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Goldman Sachs has asked the full bench of the U.S. Court of Appeals for the Second Circuit to review a panel decision allowing class certification in a long-running securities fraud suit over statements the investment bank made regarding alleged conflicts on its board.

In a petition for en banc rehearing, Goldman and its Sullivan & Cromwell attorneys said Tuesday that the April 7 ruling, from a divided panel of the Manhattan-based appeals court, was at odds with Supreme Court precedent holding that defendants must be given a chance to rebut the so-called Basic presumption of classwide reliance on supposed public misrepresentations before a class is certified. 

The move, though bolstered by one judge's dissenting opinion, is a long shot in a circuit known for avoiding en banc rehearings. However, it could potentially set the stage for a certiorari petition to the Supreme Court.

The Second Circuit's majority opinion found that Goldman's statements that it was "conflict-free" maintained its artificially inflated stock price, which later declined after a series of corrective disclosures announcing investigations and fines over allegedly fraudulent trading practices.

The panel also rejected Goldman's argument that allowing class actions on "general" misstatements would open firms to a flood of baseless securities fraud litigation.

"We are not blind to the widespread understanding that class certification can pressure defendants into settling large claims, meritorious or not, because of the financial risk of going to trial," Judge Richard C. Wesley of the U.S. Court of Appeals for the Second Circuit wrote.

"This would indeed be troubling. But our law already beats back this parade of horribles," he said.

The ruling, however, came over the strong object of U.S. District Judge Richard J. Sullivan of the Southern District of New York, who said the majority's decision would make the fraud-on-the-market presumption "truly irrebuttable" and class certification "all but inevitable in every case" in the Second Circuit, which is home to the nation's securities markets.

Goldman's filing Tuesday seized on the language of Sullivan's dissent to argue for rehearing before the circuit's full complement of active judges.

Goldman attorney Robert Giuffra Jr. argued that the Supreme Court's 2014 decision in a case known as Halliburton II held that defendants to securities class actions can rebut the presumption with "any showing" that the alleged misstatements had no "price impact" on a company's stock.

Giuffra's filing cited evidence Goldman had presented to prove that the market was "indifferent" to statements it argued amounted to nonactionable corporate puffery.

For instance, Giuffra said, 36 contemporaneous news reports detailing allegations of Goldman's client conflicts had no measurable impact on the firm's stock price, bolstering the case that the eventual dip was the result of government enforcement actions against Goldman—and not the allegedly misleading disclosures.

"If such evidence, combined with the generic nature of defendants' challenged statements and this court's decisions holding that investors would not attach significance to such statements, is not enough to rebut [the Basic presumption], then no showing ever could," Giuffra wrote.

He continued: "If the majority's decision stands, Halliburton II is a dead letter in this circuit. Going forward, plaintiffs seeking class certification in the most important Circuit for securities fraud cases will claim only that a company's generic statements about its business principles and risk controls—which virtually all companies make—'maintained' inflation in its stock price and then point to a stock drop at the end of the class period."

Goldman's potential exposure in the case runs into the billions of dollars.

The case, captioned Sorkin v. Goldman Sachs, has garnered significant interest from business leaders, economists and academics, who have lined up on opposite sides of the litigation. Amicus briefs on the en banc request are expected to be filed next week.

An attorney for the plaintiffs did not immediately respond to a request for comment.

 

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