants’ evidence of no price impact because that evidence also bears on the

materiality of the challenged statements. As the Supreme Court expressly held,

23

Amgen held that defendants may not present evidence at the class

certification stage that attacks solely the distinct element of “materiality.” 133

S. Ct. at 1204. Thus, Amgen’s attempt to argue that the supposedly omitted

information was available in “public documents” at the time Amgen issued its

misleading statements could not be considered at the class certification stage: such

evidence did not purport to show an absence of price impact, but merely that “in

light of all the information available to the market,” the company’s “alleged

misrepresentations and misleading omissions . . . would not have significantly

altered the total mix of information made available.” Amgen, 133 S. Ct. at 1203;

see also Amgen, 660 F.3d at 1174, 1177 (“Amgen’s proposed rebuttal consisted of

evidence purportedly showing that the truth behind each of the supposed

misstatements had already entered the market by the time the misstatements were

made”—i.e., “the so-called ‘truth-on-the-market’ defense.”).

24 In Halliburton, on remand from the Supreme Court, the district court denied

class certification based on the same kind of evidence presented here that “the

information alleged by the [plaintiff] to be corrective was both already disclosed

and caused no statistically significant price reaction.” 309 F.R.D. at 273.


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notwithstanding any factual overlap between price impact and materiality,

“defendants must be afforded an opportunity before class certification to defeat the

presumption through evidence that an alleged misrepresentation did not actually

affect the market price of the stock,” “even though such proof is also highly

relevant at the merits stage.” Halliburton II, 134 S. Ct. at 2416-17; see also IPO,

471 F.3d at 41 (courts must make “definitive assessment of Rule 23 requirements,

notwithstanding their overlap with merits issues”). The District Court erred in not

allowing Defendants to do so here.

2. Plaintiffs Presented No Evidence Linking the Information

Revealed on their Alleged “Corrective Disclosure” Dates to

the Alleged Misrepresentations.

The District Court further erred in accepting as “obvious” that a link

exists between Defendants’ challenged general statements and years-later declines

in Goldman Sachs’ stock price when the SEC filed its ABACUS action (on April

16, 2010), and when the press reported on a DOJ investigation of unspecified

mortgage products and an SEC investigation of the Hudson CDO (on April 30,

2010 and June 10, 2010, respectively). (SA12.) Plaintiffs cannot merely allege

that Goldman Sachs’ “stock declined following the public announcement of ‘bad

news’” to establish the required “link” between the alleged misstatements and the

stock price declines on Plaintiffs’ alleged “corrective disclosure” dates. In re

Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 163 (S.D.N.Y. 2008).


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Rather, Plaintiffs had to demonstrate that the price declines on their “corrective

disclosure” dates were caused by the market’s first knowledge that Defendants’

general statements about conflicts controls and business principles were untrue.

See In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 511 (2d Cir. 2010)

(corrective disclosures must “reveal some then-undisclosed fact with regard to the

specific misrepresentations alleged in the complaint”).

Tellingly, Plaintiffs made no effort to establish that the news of

enforcement activity on their alleged “corrective disclosure” dates represented the

market’s first knowledge of alleged Goldman Sachs client conflicts or even CDO-

related client conflicts. By contrast, Defendants presented unrebutted evidence

that the press had extensively reported on virtually all of the factual allegations

concerning the Firm’s alleged CDO client conflicts—with no impact on the Firm’s

stock price—long before Plaintiffs’ alleged “corrective disclosure” dates. (See

supra at pp. 15-21.)

The District Court dismissed Defendants’ evidence as purportedly

revealing “different forms and degrees of misstatements” than those revealed on

Plaintiffs’ “corrective disclosure” dates. (SA11-12.) The District Court’s cryptic

statement about different “forms” and “degrees” of statements cannot be squared

with Plaintiffs’ theory of the case, which challenges the truthfulness of

Defendants’ general statements about Goldman Sachs’ efforts to comply with its


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business principles and conflicts controls across the Firm as a whole. The only

“form” of “misstatements” alleged by Plaintiffs are the general statements about

business principles and conflicts controls specified in the Consolidated Complaint,

and public allegations of any Goldman Sachs conflicts with clients should have

revealed the falsity of those statements. But Goldman Sachs’ stock price did not

decline when the market learned that Goldman Sachs allegedly had conflicts with

clients in various markets and products. (See supra at pp. 15-18.)

Nor did Goldman Sachs’ stock price decline when the core allegations

about Paulson’s role in the ABACUS CDO were reported in The New York Times,

The Wall Street Journal and in a best-selling book, or even when The New York

Times reported on its front page that “Goldman kept a significant amount of the

financial bets against securities in Hudson, so it would profit if they failed,”

thereby “put[ting] the firm[] at odds with [its] own clients’ interests.” (JA5110-

14.) The only difference between those widely reported allegations of Goldman

Sachs’ client conflicts and the allegations made on Plaintiffs’ alleged “corrective

disclosure” dates was the news on those dates that the government was

investigating those conflicts.

Even if the “form” or “degree” of the allegedly corrective information

were relevant, the fact that reports of allegations of CDO conflicts occurred in the

context of government enforcement activity does not mean those conflicts


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allegations “corrected” Defendants’ general statements about Goldman Sachs’

efforts to comply with its business principles and conflicts controls. To the

contrary, as Defendants’ experts demonstrated, the fact that Goldman Sachs’ stock

price moved only on dates of government enforcement activity, as opposed to on

dates when Defendants made the challenged statements or the 34 times when the

press previously reported on client conflicts, confirms that investors reacted to the

fact of enforcement activity rather than a revelation that Goldman Sachs had not

achieved perfection in complying with its business principles or conflicts controls.

In seeking to invoke the Basic presumption, Plaintiffs argued, and the

District Court agreed (see SA13), that Goldman Sachs’ stock traded in an “efficient

market,” meaning that “all publicly available information is impounded in the

[stock] price rapidly after it is disseminated.” Bricklayers & Trowel Trades Int’l

Pension Fund v. Credit Suisse Secs. (USA) LLC, 752 F.3d 82, 94 (1st Cir. 2014).25

Because virtually all of the factual allegations concerning Goldman Sachs’ alleged

CDO conflicts, including the allegations concerning the ABACUS and Hudson

CDOs, had been “previously disclosed,” that information, “under an efficient

market theory, would have already been incorporated into [Goldman Sachs’] share

25

Plaintiffs’ expert, Dr. Finnerty, opined that “the market for the common

stock of Goldman was open, developed, and efficient during the Class Period,”

meaning that the market “rapidly and accurately reflects new information in the

security’s price.” (JA442-43.)


-54-

price.” Bricklayers, 752 F.3d at 94. Thus, any stock price decline on Plaintiffs’

“corrective disclosure” dates could not have been caused by the market learning

about previously reported client conflicts, as opposed to learning about government

enforcement activity. See Best Buy, 2016 WL 1425807, at *6 (“common sense”

that “statements add[ing] nothing to what was already public” had no price

impact); Omnicom, 597 F.3d at 512-13 (rejecting argument attempting to link stock

decline to previously disclosed information because “[i]t runs squarely into . . .

[plaintiff’s] allegation that the market . . . promptly digested and reflected in its

share price all public information”); Bricklayers, 752 F.3d at 94 (same).

As other courts have held, where an issuer’s stock price declines

following the filing of an enforcement action premised on previously disclosed

allegations, the share price decline “more logically occurred because the market

feared that [the] lawsuit” would harm the corporation. Teachers’ Ret. Sys. of La. v.

Hunter, 477 F.3d 162, 187-88 (4th Cir. 2007); see also Meyer v. Greene, 710 F.3d

1189, 1201 (11th Cir. 2013) (“To be sure, stock prices may fall upon the

announcement of an SEC investigation. . . . That does not mean that the

investigations, in and of themselves, reveal to the market that a company’s

previous statements were false or fraudulent.”). Because the unrebutted evidence

here demonstrates that Goldman Sachs’ stock price did not react either when

Defendants’ challenged statements were made or on the 34 occasions when the


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press reported on the Firm’s alleged client conflicts without having any impact on

the Firm’s stock price, this Court should find that the empirical evidence rebutted

the Basic presumption under Halliburton II and reverse the District Court’s class

certification order.

IV. THE DISTRICT COURT ALSO ERRONEOUSLY CERTIFIED A

CLASS EVEN THOUGH PLAINTIFFS’ DAMAGES

METHODOLOGY ADMITTEDLY DOES NOT MEASURE

DAMAGES FLOWING ONLY FROM THEIR THEORY OF INJURY.

This Court has held that plaintiffs are not required to “rely upon a

classwide damages model to demonstrate predominance.” Roach v. T.L. Cannon

Corp., 778 F.3d 401, 407 (2d Cir. 2015). But where, as here, plaintiffs rely on “a

model for determining classwide damages,” that model must “actually measure

damages that result from the class’s asserted theory of injury.” Id.; see Sergeants

Benevolent Ass’n Health & Welfare Fund v. Sanofi-Aventis U.S. LLP, 806 F.3d 71,

95 n.9 (2d Cir. 2015) (“[U]nlike in this case, in which Plaintiffs have sought

damages on a class-wide basis, it may be possible in other cases to certify a class

as to liability while leaving damages to be ascertained on an individualized basis—

in which case Comcast’s guidance on aggregate damages would be largely

irrelevant.”). Thus, as the District Court recognized (but then ignored), Comcast

required Plaintiffs to show “at the class certification stage . . . that their damages

model actually measures damages that result from the class’s asserted theory of


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injury.” (SA13 (emphasis added; quoting Roach, 778 F.3d at 407)); see also

Comcast, 133 S. Ct. at 1433.

Defendants’ expert demonstrated that Plaintiffs’ expert’s damages

methodology does not disaggregate the stock price declines supposedly caused by

Plaintiffs’ theory of classwide injury—premised on Defendants’ general statements

about Goldman Sachs’ efforts to comply with its business principles and conflicts

controls—from other causes, including the highly publicized reports of

government lawsuits and investigations and Plaintiffs’ now-dismissed claim

premised on Defendants’ decision not to disclose Goldman Sachs’ receipt of an

SEC Wells notice relating to the ABACUS transaction. (JA5025-28.)

The District Court erred by accepting Plaintiffs’ vague assurance that

their expert “will be able to [develop a damages model that] account[s] for any so-

called inflation” resulting from “Plaintiffs’ theory of liability,” and improperly

shifting the burden to Defendants to show “that disaggregation would be

impossible to determine.” (SA13-14 (emphasis added).)26

The Supreme Court has

26

In Comcast, the Supreme Court expressly rejected the District Court’s

reasoning that the failure of Plaintiffs’ purported methodology to measure damages

flowing only from their theory of liability “would not defeat the class’s

predominance because it would affect all class members in the same manner.”

(SA14.) “Under that logic, at the class-certification stage any method of

measurement is acceptable so long as it can be applied classwide, no matter how

arbitrary the measurements may be.” Comcast, 133 S. Ct. at 1433.


-57-

made clear that “a party seeking to maintain a class action must affirmatively

demonstrate his compliance with Rule 23.” Comcast, 133 S. Ct. at 1432 (emphasis

added). “That burden is not met by asking the Court simply to trust” that they will

be able to calculate damages on a classwide basis in a manner consistent with their

theory of liability. In re BP p.l.c. Sec. Litig., 2014 WL 2112823, at *12 (S.D. Tex.

May 20, 2014).


-58-

CONCLUSION

Defendants respectfully request that the Court reverse the District

Court’s certification order and decertify the class.

April 27, 2016

Respectfully submitted,

/s/ Richard H. Klapper f

Richard H. Klapper

Robert J. Giuffra, Jr.

David M.J. Rein

SULLIVAN & CROMWELL LLP

125 Broad Street

New York, New York 10004-2498

Telephone: (212) 558-4000

Facsimile: (212) 558-3588

Counsel for Defendants-Appellants The

Goldman Sachs Group, Inc., Lloyd C.

Blankfein, David A. Viniar and Gary D. Cohn


-59-

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of FED. R. APP.

P. 32(a)(7)(B) because the brief contains 13,125 words, excluding the parts of the

brief exempted by FED. R. APP. P. 32(a)(7)(B)(iii). This brief complies with the

typeface requirements of FED. R. APP. P. 32(a)(5) and the type style requirements

of FED. R. APP. P. 32(a)(6) because the brief has been prepared in a proportionally

spaced typeface using Microsoft Word 2010 in 14-point Times New Roman font.

/s/ Richard H. Klapper

Richard H. Klapper

Dated: April 27, 2016


SPECIAL APPENDIX


TABLE OF CONTENTS

PAGE

In re Goldman Sachs Grp., Inc. Sec. Litig., No. 10-cv-3461 (PAC) (S.D.N.Y.) Opinion & Order granting Plaintiffs’ Motion for Class Certification, entered on September 24, 2015 (Dkt. No. 163) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPA-1


1

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------X IN re GOLDMAN SACHS GROUP, INC. SECURITIES LITIGATION This Document Relates To:

ALL ACTIONS

: : : : : : : :

Master File No. 10 Civ. 3461 (PAC) OPINION & ORDER

------------------------------------------------------------X HONORABLE PAUL A. CROTTY, United States District Judge:

The facts of this case are fully set forth in Richman v. Goldman Sachs, 868 F. Supp. 2d

261 (S.D.N.Y. 2012), and summarized in the Court’s order of June 23, 2014 denying

Defendants’ motion for reconsideration, In re Goldman Sachs Grp., Inc. Sec. Litig., 2014 WL

2815571, at *1-2 (S.D.N.Y. June 23, 2014).

Lead Plaintiffs allege that Defendants violated section 10(b) and Rule 10b-5 promulgated

thereunder, and section 20(a), of the Exchange Act by making misstatements about Goldman’s

conflicts of interest policies and business practices, revealed to be false by reports of government

investigations into Goldman’s conflicted role in certain collateralized debt obligation

transactions.

Lead Plaintiffs now seek to certify the following class: “All persons or entities who,

between February 5, 2007, and June 10, 2010, purchased or otherwise acquired the common

stock of The Goldman Sachs Group, Inc. (‘Goldman’ or the ‘Company’), and were damaged

thereby.” Defendants object. Lead Plaintiffs also request that they be appointed as Class

Representatives and that the Court approve the firms of Labaton Sucharow LLP and Robbins

Case 1:10-cv-03461-PAC Document 163 Filed 09/24/15 Page 1 of 15

SPA-1Case 16-250, Document 46, 04/27/2016, 1759194, Page73 of 87

ovallesm

9-24-15

2

Geller Rudman & Dowd LLP as Class Counsel. For the following reasons, Plaintiffs’ motions

are granted.

BACKGROUND

Lead Plaintiffs’ current claims arise out of “material misstatements and omissions”

Goldman made about its business practices and conflicts of interest. See Richman, 868 F. Supp.

2d at 276-80. Goldman made certain statements such as: “We have extensive procedures and

controls that are designed to . . . address conflicts of interest;” “Our clients’ interests always

come first;” and “[W]e increasingly have to address potential conflicts of interest, including

situations where our services to a particular client or our own proprietary investments or other

interests conflict . . . with the interest of another client.” Compl. ¶¶ 134, 154. Plaintiffs assert

that these statements were revealed as untrue when information regarding Goldman’s conflicts in

certain CDO transactions reached the marketplace through SEC and DOJ announcements of

investigations and enforcement actions against Goldman with respect to these transactions. Id.

¶¶ 324-37. Plaintiffs allege that when these “corrective disclosures” were made, putative class

members were injured by a decline in Goldman’s stock price triggered by the revelation that

those statements were false. Id.

Plaintiffs allege four dates on which these alleged corrective disclosures took place. On

Friday, April 16, 2010, the SEC sued Goldman and Fabrice Tourre, a Goldman vice president,

for fraud in the structuring and marketing of the Abacus CDO. Finnerty Decl. ¶ 52. In addition

to an SEC Litigation Release, the New York Times published an article about the SEC

complaint; analyst reports issued that same day commented on the SEC allegations; and

Goldman committed to “vigorously contest[ing]” the charges. Finnerty Decl. ¶¶ 53-60.

Plaintiffs’ expert, Dr. Finnerty, found that Goldman’s stock price decreased by 12.79% on that



3

day, from $184.27 to $160.70, and experienced an abnormal return1 of -9.27%. Id. ¶¶ 62-63.

Dr. Finnerty found that this was a statistically significant decline. Id. ¶ 63.

On Friday, April 23, 2010, after the market closed for the week, Reuters announced the

filing of two shareholder lawsuits against Lloyd Blankfein, Goldman’s CEO, and other Goldman

officials for breach of fiduciary duties, failure to exercise oversight, and failure to “ensure that

Goldman did not represent conflicting interests related to the Abacus CDO transactions.” Id. ¶

64. The following day, the Senate Subcommittee on Investigations released internal Goldman

documents which indicated that “Goldman made money betting against the CDOs it sold to its

clients.” Id. ¶ 65. Dr. Finnerty found a stock price decline of 3.41% on Monday, April 26, 2010,

when the market reopened, and an abnormal return of -1.68%, which is not statistically

significant.2 Id. ¶ 67.

On Thursday, April 29, 2010, after the market closed for the night, the Wall Street

Journal announced that federal prosecutors were conducting a criminal investigation into

whether Goldman had committed securities fraud in its mortgage trading. Id. ¶ 69. The article

stated that the criminal investigation concerned different evidence than the SEC’s case, but did

not speak to which of Goldman’s deals were being investigated. Id. Standard and Poor’s, Bank

of America, and Buckingham Research Group all downgraded Goldman’s stock after this

announcement. Id. ¶¶ 71-73. When the market opened on Friday, April 30, 2010, Goldman’s

1 An abnormal return “is the difference between the security’s actual return and its expected return. A security’s expected return is the return one would expect based on general stock market price movements and industry-related factors that are unrelated to the specific event that is being examined.” Finnerty Decl. ¶ 32.

2 Plaintiffs appear to have abandoned their assertion that a corrective disclosure was made on April 26, 2010. See Reply at 2 (referring to April 16, April 30, and June 10, 2010 as the operative disclosure dates).



4

stock decreased 9.39% from $160.24 to $145.20, and experienced an abnormal return of -7.75%,

which Dr. Finnerty found statistically significant. Id. ¶¶ 74-75.

After the market closed on June 9, 2010, it was revealed that an Australian hedge fund

had sued Goldman for $56 million it had lost on the Timberwolf CDO and for $1 billion in

punitive damages. Id. ¶ 76. Also that same evening, reports surfaced that Goldman’s Hudson

CDO was the target of an SEC investigation. Id. ¶ 77. Dr. Finnerty found that Goldman’s stock

price decreased 2.21% on Thursday, June 10, 2010, and experienced an abnormal return of

-4.25%, which Dr. Finnerty found to be statistically significant. Id. ¶¶ 79-80.

Plaintiffs allege that these declines occurred, at least in part, because Goldman’s conflicts

and business practices statements were revealed to be untrue on these dates.

APPLICABLE LAW

Before certifying a class, a district court “must first ascertain whether the claims meet the

preconditions of Rule 23(a).” Teamsters Local 445 Freight Div. Pension Fund v. Bombardier

Inc., 546 F.3d 196, 201 (2d Cir. 2008). This requires an analysis of four elements: (1) whether

the class is so numerous that joinder of all members is impracticable; (2) whether there are

questions of law or fact common to the class; (3) whether the claims or defenses of the

representative parties are typical of the claims or defenses of the class; and (4) whether the

representative parties will fairly and adequately protect the interests of the class. See Fed. R.

Civ. P. 23(a).

Once these requirements have been met, a party seeking certification under Fed. R. Civ.

P. 23(b)(3) must demonstrate both that questions of law or fact common to class members

predominate over any questions affecting only individual members, and that a class action is

superior to other available methods for adjudicating the controversy. The party seeking class



5

certification has the burden to establish by a preponderance of the evidence that the Rule 23

requirements have been met. Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir. 2010). The

Court may not make a merits determination at the certification stage, but may consider merits

issues “only to the extent” that they relate to the Rule 23 requirements. Amgen Inc. v. Conn. Ret.

Plans & Tr. Funds, 133 S. Ct. 1184, 1194 (2013).

ANALYSIS

I. Rule 23(a)

Defendants’ opposition to certification is based solely on whether Plaintiffs have

demonstrated predominance. Nonetheless, the Court has rigorously analyzed whether Rule

23(a)’s requirements have been satisfied. See Simmons v. Author Sols., LLC, 2015 WL 4002243,

at *7 (S.D.N.Y. July 1, 2015) (quoting Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir.

2015)). The Court determines that the putative class meets the requirements of Rule 23(a): the

class members are numerous; there are common questions of law and fact; the claims of the

representative parties are typical of the class; and the representative parties will fairly and

adequately protect the interests of the class.

II. Rule 23(b)(3)

A. Applicable Law on Predominance and Price Impact

The Court turns now to the heart of the parties’ dispute: does the proposed class meet the

predominance requirement of Rule 23(b)(3). The predominance requirement “tests whether

proposed classes are sufficiently cohesive to warrant adjudication by representation,” Amchem

Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997), and the Court has a “duty to take a ‘close

look’ at whether common questions predominate over individual ones.” Comcast Corp v.

Behrend, 133 S. Ct. 1426, 1432 (2013) (citations omitted).



6

“[A]s is typical with private securities fraud claims predicated on public statements,

whether common issues predominate in this case depends on whether the issue of reliance will

require individualized proof.” Aranaz v. Catalyst Pharms. Partners Inc., 302 F.R.D. 657, 667

(S.D. Fla. 2014). In a securities class action, plaintiffs are entitled to a presumption of reliance

where they can demonstrate that “the alleged misrepresentations were publicly known . . . , that

the stock traded in an efficient market, and that the relevant transaction took place ‘between the

time the misrepresentations were made and the time the truth was revealed.’” Erica P. John

Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2185 (2011) (quoting Basic Inc. v. Levinson, 485

U.S. 224, 248 n.27 (1988)). The Court can presume that an investor relied “on a

misrepresentation so long as it was reflected in the market price at the time of his transaction.”

Id. at 2186.

The presumption, however, is rebuttable. “[A] securities-fraud defendant can ‘defeat the

[fraud-on-the-market] presumption at the class certification stage through evidence that the

misrepresentation did not in fact affect the stock price.’” McIntire v. China MediaExpress

Holdings, Inc., 38 F. Supp. 3d 415, 434 (S.D.N.Y. 2014) (alterations in original) (quoting

Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2414 (2014)). Proving a lack of

price impact differs from proving a lack of materiality—price impact refers to the circumstance

where “a misrepresentation was reflected in the market price at the time of the transaction,” and

the burden of proving a lack of price impact falls on the defendant. Halliburton, 134 S. Ct. at

2416-17 (citation and internal quotation marks omitted). Where a defendant puts forth evidence3

“that severs the link between the alleged misrepresentation and . . . the price,” City of Livonia

3 Defendants must demonstrate a lack of price impact by a preponderance of the evidence. See Aranaz v. Catalyst Pharm. Partners Inc., 302 F.R.D. 657, 670 (S.D. Fla. 2014) (citing Basic, 485 U.S. at 248); In re Moody’s Corp. Sec. Litig., 274 F.R.D. 480, 490 (S.D.N.Y. 2011).



7

Emps.’ Ret. Sys. v. Wyeth, 284 F.R.D. 173, 182 (S.D.N.Y. 2012) (alteration in original) (citations

and internal quotation marks omitted), a plaintiff may not invoke the presumption of reliance.

B. Expert Evidence

Plaintiffs have submitted the report and rebuttal report of their expert, Dr. Finnerty. See

Dkt. 137, 154. In his opening report, Dr. Finnerty examined the efficiency of the market for

Goldman’s common stock during the class period. Finnerty Decl. He concluded that the market

was “open, developed, and efficient during the Class Period,” based on the five factors set out in

Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989), and the supplemental tests outlined in

Krogman v. Sterritt, 202 F.R.D. 467 (N.D. Tex. 2001). Id. ¶¶ 11-89. He performed additional

tests, such as the put-call parity test and the random walk test, to gain further insight on the

efficiency of the market, id. ¶¶ 90-105, and ran statistical sign tests, id. ¶¶ 106-08, and

parametric tests, id. ¶¶ 109-15. He also submitted his methodology for the calculation of

economic loss per share, which he asserts will directly calculate each class member’s loss by

means of a common methodology. Id. ¶¶ 116-17.

Defendants have submitted reports of three experts, Drs. Paul Gompers and Steven Choi,

and Charles Porten, C.F.A. Dkts. 144, 145, 146. Dr. Gompers evaluated whether the alleged

misstatements impacted Goldman’s stock price, whether Dr. Finnerty’s efficient market

determination was reliable, and whether Dr. Finnerty’s proposed damages methodology would

effectively calculate classwide damages. See Gompers Decl. Dr. Gompers asserts that the

alleged misrepresentations had no impact on Goldman’s stock price when made, that the

corrective disclosures had no negative impact on the stock price, that Dr. Finnerty’s market

efficiency conclusion was flawed, and that Dr. Finnerty’s damages methodology is unreliable



8

and incomplete, chiefly because it fails to account for inflation from the alleged misstatements.

Id. Dr. Gompers applied his own regression model for determining price impact.4 Id. ¶ 25.

Dr. Choi examined the connection between the stock price and the “regulatory activities

disclosed on the three alleged corrective disclosure dates.” Choi Decl. ¶ 14. Dr. Choi

determined that the April 16, 2010 announcement regarding the SEC’s enforcement action

negatively impacted Goldman’s stock price “due to the heightened market expectations of the

direct costs of resolving the enforcement action, the increased risks and exposure to penalties, the

stigma associated with facing a highly visible and unusually severe action, the signal of future

regulatory changes which would have a disproportionate impact on Goldman’s business, and the

possibility of future civil and regulatory actions.” Id. ¶ 66; see also id. ¶¶ 24-54. Dr. Choi’s

analysis determined that characteristics of the enforcement action against Goldman were

associated with larger decreases in stock price, and that similar enforcement actions “are

associated with” a decline of 8.07%, which is “consistent with the observed price decline of

Goldman’s stock price” on April 16, 2010, which Dr. Finnerty found was 9.27%. Id. ¶ 47.

Dr. Choi then determined that the decline on April 30, 2010 was due to “the increase in

the perceived likelihood of criminal charges, heightened risks and exposure to penalties, signal

of wider governmental resolve to target Goldman, anticipation of shifts in regulation with a

disproportionate impact on Goldman’s business, and the expectation of direct costs of resolving

the possible DOJ investigation.” Id. ¶ 67, see also id. ¶¶ 55-60. He also determined that the

June 10, 2010 decline following the report of an SEC investigation into the Hudson transaction

occurred because of “additional risk and exposure to penalties, the compliance costs associated

4 Dr. Gompers found slightly different abnormal returns on the three alleged corrective disclosure dates, but the differences in these numbers are insignificant. Gompers Decl. ¶¶ 64, 79, 89.



9

with the investigation, as well as the increased perceived likelihood of future regulations with a

disproportionate impact on Goldman compared to its peers,” as well as the implication of “a

wider scope of expected additional regulatory and civil actions against Goldman.” Id. ¶ 68.

Charles Porten examined securities analyst commentary to determine whether the

misstatements impacted Goldman’s stock price during the class period. See Porten Decl. He

asserts that information that has an impact on a company’s stock price will be discussed in

analyst reports, that no analyst discussed Goldman’s misstatements, and that analysts typically

do not comment on the type of misstatements alleged here. Id. ¶ 12. Because of this finding, he

concludes that the misstatements had no impact on Goldman’s stock price. Id. ¶ 62.

Dr. Finnerty submitted a rebuttal declaration responding to Defendants’ experts. Dr.

Finnerty determined that, taking into account their criticisms and reevaluating his previous

examination, the market for Goldman’s stock was efficient and the company’s common stock

was artificially inflated during the class period and dropped on the corrective disclosure dates

because of Defendants’ false and misleading statements. Rebuttal Decl. ¶ 3. He also argues that

Dr. Gompers failed to show the absence of price impact because he relied on Dr. Choi’s

allegedly incomplete opinion; failed to consider contemporaneous market commentary

discussing Goldman’s conflicts of interest and breaches of business practices; and failed to

consider that the extent of Goldman’s misconduct was not known to investors until April 16,

2010. Id. ¶¶ 176-84. Dr. Finnerty also asserts that Dr. Choi did not “investigate the price impact

of the revelation of Goldman’s fraudulent conduct on the three alleged corrective disclosure

dates,” and that he was “unable to separate the stock price impact of the announcement of any of

the three regulatory actions from the impact of the disclosure of the underlying allegedly

fraudulent behavior.” Id. ¶ 188. Finally, Dr. Finnerty argues that Mr. Porten applied an



10

unreliable methodology to his examination. Id. ¶¶ 196-01. He also asserts that his own proposed

damages methodology is reliable, because he will estimate the amount of inflation when he

submits a damages report. Id. ¶¶ 207-08.

Finally, Dr. Gompers submitted a reply to Dr. Finnerty’s rebuttal, responding to Dr.

Finnerty’s criticisms of Defendants’ experts and asserting that Defendants’ experts have

demonstrated that the alleged misstatements had no impact either when made or on the corrective

disclosure dates. See Reply Decl. of Paul Gompers.

C. Price Impact Analysis

Plaintiffs are correct that there is no real dispute concerning the market efficiency for

Goldman’s stock. Reply at 1 n.1. While Defendants take issue with Dr. Finnerty’s evaluation of

the fifth Cammer factor (the relationship between news events and stock price movements),

Gompers Decl. ¶¶ 97-117, they do not otherwise suggest that the market for Goldman’s stock

was not efficient. The Court has reviewed Dr. Finnerty’s examination of the Cammer factors, as

well as his revised approach, and finds that he has adequately demonstrated that all five Cammer

factors have been met. Goldman’s stock experienced high weekly trading volumes, a large

number of analysts reported on Goldman stock, a number of market makers traded in Goldman’s

stock, Goldman was eligible to file a Form S-3 registration, and Goldman’s common stock

reacted to new unexpected Goldman-specific information, all during the class period. See

Cammer v. Bloom, 711 F. Supp. 2d 1264, 1286-87 (D.N.J. 1989).

The Court determines that Defendants have failed to demonstrate a complete lack of price

impact. Defendants cannot show that the total decline in the stock price on the corrective

disclosure dates is attributable simply to the market reaction to the announcement of enforcement

actions and not to the revelation to the market that Goldman had made material misstatements



11

about its conflicts of interest policies and business practices. First, that the misstatements had no

impact on the stock price when made is insignificant. Plaintiffs’ argument is that the

misstatements simply served to maintain an already inflated stock price. Reply at 7-8; Rebuttal

Decl. ¶¶ 204-05. Price impact “can be shown by a stock price reaction either at the time of the

statement or at the time of the corrective disclosure, [and] analysis of price impact usually

focuses on stock price movement at the time the truth is disclosed,” Pl. Mem. at 16 (emphasis

omitted) (citing cases), and so the fact that there was no stock price increase when the statements

were made does not suggest a lack of price impact. See, e.g., City of Livonia, 284 F.R.D. at 182.

Next, Defendants’ demonstration of 34 separate dates prior to April 16, 2010, which

allegedly revealed that Goldman had acted against clients’ interest and on which there was no

movement in Goldman’s stock price, does not show a lack of price impact. This is because the

argument is an inappropriate “truth on the market” defense, which attempts to demonstrate that

the “‘news of the [truth] credibly entered the market and dissipated the effects of [prior]

misstatements,’” and is not appropriate at the class certification stage. Reply at 5-6 (quoting

Amgen, 133 S. Ct. at 1204) (citation omitted). Defendants object to this characterization and

argue instead that “the lack of investor reaction to prior allegations of Goldman Sachs’ conflicts

shows that there was no inflation to dissipate,” Def. Sur Reply at 3 n.5, and that it demonstrates

that “the market placed no detectable value on revelations that Goldman allegedly had conflicts

of interest with its clients,” Reply Decl. of Paul Gompers ¶ 4. But this speaks to the statements’

materiality and not price impact, and accordingly the Court will not consider this information at

the current stage of the litigation. Even if the Court were to consider it, the lack of stock price

reaction on dates where different forms and degrees of misstatements were revealed does not



12

demand the conclusion that on the alleged corrective disclosure dates where there was a stock

price reaction, it was due entirely to alternative causes.

Defendants argue that Dr. Gompers demonstrated the absence of price impact by

analyzing the focus of market commentary on Goldman on the corrective disclosure dates and

whether market commentary discussed the impact of revelations about misstatements on the

stock price. But whether or not the market was focused to some degree on the impact the

enforcement actions would have on the stock price does not mean that no decline in stock price

is attributable to the revelation of misstatements. Dr. Gompers’ analysis fails to demonstrate that

no part of the decline was caused by the corrective disclosure.5 Likewise, while Dr. Choi’s

report focuses on the fact that the announcements of enforcement actions would cause a level of

decline, Dr. Choi fails to demonstrate that it would cause the entirety of the decline that occurred

here. See, e.g., Aranaz, 302 F.R.D. at 672 (“[E]ven assuming arguendo that [an important

company announcement] was substantially more important than the alleged misrepresentation . .

. , it does not follow that the misrepresentation did not account for any of the 42% spike in stock

price.”).

Finally, Defendants argue that Plaintiffs “have produced no evidence . . . linking the

challenged statements to the April and June 2010 declines on Goldman Sachs’ stock price.” Def.

Sur Reply at 2. This is incorrect. Dr. Finnerty demonstrated that, on the corrective disclosure

dates, information revealing the misstatements to the market was released, and the stock price

dropped. The link is obvious, and Defendants have failed to conclusively sever this link.

Defendants’ attempt to demonstrate a lack of price impact merely marshals evidence which

5 Defendants repeatedly argue that the statements at issue are not actionable as a matter of law. Def. Mem. at 2-3 n.1, 18-19; Def. Sur. Reply at 1 n.3. This argument is inappropriate at the class certification stage and in any event has been previously rejected by the Court.



13

suggests a price decline for an alternate reason, but does not provide conclusive evidence that no

link exists between the price decline and the misrepresentation. See Aranaz, 302 F.R.D. at 672

(“Because Defendants have the burden of showing an absence of price impact, they must show

that price impact is inconsistent with the results of their analysis. Thus, that an absence of price

impact is consistent with their analysis is insufficient.”) (emphasis in original). Halliburton II

grants Defendants the right to rebut Plaintiffs’ invocation of Basic’s presumption of reliance at

the class certification stage. But here, where Defendants cannot demonstrate a complete absence

of price impact, and where Plaintiffs have demonstrated an efficient market, the Basic

presumption applies, and Plaintiffs have demonstrated classwide reliance and predominance.

D. Damages Methodology

Defendants argue that certification is inappropriate because “Plaintiffs’ proffered

classwide damages methodology does not measure damages resulting solely from Plaintiffs’

theory of classwide injury.” Def. Mem. at 23. Relying on the Supreme Court’s decision in

Comcast, 133 S. Ct. 1426 (2013), Defendants assert that Dr. Finnerty’s proposed damages

methodology “does not explain how Plaintiffs would measure damages caused solely by their

current theory of classwide injury—general statements about Goldman Sachs’ business

principles and conflict controls—as opposed to the SEC’s lawsuit and related investigations.”

Id. at 24.

But at the class certification stage, Plaintiffs must only show that their damages model

“actually measure[s] damages that result from the class’s asserted theory of injury.” Roach, 778

F.3d at 407 (emphasis added). Plaintiffs’ model does that. The possibility that Defendants could

prove that some amount of the price decline is not attributable to Plaintiffs’ theory of liability

does not preclude class certification. Comcast speaks to measuring damages stemming from the



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accepted theory of liability, and not the extent to which that liability can be proven. Moreover,

any failure of the methodology to “disaggregate the losses purportedly attributable to disclosures

about government enforcement activities from those that Plaintiffs attribute to the challenged

statements,” Def. Sur Reply at 5, would not defeat the class’s predominance because it would

affect all class members in the same manner. Finally, Dr. Finnerty asserts that his methodology

will be able to account for any so-called inflation from the enforcement actions, Rebuttal Decl. ¶

208, and Defendants have not suggested that such disaggregation would be impossible to

determine.

III. Rule 23(g)

Lead Plaintiffs also move for Labaton Sucharow and Robbins Geller to be appointed

class counsel under Rule 23(g) and for Lead Plaintiffs to be appointed Class Representatives.

The Court must assess “the work counsel has done in identifying or investigating potential

claims in the action; counsel’s experience in handling class actions, other complex litigation, and

the types of claims asserted in the action; counsel’s knowledge of the applicable law; and the

resources that counsel will commit to representing the class.” Fed. R. Civ. P. 23(g)(1)(A)

(internal numerals omitted). Thus far, counsel have satisfied these requirements. See In re

Crude Oil Commodity Futures Litig., 2012 WL 569195, at *2 (S.D.N.Y. Feb. 14, 2012)

(appointing co-lead counsel to address complexities of litigation yet keep costs to a minimum).

Accordingly, Labaton Sucharow and Robbins Geller are approved as class counsel, and

Lead Plaintiffs are appointed Class Representatives.



CONCLUSION

For the foregoing reasons, the Court grants Plaintiffs ' motion for class certification. The

Court certifies a class of: "All persons or entities who, between February 5, 2007 and June 10,

2010, purchased or otherwise acquired the common stock ofThe Goldman Sachs Group, Inc . .. .

and were damaged thereby." Labaton Sucharow LLP and Robbins Geller Rudman & Dowd LLP

are approved as Class Counsel, and Lead Plaintiffs Arkansas Teacher Retirement System,

Plumbers and Pipefitters National Pension Fund, and West Virginia Investment Management

Board are appointed Class Representatives.

The Clerk of the Court is directed to close out the pending motion at Docket 135.

Dated: New York, New York September 24, 2015

SO ORDERED

p&~y United States District Judge

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case 16-250, document 46, 04/27/2016, 1759194, page1 of ......16-250-cv oral argument requested in...

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