Shearman And Sterling

News September 28, 2020

Roberts, Sachs and Saw Prepare Amicus Brief for Washington Legal Foundation

Partner Lyle Roberts (Washington, D.C.-Litigation) and associates Daniel Sachs (New York-Litigation) and Edmund Saw (Washington, D.C.-Litigation) assisted the Washington Legal Foundation (WLF) in preparing an amicus brief asking the U.S. Supreme Court to review and vacate a decision of the U.S. Court of Appeals for the Second Circuit in a securities class action that could have far-reaching implications.

The WLF filed an amicus brief in support of Petitioners in Goldman Sachs Group v. Arkansas Teacher Retirement System. The WLF is concerned that the Second Circuit’s decision is inconsistent with Supreme Court precedent regarding the standard for price impact and reliance at the class certification stage. The brief argues that the decision below unduly impedes defendants’ ability to rebut the presumption of reliance recognized in Basic Inc. v. Levinson in securities class actions based on the inflation-maintenance theory. Based on this theory, a plaintiff need only allege that a misstatement affected a stock’s price, not by fraudulently causing it to increase or decrease, but simply by preventing it from decreasing from a previously inflated level. Under Supreme Court precedent, however, defendants are entitled to use any evidence that severs the link between the alleged misstatement and price of the security, including evidence showing that there was no price impact, or evidence relating to the content of the alleged misstatement.

Ultimately, the WLF brief argues that the inflation-maintenance theory makes class certification in securities class actions a near certainty, encouraging meritless suits and coercive settlements that harm public companies, their directors and officers, and ultimately, investors.

The WLF is a nonprofit public-interest law firm and policy center with supporters in the U.S. Founded in 1977, WLF promotes and defends free enterprise, individual rights, limited government, and the rule of law.

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