Back when the Supreme Court decided Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys., 141 S. Ct. 1951 (2021), I blogged that the confused ruling would eventually be interpreted by lower courts to restore the Fifth Circuit’s decision in Archdiocese of Milwaulkee Supporting Fund v. Halliburton, 597 F.3d 330 (2010), which rejected Basic v. Levinson’s presumption of price impact in fraud on the market cases, and instead replaced it with its own burden on plaintiffs to show price impact.
Thursday’s ruling in the same case – now before the Second Circuit – pretty much bore that out. Despite the occasional lip service to the defendants’ burden to disprove the existence of price impact, in fact, most of the opinion is concerned with the kind of showing plaintiffs must make to – in the Second Circuit’s words – “do the work of proving front-end price impact.” Op. at 56. See also op. at 54 n.11 (framing the question presented as “whether there is a basis to infer that the back-end price equals front-end inflation”).
But before we get there, the Second Circuit seems to have sub rosa rejected Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), in this throwaway paragraph on page 57:
Consider, for example, an investor who reads certain statements in a company’s Form 10-K, and then thinks “Things seem to be going well; I think I’ll hold onto my shares.” Although the statements did not cause that investor to buy more stock, they informed or influenced her decision. And if the company’s statements are later revealed as false, liability might follow not because the statement caused new or more inflation—that is, caused investors to purchase more stock (thereby increasing demand and, ultimately, raising the share price)—but instead because the statement maintained inflation, or influenced the investor’s decision to hold tight.
Let that serve as a preview for what follows.
[More under the cut]