“If a stock price decline follows a back-end, highly detailed corrective disclosure — containing, for example, “hard … incriminatory” evidence regarding the company’s wrongdoing — courts must be skeptical whether the more generic, front-end statement propped up the price to the same extent,” the 2nd Circuit majority said. “Ultimately, a court must determine not just whether the defendant spoke on topics generally important to investment decision-making, but instead whether the defendant’s generic statements on that topic were important in that regard.”
You can see why that will be helpful to other defendants. Imagine, for instance, a pharmaceutical company that is hit with a securities fraud suit after its shares drop in the wake of a recall of a particular drug or medical device.
If shareholders allege that the company lied about its testing or production safety protocols, that’s probably a sufficient match under the 2nd Circuit’s Goldman framework. But if the alleged misrepresentation is based only on generic safety assurances, the company can argue that, under the Goldman framework, it’s too big an inferential jump to attribute the share price decline to investors’ lost faith in general statements about safety.
Source: Goldman Sachs appellate ruling is boon for securities class action defendants | Reuters
