Shook Public Policy Practice Co-Chair Victor Schwartz talked with Law360 for "2nd Circ. Clarifies Cert. Standard for Stock-Drop Actions," discussing the court's ruling that a lower court applied the wrong standard of proof when it certified a class of shareholders accusing investment banking firm Goldman Sachs of fraud.
Schwartz said the ruling should help clarify the standard needed to rebut allegations that a company’s misstatements directly affected its stock price. “At least in the Second Circuit, that does provide the district judges with guidance that they need,” he said. "The Second Circuit is over many district courts, and some key ones. Those district judges have to look to Second Circuit opinions for the clarity they need in complex class action litigations.”
Schwartz told Law360 that clarification of the standard of proof is vital at the certification process because once a securities fraud suit is certified as a class action, most settle because few companies have the time or the resources to pursue it to the end. “Everyone knows this fact even though you’ll not find it in any opinion of law," he said. "Once a judge certifies these things, it’s over. The checkbooks come out. They don’t fight class actions once they’re certified. So that certification decision is so paramount, and the judges need guidance as to when to make a certification with these presumptions, which are very tricky.”
The case is In re: Goldman Sachs Group Inc., No. 16-250 (2d Cir.).