The Second Circuit, in keeping with its recent decision in Waggoner v. Barclays, reaffirmed that defendants must satisfy the burden of persuasion by a preponderance of the evidence to rebut the presumption established by the Supreme Court in Basic, Inc. v. Levinson. The plaintiffs-appellees, who had acquired shares of Goldman Sachs stock between 2007 and 2010, claimed violations of section 10(b) of the Securities Exchange Act and Rule 10b–5, based on Goldman’s alleged misstatements regarding its efforts to avoid conflicts of interest. Specifically, the plaintiffs claimed that these statements were false and misleading because Goldman acted in direct conflict with the interests of its clients in at least four collateralized debt obligation transactions involving subprime mortgages between 2006 and 2007, most notably the Abacus 2007 AC–1 (“Abacus”) transaction involving hedge-fund client Paulson & Co. The plaintiffs claimed that Goldman’s role in Abacus, which resulted in a $550 million SEC settlement, “allow[ed] a favored client to benefit at the expense of Goldman’s other clients,” creating a conflict of interest at odds with the company’s public statements.
The plaintiffs moved for class certification, and, to satisfy Rule 23(b)(3)’s predominance requirement regarding the reliance element of their securities fraud claims, they invoked the Basic presumption, under which a court “presumes that the market price [of...
