A divided three-judge panel of the court of appeals said its ruling relied on a presumption created by a 1988 Supreme Court decision, Basic v. Levinson, which said investors claiming they were defrauded by false statements in securities filings need not show they had relied on the statements. Instead, it said, they could rely on a presumption that all important publicly available information about a company is reflected in its stock price.
The theory allowed investors to skip a step required in ordinary fraud suits: direct proof that they relied on the contested statement. It also allowed investors to avoid a requirement for class actions: proof that their claims had enough in common to allow them to band together.
Sopan Joshi, a lawyer for the federal government, said it was possible that generic statements could be quite meaningful in the case argued Monday, an argument that had been repeated in briefs filed by the pension funds and their supporters.
“Goldman Sachs was dealing with a lot of financial instruments in which conflicts were extremely important, both to the company” and to the “reputational advantage that it enjoyed over its competitors and peers, and the industry more generally,” he said. “In this case, even highly generic statements about conflicts did, in fact, have a price impact.”
Mr. Joshi, who did not argue in support of either side, added that the government took no position on whether that analysis was correct, and he urged the justices to instruct the appeals court to address it.
Though all three lawyers agreed that courts may consider whether generic statements affected stock prices, they differed on what should happen in the case, Goldman Sachs Group v. Arkansas Teacher Retirement System, No. 20-222.
Mr. Shanmugam, Goldman’s lawyer, said the court should reverse the appeals court’s ruling certifying the class; Mr. Goldstein, the lawyer for the pension funds, said the justices should affirm the ruling; and Mr. Joshi, the government lawyer, said the court should vacate the appeals court’s decision and instruct it to reconsider the case.
