SJUNDE AP FONDEN v. GOLDMAN SACHS GROUP INC (2025)

OPINION & ORDER

Plaintiffs bring this action against Defendants Lloyd C. Blankfein (“Blankfein”), Gary D. Cohn (“Cohn”), and The Goldman Sachs Group, Inc. (“Goldman,” and collectively, “Defendants”) asserting violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.¹ Before me is the thorough and well-reasoned Report & Recommendation of United States Magistrate Judge Katharine H. Parker, (Doc. 329 (“Report”)), recommending that I grant in part and deny in part Plaintiffs’ motion for class certification. For the following reasons, I adopt the Report in its entirety.

I. Factual Background 2

This action arises out of Goldman's investment banking activities for 1Malaysia Development Berhad (“1MDB”). 1MDB was established in 2009 as a sovereign wealth fund ostensibly designed to stimulate economic development in Malaysia. (Doc. 272 (“Third Amended Complaint” or “TAC”) ¶ 2.) Between 2009 and 2015, billions of dollars were misappropriated from 1MDB to high-level officials, including then-Prime Minister of Malaysia Najib Razak (“Najib”) and Low Taek Jho (“Low”), a Malaysian businessman and the primary architect of 1MDB. (Id. ¶¶ 1–3, 42–43.) By 2015, the corruption at 1MDB was revealed. Najib was criminally prosecuted in Malaysia, convicted, and is currently incarcerated. (Report at 1.) Low was criminally charged in the United States and Malaysia, but remains a fugitive. (Id. at 1–2.)

Plaintiffs allege that in a ten-month period beginning in May 2012, Goldman underwrote $6.5 billion of 1MDB debt in connection with three bond offerings, which resulted in Goldman earning $600 million in fees. (TAC ¶ 2.) Defendant Blankfein was the Chief Executive Officer (“CEO”) and Chairman of Goldman from 2006 until 2018. (Id. ¶ 33.) Defendant Cohn served as President and Chief Operating Officer of Goldman from 2006 through 2016. (Id. ¶ 34.) During the relevant period, Cohn chaired the firm's Business Standards Committee. (Id.)

There are several other Goldman executives who are not defendants in this action but are relevant to the litigation, including Tim Leissner (“Leissner”) and Roger Ng (“Ng”). Leissner joined Goldman in 1998, became a partner in 2006, and became Head of Investment Banking for Southeast Asia no later than 2007. (Id. ¶ 36.) He was promoted to become Goldman's Chairman of Southeast Asia in July 2014 and left the bank in 2016. (Id.) Ng worked at Goldman from 2005 until May 2014, serving as a Managing Director in Singapore from 2009. (Id. ¶ 37.) Both Leissner and Ng were heavily involved in Goldman's work with 1MDB, and both have been prosecuted criminally for their actions. (Report at 2.) Goldman itself pleaded guilty to conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and entered into a deferred prosecution agreement with the United States Department of Justice, under which it paid $2.9 billion in fines. (Id.) Goldman's Malaysia branch paid $3.9 billion in connection with a separate settlement with Malaysian prosecutors. (Id.)

Plaintiffs seek to certify a class of all persons and entities that purchased or otherwise acquired Goldman common stock between October 29, 2014 to November 8, 2018, inclusive, and were damaged.³ (Doc. 293 at 1.) Plaintiffs allege that shareholders of Goldman common stock were injured by various misstatements made by Defendants during the Class Period about the nature of Goldman's involvement with 1MDB. These misstatements, Plaintiffs argue, caused Goldman common stock to trade at an inflated price. Although Plaintiffs identified 13 misstatements that were made during the Class Period that allegedly caused Goldman stock to trade at an inflated price, Magistrate Judge Parker found that only two misstatements supported class certification. (Report at 32.) Plaintiffs do not object to the elimination of the other 11 alleged misstatements; therefore, I only review the two misstatements found by Judge Parker as supporting class certification.

First, on December 22, 2016, a Goldman spokesperson told the Wall Street Journal: “We have found no evidence showing any involvement by Jho Low in the 1MDB bond transactions” (the “Low Involvement Statement”). (Id. at 6.) Second, on November 1, 2018, Blankfein was asked about the Leissner and Ng indictments in his exit interview at the New York Times DealBook Conference. (TAC ¶ 363.) The interviewer asked whether “[t]here were reports, though, that senior management there [sic] were red flags on this beforehand. Fair?” (Doc. 295-51 at 23.) Blankfein stated: “You know something I'm not aware of them, but I'm not in a position to refute facts that I don't have a complete picture of and haven't been presented” (the “Red Flags Statement”). (Id.) Plaintiffs argue that these misstatements were understood by the media and the public to be a denial of corporate wrongdoing and played into a “rogue employee” narrative. (Report at 7.) In other words, these statements supported a narrative that although Goldman had some rogue employees who engaged in wrongdoing with 1MDB, Goldman itself was not involved or culpable in the wrongdoing.

Plaintiffs assert that Goldman's narrative about its lack of institutional involvement in the 1MDB scandal began to crumble at 11:17 p.m. on November 8, 2018, when the Financial Times published an article titled “Lloyd Blankfein revelation piles pressure on Goldman over 1MDB” (the “corrective disclosure”). (Id. at 7; see also Doc. 295-64.) The article reported that Blankfein “attended a meeting with Mr. Low and Najib Razak, who was then Malaysia's prime minister” in 2009. (Doc. 295-64 at 1.) It went on to say that “[p]rosecutors believe that Mr. Low met on a second occasion with a senior Goldman executive in 2013,” and that “[a] person briefed on the matter said that the unnamed executive at the 2013 meeting ․ was Mr. Blankfein.” (Id. at 2.) The article concluded that Blankfein having met with Low “could undermine this ‘rogue employee’ narrative.” (Report at 7.)

On November 9, 2018, the Wall Street Journal published a longer article on the same topic at 11:02 a.m., followed by an update of the same article at 4:23 p.m. titled “Goldman Sach's Ex-CEO Lloyd Blankfein Met Malaysian at Center of 1MDB Scandal: Second of two meetings came after bank's compliance department had raised concerns about dealings with financier Jho Low.” (Id. at 7–8.) The story ran in the print version of the Wall Street Journal on November 10, and in various other news outlets. (Id. at 8.) Following the publication of this story, Goldman's stock price dropped by 3.89% from the market close on Thursday, November 8, 2018 to the market close on Friday, November 9, 2018—i.e., a close-to-close basis. (Id.)

On November 12, 2018, at 4:56 a.m., Bloomberg reported that Malaysia was seeking a “full refund” from Goldman of the $600 million in fees gleaned from its work for 1MDB, plus consequential damages. (Id.) When the markets reopened on Monday, November 12, 2018, the stock price declined by a further 7.46%, with various news outlets attributing the decline to the story about Blankfein's 2013 meeting with Low. (Id.)

II. Procedural History

On December 20, 2018, Plaintiff Daniel Plaut brought this securities fraud class action lawsuit. (Doc. 1.) An amended complaint was filed on March 11, 2019. (Doc. 43.) On September 19, 2019, I appointed AP7 as lead plaintiff in this case, with Kessler Topaz Meltzer & Check, LLP to serve as lead counsel and Bernstein Litowitz Berger & Grossmann LLP to serve as liaison counsel. (Doc. 56.) On October 28, 2019, AP7 filed the second amended complaint. (Doc. 63.)

On June 28, 2021, I granted in part and denied in part Defendant's motion to dismiss the second amended complaint. (Doc. 102.) On November 12, 2021, Plaintiffs filed a motion for class certification, (Doc. 140), which was fully briefed on March 24, 2022, (Docs. 147, 159). On May 24, 2023, I referred this case to Magistrate Judge Parker for general pretrial management. (Doc. 232.)

After Magistrate Judge Parker granted leave for Plaintiffs to amend their complaint to modify the class period, (Doc. 270), Plaintiffs filed the Third Amended Complaint on August 4, 2023. (Doc. 272.) On August 18, 2023, Magistrate Judge Parker terminated the pending motion for class certification without prejudice and ordered new briefing on class certification in light of the newly amended complaint, the need for new expert reports, and the Second Circuit's recent guidance on the class certification standard in Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc., 77 F.4th 74, 81 (2d Cir. 2023). (Doc. 278.)

On September 29, 2023, Plaintiffs filed their motion for class certification, (Doc. 291), accompanied by a memorandum of law, (Doc. 293). On October 30, 2023, Defendants filed their opposition to class certification. (Doc. 307). Plaintiffs replied on December 15, 2023. (Doc. 314). On February 22, 2024, Magistrate Judge Parker held an evidentiary hearing and oral argument on the motion for class certification. (See Doc. 326.)

On April 5, 2024, Magistrate Judge Parker issued a thorough Report & Recommendation, recommending that I grant in part and deny in part the motion for class certification. (Doc. 329.) The Report recommended that the following class be certified: all persons and entities that purchased or otherwise acquired Goldman common stock between December 22, 2016 to November 8, 2018, inclusive (the “Class Period”), and were damaged thereby (the “Class”).⁴ (Id. at 58.) On May 3, 2024, Defendants filed objections to the Report. (Doc. 335 (“Defs’ Mem.”).) On May 31, 2024, Plaintiffs filed a response to Defendants’ objections. (Doc. 338 (“Opp'n”).)

On June 7, 2024, Defendants filed a letter motion seeking leave to file a reply brief in further support of their objections to the Report, (Doc 339), which included a copy of their proposed reply brief, (Doc. 339-1). I reserved decision on Defendants’ request that I consider their reply brief pending my decision on Defendants’ objections to the Report. (Doc. 340.) In response, Plaintiffs filed a letter request seeking to leave to file a sur-reply to Defendants’ reply, (Doc. 341), which also included a copy of the proposed sur-reply, (Doc. 341-1). I reserved decision on Plaintiffs’ request as I had on Defendants’ request. (Doc. 341.)

III. Legal Standard

After a magistrate judge has issued a report and recommendation, a district court may “accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). “To accept the report and recommendation of a magistrate [judge], to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the face of the record.” Wilds v. United Parcel Serv., Inc., 262 F. Supp. 2d 163, 169 (S.D.N.Y. 2003) (internal quotation marks omitted). Where specific objections are made, the court must review the contested issues de novo. See Fed. R. Civ. P. 72(b)(3); Hynes v. Squillace, 143 F.3d 653, 656 (2d Cir. 1998).

IV. Discussion

In order to certify a class, the proposed class must satisfy various criteria under Federal Rule of Civil Procedure 23(a) and (b). None of the Rule 23(a) criteria are contested here. All five of Defendants’ objections are premised on the argument that Plaintiffs cannot satisfy Rule 23(b)’s predominance requirement, which has special salience in securities class actions. See Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 276, 134 S.Ct. 2398, 189 L.Ed.2d 339 (2014) (“In securities class action cases, the crucial requirement for class certification will usually be the predominance requirement of Rule 23(b)(3).”).

To recover damages under Section 10(b) of the Securities Exchange Act of 1934 and its implementing regulation, Rule 10b–5, “a private plaintiff must prove, among other things, a material misrepresentation or omission by the defendant and the plaintiff's reliance on that misrepresentation or omission.”⁵ Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys., 594 U.S. 113, 118, 141 S.Ct. 1951, 210 L.Ed.2d 347 (2021) [hereinafter Goldman]. Plaintiffs demonstrating reliance in a securities class action typically do so by invoking the fraud-on-the-market theory and the accompanying presumption of reliance established in Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). Basic held that courts can “presume that stock trading in an efficient market incorporates into its price all public, material information—including material misrepresentations—and that investors rely on the integrity of the market price when they choose to buy or sell that stock,” thereby “excus[ing] classes of securities fraud plaintiffs from proving that each class member individually relied upon a defendant's alleged misrepresentations.” Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 77 F.4th 74, 80 (2d Cir. 2023) [hereinafter ATRS]. Plaintiffs invoking the Basic presumption of reliance at the class-certification stage must show (1) that the alleged misrepresentations were publicly known; (2) that the stock traded in an efficient market; and (3) that the plaintiff traded the stock between the time the misrepresentations were made and when the truth was revealed. See Goldman, 594 U.S. at 118, 141 S.Ct. 1951; see also id. at 119, 141 S.Ct. 1951 (noting that materiality, while a part of the Basic analysis at the merits stage, need not be shown at the class certification stage because it does not bear on Rule 23’s predominance requirement (citing Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 467, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013))). It is not contested that Plaintiffs have satisfied the criteria to invoke the Basic presumption of reliance at the class-certification stage. (Report at 25.)

Once Plaintiffs have invoked the Basic presumption of reliance, as they have here, “defendants can rebut the presumption and defeat class certification by demonstrating, by a preponderance of the evidence, that the misrepresentations did not actually affect, or impact, the market price of the stock.” ATRS, 77 F.4th at 80; see also Waggoner v. Barclays PLC, 875 F.3d 79, 103 (2d Cir. 2017) (explaining that once Plaintiffs have successfully invoked the Basic presumption, “the burden of persuasion ․ to rebut the Basic presumption shifts to [D]efendants”). “In assessing price impact at class certification, courts should be open to all probative evidence on that question—qualitative as well as quantitative—aided by a good dose of common sense.” Goldman, 594 U.S. at 122, 141 S.Ct. 1951 (emphasis in original) (internal quotation marks omitted). If Defendants successfully rebut the presumption, “individualized issues of reliance ordinarily would defeat predominance and ‘preclude certification’ of a securities-fraud class action.” Id. at 119, 141 S.Ct. 1951 (quoting Amgen, 568 U.S. at 462–63, 133 S.Ct. 1184). Thus, Defendants’ five objections seek to show that the Report erred in finding that Defendants did not successfully rebut the Basic presumption of reliance.

A. Objection 1: The R&R Rewrote the Front-and Back-End Statements to Generate a Match.

The parties here agree that the Low Involvement Statement and the No Red Flags Statement did not cause the Goldman common stock price to increase. Instead, Plaintiffs allege that the two misrepresentations preserved inflation that was already built into the stock price. Under an inflation-maintenance theory, “the back-end price drop—what happens when the truth is finally disclosed—operates as an indirect proxy for the front-end inflation, or the amount that the misrepresentation fraudulently propped up the stock price.” ATRS, 77 F.4th at 80. “Simply put, the theory goes: back-end price drop equals front-end inflation.” Id. The Supreme Court recently clarified that the critical inference permitting recovery—“that the back-end price drop equals front-end inflation—starts to break down when there is a mismatch between the contents of the misrepresentation and the corrective disclosure.” Goldman, 594 U.S. at 123, 141 S.Ct. 1951. A mismatch could occur, for instance, where a misrepresentation is generic and the later corrective disclosure is specific, because “it is less likely that the specific disclosure actually corrected the generic misrepresentation, which means that there is less reason to infer front-end price inflation—that is, price impact—from the back-end price drop.” Id. Defendants here argue that the Report rewrote the front-end misrepresentations and back-end disclosures to create a close match, when the statements are in fact a mismatch. (Defs’ Mem. 14–16.) I address this contention with regard to each statement.

1. Low Involvement Statement

Defendants object that there is no match between Goldman's statement that “[w]e have found no evidence showing any involvement by Jho Low in the 1MDB bond transactions” and the corrective disclosure that Blankfein met with Low in 2013 because (1) the Report improperly conflates what Goldman knew with what Blankfein knew; and (2) the corrective disclosure does not expressly and specifically negate the prior statement. (Defs’ Mem at 14.) I disagree.

First, I find that it is appropriate to impute Blankfein's knowledge as an individual to Goldman as an entity. At all relevant times, Blankfein was the CEO and Chairman of Goldman, and Defendants do not argue that Blankfein was acting outside the scope of his authority when he met with Low. Under principles of agency law, “[t]he knowledge of a director, officer, sole shareholder or controlling person of a corporation is imputable to that corporation.” Battino v. Cornelia Fifth Ave., LLC, 861 F. Supp. 2d 392, 405 (S.D.N.Y. 2012) (quoting Baker v. Latham Sparrowbush Assocs., 72 F.3d 246, 255 (2d Cir. 1995)). Given that Blankfein was the most high-ranking person within Goldman at the time of both the misrepresentation and the corrective disclosure, I find that Blankfein's knowledge can be imputed to Goldman.

Second, Defendants argue that the corrective disclosure is not a close enough match to the Low Involvement Statement to permit the inference that the corrective disclosure caused a price drop based on front-end inflation. The corrective disclosure consists of a series of news articles, including the Financial Times article published at 11:17 p.m. on November 8, 2018 and the Wall Street Journal article published at 11:02 a.m. on November 9, 2018 and updated at 4:23 p.m. that same day. (Report at 7–8.) See also In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 165 (S.D.N.Y. 2008) (“[A] corrective disclosure need not take the form of a single announcement, but rather, can occur through a series of disclosing events.”). The latter article makes clear that Blankfein's meeting with Low in 2013 “included discussions of 1MDB.” (Report at 7.)

As Magistrate Judge Parker stated in the Report, the Second Circuit has established a spectrum of inflation-maintenance cases. On one end, there is Waggoner v. Barclays PLC, where Barclays officers made statements about how a specific trading platform run by the company was “safe from” aggressive trading practices, there was an algorithm that enabled the platform to “restrict” high-frequency traders, and that Barclays was “taking steps” to protect users of the platform. 875 F.3d 79, 87 (2d Cir. 2017). The New York Attorney General subsequently filed a lawsuit against Barclays alleging that many of its statements about the protections its trading platform provided for its users against high-frequency traders were false and misleading, which led to a drop in Barclays’ stock price. Id. at 88. In Waggoner, there was a “tight fit” between the misstatements and the corrective disclosure because “the corrective disclosure directly implicated not just the same topic, but the alleged misstatements themselves.” ATRS, 77 F.4th at 97. Similarly, in In re Vivendi, S.A. Securities Litigation, the Second Circuit found a strong match where a company made repeated assurances regarding its liquidity, only for a barrage of information to later be revealed contradicting these statements, including downgrades to the company's debt rating and the announcement that the company had serious refinancing needs. 838 F.3d 223, 233–37, 262–63 (2d Cir. 2016). Even though “not all the corrective disclosures in Vivendi expressly referenced the alleged misrepresentations ․ there can be little doubt that even those corrective disclosures directly rendered false the company's affirmative misrepresentations.” ATRS, 77 F.4th at 98.

On the other end of the spectrum is ATRS, where Plaintiffs challenged misstatements made by Goldman—unrelated to the 1MDB allegations in this case—such as “[w]e are dedicated to complying fully with the letter and spirit of the laws”; “[i]ntegrity and honesty are at the heart of our business”; and “[w]e have extensive procedures and controls that are designed to identify and address conflicts of interest.” 77 F.4th at 82 (emphasis omitted). Subsequently, the Securities and Exchange Commission (“SEC”) initiated an enforcement action against Goldman for committing securities fraud by failing to disclose a specific conflict of interest in connection with a collateralized debt obligation transaction, followed by various news outlets reporting that the Department of Justice and the SEC were investigating Goldman for similar issues with other transactions. Id. at 83. Although the alleged misstatements and the corrective disclosures all had to do with the same topic of conflicts of interest management, the corrective disclosures were far more specific and severe in nature, creating a mismatch between the front-end misstatements and back-end disclosures insufficient to support an inference that the front-end misstatements propped up stock price inflation. Id. at 99–101.

Defendants are correct that this case does not present an exact match between the alleged misstatement and the corrective disclosure, as in Waggoner. However, the law does not require a “precise match.” ATRS, 77 F.4th at 98; see also Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 202 (S.D.N.Y. 2010) (“[N]either the Supreme Court ․ nor any other court addressing the loss causation pleading standard require a corrective disclosure be a ‘mirror image’ tantamount to a confession of fraud.”). On the spectrum of inflation-maintenance cases, this case is closest to Vivendi, where the substance of the corrective disclosure renders the misstatement false. Over a ten-month period beginning in May 2012, Goldman underwrote $6.5 billion of 1MDB debt in connection with three bond offerings, which resulted in Goldman earning $600 million in fees. (Report at 2.) A Goldman representative stated in 2016 that “[w]e have found no evidence showing any involvement by Jho Low in the 1MDB bond transactions,” and subsequently it was revealed that Blankfein met with Low in 2013 to discuss 1MDB. (Id. at 6–9.) It strains credulity that the CEO and Chairman of Goldman met with Low in 2013 to discuss 1MDB, a company that Goldman was only involved with during the 2012 bond transactions on which it earned exorbitant fees, yet that CEO had no evidence that Low had any involvement in the 1MDB bond transactions. If Blankfein had no evidence that Low was involved in the 1MDB bond transactions, there would be no reason for them to meet in the first place, let alone discuss 1MDB during their 2013 meeting. As in Vivendi, even though the corrective disclosure did not “expressly reference[ ] the alleged misrepresentations ․ there can be little doubt that [the] corrective disclosure[ ] directly rendered false the company's affirmative misrepresentations.” ATRS, 77 F.4th at 98.

Nor is there a serious mismatch between the level of specificity of the front-end misstatement and the back-end corrective disclosure. In ATRS, the misstatements included sweeping and generic assertions such as “[i]ntegrity and honesty are at the heart of our business,” and on the more specific end, “[w]e have extensive procedures and controls that are designed to identify and address conflicts of interest.” 77 F.4th at 82 (emphasis omitted). The corrective disclosures included the initiation of an SEC securities fraud case naming specific companies, dates, and transactions. Id. at 83. Applying Goldman’s guidance that “any gap among the front-and back-end statements as written be limited,” the ATRS court found that the gulf was too great. Id. at 99. Here, the alleged misstatement is far more specific. Goldman specifically disavowed any knowledge of Low's involvement in the 1MDB's bond transactions. This unequivocal statement about a specific individual's involvement with a specific company and a specific series of transactions could not coexist with the later revelation that the CEO of Goldman had met with this specific individual to discuss this specific company, which Goldman was only involved with through these specific transactions. This presents a far closer match than ATRS. I find the Low Involvement Statement is an appropriate match to the corrective disclosure as written.

2. No Red Flags Statement

Next, Defendants object that there is an insufficient match between the No Red Flags Statement and the corrective disclosure. The No Red Flags statement occurred on November 1, 2018, during Blankfein's exit interview at the New York Times DealBook Conference. Specifically, the interviewer referenced the Leissner and Ng indictments and asked whether “[t]here were reports, though, that senior management there [sic] were red flags on this beforehand. Fair?” (Doc. 295-51 at 23.) Blankfein responded: “You know something I'm not aware of them, but I'm not in a position to refute facts that I don't have a complete picture of and haven't been presented.” (Id.) Defendants object that the Report rewrote the No Red Flags statement to generate a match by (i) including a reference to a separate statement Blankfein made about employes evading safeguards; and (ii) incorporating the statement that Blankfein's 2013 meeting “came after the bank's compliance department had raised concerns” about Low. (Defs’ Mem. 15–16.)

I find that it was appropriate for the Report to consider the context of the corrective disclosure. The second Wall Street Journal article containing the disclosure stated that Blankfein met with Low twice, including one meeting “after [Goldman's] compliance department had raised multiple concerns about the financier's background and said the bank shouldn't do business with him.” (Doc. 295-65 at 1.) A few sentences later, the article states that Blankfein recently “laid the blame on rogue employees” for the 1MDB scandal, saying “[t]hese are guys who evaded our safeguards and lie.” (Id.) Defendants object to the consideration of these portions of the article, arguing that the corrective disclosure must be limited to the fact of Blankfein's 2013 meeting with Low. In other words, Defendants ask me to ignore the context in which the corrective disclosure came to light. However, the Supreme Court has made clear that courts should be open to all probative evidence in assessing price impact, “aided by a good dose of common sense.” Goldman, 594 U.S. at 122, 141 S.Ct. 1951 (internal quotation marks omitted). Common sense here requires looking at the context of the articles containing the corrective disclosure, not to rewrite the disclosure to generate a match, but to understand why the disclosure was understood to be important at the time. The article contextualizes the disclosure by pointing out that concerns about Low had been flagged by Goldman's compliance department before the meeting, and that Blankfein himself had perpetuated the rogue employee narrative regarding 1MDB. This context demonstrates that, at the moment of the disclosure, it was understood to be an important development in the larger story of Goldman denying institutional culpability for the 1MDB scandal and Blankfein, as Goldman's CEO and Chairman, pinning the blame on rogue employees. It was not erroneous for the Report to consider the language of the articles containing the corrective disclosure as important context for the disclosure itself.

Nonetheless, Defendants are correct that the No Red Flags statement is not a precise match to the corrective disclosure. The Report acknowledges that “the corrective disclosure does not mention the ‘red flags’ comment specifically,” and therefore there is not an exact match as in Waggoner. (Report at 36.) Nor does the corrective disclosure directly render the No Red Flags statement false, as in Vivendi, although the falsity of the No Red Flags statement can be inferred from the corrective disclosure. The match here, however, is far closer to Vivendi than it is to the insufficient match in ATRS, where the misstatements were vague, general, and sweeping, such as “[i]ntegrity and honesty are at the heart of our business,” 77 F.4th at 82. Here, Blankfein's alleged misstatement was that he was not aware of red flags regarding 1MDB and that he was not in a position to refute facts of which he did not have a complete picture. I agree with the Report's conclusion that Blankfein's statement that he did not have a complete picture of the facts would have been understood in the context of him saying that the 1MDB scandal was the result of employees “who evaded our safeguards and lie,” which he said in the very same interview. In ATRS, the Second Circuit rejected the district court's combining of multiple misstatements that were disseminated in separate reports over a month apart to provide context to each other, stating that there was no evidence “to support a finding that, notwithstanding th[e] space in medium and time, investors would still conjunctively consume those statements.” 77 F.4th at 94 (emphasis in original). Here, there is ample reason to conclude that investors would have consumed the No Red Flags statement in the context of the statement about rogue employees evading safeguards because Blankfein made both comments in the same interview. Thus, it is not “rewriting” the misstatement to glean from the context of the interview, including the rogue employee statement, that Blankfein's actual words—that he was not aware of red flags and that he did not have a complete picture of the facts—would likely have been understood as a disavowal of involvement in the 1MDB transaction. In other words, he was not aware of red flags and he did not have a complete picture of the facts because he was not involved in the 1MDB transaction, which was spearheaded by rogue employees. Even without the added context of the rogue employee narrative, it is highly improbable that the CEO and Chairman of Goldman would have been unaware of the red flags on the 1MDB transaction if he was involved in it, and the corrective disclosure revealed that Blankfein was involved, at least insofar as he met with Low in 2013. Hence, the corrective disclosure made it unlikely that the No Red Flags statement was true.⁶

With regard to both the Low Involvement Statement and the No Red Flags Statement, I find that the Report did not rewrite the front-end misrepresentation and back-end disclosure to create a close match. Thus, at this stage Defendants have not carried their burden to show by a preponderance of the evidence that there is an insufficient match for Plaintiffs to proceed on an inflation maintenance theory of price impact. Defendants’ first objection is OVERRULED.

B. Objection 2: The R&R Misapplied the “Truthful Substitute” Analysis.

Defendants next object that the Report misapplies the truthful-substitute analysis first established in Vivendi. Where there is an imprecise match between an alleged misstatement and the corrective disclosure, courts should ask whether the market would have reacted “if the company had spoken truthfully” on the same topic as the misstatement “at an equally generic level.” ATRS, 77 F.4th at 99 (emphasis omitted and alterations adopted). If a truthful substitute hypothetically would not, or in reality did not, cause a drop in stock price, that lack of impact is “probative of the absence of price impact.” In re Kirkland Lake Gold Ltd. Sec. Litig., No. 20-CV-4953, 2024 WL 1342800, at *10 (S.D.N.Y. Mar. 29, 2024).

Here, the Report conducted a truthful-substitute analysis and concluded that the market would have reacted if: (i) on December 22, 2016, Goldman stated that “Goldman is aware of evidence that Low had involvement in the 1MDB bond transactions”; and (ii) on November 1, 2018, Blankfein stated “I was aware of red flags raised by Goldman's compliance department about 1MDB beforehand.” (Report at 32, 35.) Defendants argue that many statements were made prior to the corrective disclosure that were essentially truthful substitutes in that they substantially contradicted the misstatements, and yet the market did not react, demonstrating that the alleged misstatements were not in fact propping up the stock price. (Defs’ Mem. 16–19.) I address the alleged truthful substitutes identified by Defendants for the Low Involvement Statement and the No Red Flags Statement below.

1. Low Involvement Statement

Defendants argue that many truthful substitutes for the Low Involvement Statement were released into the market between the date of the Low Involvement Statement and the corrective disclosure discussing Low's involvement in the 1MDB deals, including (1) more than 20 press reports; (2) the September 2018 publication of Billion Dollar Whale, a successful book detailing Low's role as the mastermind of 1MDB; (3) the November 1 unsealing of Leissner's guilty plea to charges for conspiring with Low; and (4) Goldman's November 2, 2018 10-Q warning investors that Goldman could be subject to fines, penalties, and sanctions for its 1MDB-related conduct. (Defs’ Mem. 17.) Defendants object that the Report improperly dismissed these truthful substitutes by finding that they did not show that Blankfein himself knew of Low's involvement, even though the corrective disclosure only speaks to Goldman's knowledge. (Id.)

First, the press reports did not provide a truthful substitute to the Low Involvement Statement, which Plaintiffs argue propped up Goldman's denial of institutional culpability and its propagation of the rogue employee narrative. Defendants cite to their expert witness, Dr. S.P. Kothari, a professor of accounting and finance at the Sloan School of Management at the Massachusetts Institute of Technology, (Doc. 308-1 (“Kothari Report”) ¶ 1), who gathered 51 examples of media reports about this general topic, summarizing his findings in the following portion of his report.

Market participants were therefore aware of Goldman Sachs’ employees’ knowledge of Mr. Low's involvement in 1MDB—the information allegedly concealed by the Alleged Jho Low Misstatement—before the November 8-9 Alleged Disclosure. In total, I identified 51 news articles from December 22, 2016 (the date of the primary Alleged Jho Low Misstatement Misstatement [sic]) to November 8, 2018 that mentioned Goldman Sachs’ possible knowledge of Mr. Low's involvement in 1MDB. Many of these articles mentioned Goldman Sachs’ potential knowledge of Mr. Low's involvement.

(Id. ¶ 57.) In Defendants’ own expert witness's words, the media reports show that there was widespread awareness of Goldman employees’ knowledge of Low's involvement. This is not at all inconsistent with Plaintiffs’ theory, which asserts that Goldman denied institutional complicity and blamed the 1MDB scandal on rogue employees. When Dr. Kothari writes about the articles’ treatment of Goldman's institutional knowledge, he is much more circumspect, stating that the articles mention Goldman's “possible knowledge” or “potential knowledge” of Low's involvement in 1MDB. (Id.) The articles themselves are no more helpful. Many of the excerpts identified by Dr. Kothari do not mention Goldman or its employees at all. (See Kothari Report, Appendix E.3.) These articles, which at best include speculation about Goldman's knowledge, are not a truthful substitute for Goldman admitting it was aware of Low's involvement in 1MDB.

The book Billion Dollar Whale is no different than the articles cited by Defendants. Defendants cherry-pick quotations from the book to argue that Goldman was aware of Low's role, pointing out that the book states that the potential 1MDB deal “wound its way through five Goldman committees that look at financial and legal risk,” and that “[o]ne of the main points of debate was the role of Jho Low.” (Defs’ Mem. 8.) Tellingly, Defendants’ version of the quotation leaves out the end of the sentence: “One of the main points of debate was the role of Jho Low, whose exact position baffled some Goldman executives.” (Doc. 325-29 at 183.) A few lines down, the book states that “in conversations with Goldman staff around the same time, Leissner denied Low was involved in the deal.” (Id.) Billion Dollar Whale evinces a lack of clarity from Goldman as to Low's role and it is a far cry from a truthful substitute, which would state that Goldman was aware that Low was involved in the 1MDB bond transactions.

Next, Defendants argue that the criminal filings in Leissner's case act as a truthful substitute to the corrective disclosure because they reveal that Leissner admitted to conspiring with Low in an overarching criminal scheme, and that Low met with a high-ranking Goldman executive in 2009 and 2013. (Defs’ Mem. 8.) Information about Leissner's role in the 1MDB scandal did not act as a truthful substitute because Goldman painted Leissner as a rogue employee. In response to questions about the Leissner and Ng indictments at the DealBook conference, Blankfein said that “[t]here was obviously at least one person, two under [the indictments] that were clearly violating our rules ․ one of our people lied to us and evaded our systems and controls.” (Doc. 295-51 at 22–24.) In the same interview, Blankfein referenced a past instance of insider trading at Goldman and said, in reference to the 1MDB indictments, “I'm not trying to conflate the two because this person was much more senior in the recent case.” (Id. at 24.) Even the revelation that a high-ranking executive met with Low did not disrupt the rogue employee narrative because it was not clear who the high-ranking the executive was or what their role at Goldman was, and Goldman readily acknowledged that it was possible for even senior employees to evade safeguards and violate the rules.

Finally, Defendants point to Goldman's November 2, 2018 Form 10-Q. (Defs’ Mem. 8.) A Form 10-Q is a comprehensive quarterly report of financial performance that public companies are required to file with the SEC. See 15 U.S.C. § 78m; 17 C.F.R. § 249.308a. “[T]he fundamental purpose of [SEC] filings,” including 10-Qs, “is to protect investors by requiring publicly traded companies to disclose information about their operations and finances.” In re Keyspan Corp. Sec. Litig., 383 F. Supp. 2d 358, 374 n.6 (E.D.N.Y. 2003). As “[t]he mere possibility of future fines can have very real financial consequences for a publicly held corporation[,] ․ such companies are required to disclose contingent liabilities in Form 10–Q and 10–K statements filed with the [SEC]” “[t]o the extent it is material to a corporation's financial condition.” Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1247 n.13 (9th Cir. 2006) (en banc) (Fisher, J., concurring in part and dissenting in part). Goldman's November 2, 2018 10-Q disclosed the charges against Leissner and Ng and warned that while Goldman “is unable to predict the outcome of the [Department of Justice (“DOJ”)] investigation[,] any proceedings by the DOJ or other governmental or regulatory entities could result in the imposition of significant fines, penalties, and other sanctions against [Goldman],” (Doc. 324-12 at 5). This rote acknowledgment that there are risks associated with a government investigation is not equivalent to Goldman acknowledging its awareness of Low's involvement in 1MDB. If Goldman knew of Low's involvement in 1MDB, an investor would likely have assumed that Goldman would be obligated to explicitly disclose that fact as “material to [Goldman's] financial condition,” particularly as it bears on the “possibility of future fines.” Yahoo! Inc., 433 F.3d at 1247 n.13 (Fisher, J., concurring in part and dissenting in part). Thus, a reasonable investor would not have read Goldman's November 2, 2018 10-Q, which only disclosed the ongoing investigation into Leissner and Ng, as somehow acknowledging Low's involvement. I find that the Report correctly concluded that Defendants failed to identify a real-world truthful substitute prior to the corrective disclosure, and I OVERRULE Defendants’ second objection as to the Low Involvement Statement.

2. No Red Flags Statement

Defendants briefly argue that, prior to the corrective disclosure, there were truthful substitutes to Blankfein's November 1, 2018 statement that he was not aware of red flags about 1MDB beforehand. (Defs’ Mem. 18–19.) Defendants primarily point to a November 2, 2018 Financial Times article in which unnamed sources from Goldman said that Blankfein and other executives had reviewed the 1MDB deal. (Doc. 324-15 at 1.) The article also states that “[r]ival bankers have said that the hefty fees the fund was willing to pay for the fundraising should have raised red flags.” (Id. at 2.) It is not clear that statements from “[r]ival bankers” are reliable and unbiased, and even if they were, whether the fees should have raised red flags is distinct from whether they in fact did raise red flags. Defendants fail to identify a real-world truthful substitute to the No Red Flags statement that undermines the Report's analysis on this point, and I OVERRULE Defendants’ second objection as to the No Red Flags statement.

C. Objection 3: The R&R Ignored Other Economic Evidence of Price Impact.

Defendants’ third objection is that the Report fails to weigh evidence that there was no pre- or post-disclosure discussion in the market of the alleged misstatements, as required by ATRS. This argument misreads ATRS.

In ATRS, the Second Circuit, in a section titled “[g]uidance moving forward,” states that a “searching price impact analysis must be conducted” where (1) there is a considerable gap in front-end–back-end genericness, (2) the corrective disclosure does not directly refer to the alleged misstatement, and (3) the plaintiff claims that a company's generic misstatement was misleading by omission. 77 F.4th at 102. In such cases, the Second Circuit continues, “courts should consider other indirect evidence of price impact,” including, amongst other things, the existence of pre- or post-disclosure discussion of an alleged misstatement in the market. Id. at 102–03. ATRS is clear that it is providing guidance for cases that meet the three above-listed criteria, and subsequent cases support this reading. See Kirkland, 2024 WL 1342800, at *7 (interpreting ATRS to say that courts must conduct a searching price impact analysis, including analyzing market commentary, “in the specific scenario” where the three criteria are met (quoting ATRS, 77 F.4th at 102)). This case does not fall into the category of cases described in ATRS. Although it is true that the corrective disclosure does not directly refer to the misstatements, satisfying the second criteria, the misstatements and the disclosure here are far more closely matched than the statements in ATRS and the misstatements are directly misleading, not misleading by omission. Thus, the first and third criteria are not satisfied; therefore, contrary to Defendants’ argument, there is no “searching” analysis of evidence such as market commentary required.

Even if an analysis of market commentary were required, I find that a lack of discussion of the specific misstatements at the time they were made and after the corrective disclosure revealed that their falsity is not sufficient to show that the misstatements did not have a price impact. In making this finding, I rely on the relative strength of the match between the front-end misstatements and the corrective disclosure, as compared to ATRS, as well as the Report's analysis of the truthful-substitute test.

With regard to post-disclosure commentary, Defendants also take issue with the Report's conclusion that investors relied on the alleged misstatements because media reports commented on general “denials of institutional complicity.” (Defs’ Mem. 19–20 (quoting Report at 52–53).) In support of this argument, Defendants point to the ATRS court's conclusion that “[market] commentary touching upon only the same subject matter, given the contours of this case as discussed above, cannot be enough.” 77 F.4th at 104. This argument does not carry the day principally because I do not find that an analysis of market commentary is required or that a lack of post-disclosure commentary is dispositive. Even on the merits of this argument, however, the Second Circuit seems to limit its conclusion to being governed by “the contours of [that] case.” Id. It is not clear that the same conclusion is required in this case, where the subject matter—Goldman's institutional complicity in the 1MDB scandal—is far more specific than in ATRS, which addressed Goldman's general conflicts management capabilities. It seems likely that the volume of market commentary addressing Goldman's role and possible culpability for the 1MDB scandal after the corrective disclosure, which also discussed the rogue employee narrative predating the corrective disclosure, is more probative of a connection to the misstatements than the market commentary was in ATRS. Nonetheless, I decline to rely on this, as I find that a market commentary analysis is not required here. Defendants’ third objection is hereby OVERRULED.

D. Objection 4: The R&R Disregarded the Evidence Proving Lack of Price Impact.

Defendants argue that the Report erred in various aspects of its analysis of price impact on November 9, 2018, that, when corrected, show that Defendants have met their burden to disprove price impact by a preponderance of the evidence. (Defs’ Mem. 24–26.) I disagree.

First, I find that the entirety of the November 9 trading day is relevant to measuring price impact. The Report found that, at a minimum, the appropriate window to analyze stock price movement would last from the market close before the corrective disclosure to the market close after the corrective disclosure (“close-to-close”). (Report at 40–42.) Defendants do not offer any compelling argument to deviate from a close-to-close analysis, which their own expert admits is standard in securities cases. (See Doc. 316-17 (Deposition Transcript of Dr. Kothari or “Kothari Tr.”) at 179 (describing a close-to-close measurement as “the standard approach”).)

Defendants argue that the Report improperly found price impact during the first 15 minutes of the market day on November 9 by attributing statistical significance to a 91% confidence interval, rather than 95%. (Defs’ Mem. 24.) Defendants are no doubt correct that a 95% confidence level is the “gold standard” in research. (Id.) Defendants, however, reverse the standard of proof by arguing that a 95% confidence level is required for Plaintiffs to prove that a stock price drop was statistically significant, when in fact the burden rests with Defendants at this stage to disprove the existence of a price impact. See Waggoner v. Barclays PLC, 875 F.3d 79, 103 (2d Cir. 2017) (explaining that once Plaintiffs have successfully invoked the Basic presumption, “the burden of persuasion ․ to rebut the Basic presumption shifts to [D]efendants”). Defendants fail to cite a single case from this district holding that a sub-95% confidence level within the first 15 minutes of a market day disproves price impact at the class certification stage, and I decline to make such a finding. See Pirnik v. Fiat Chrysler Autos., N.V., 327 F.R.D. 38, 46 (S.D.N.Y. 2018) (finding that a 92% confidence level “is obviously less comfort than a result that is statistically significant at a confidence level of 95%, but it does not prove the absence of price impact” (emphasis in original)); In re Chicago Bridge & Iron Co. N.V. Sec. Litig., No. 17-CV-1580, 2020 WL 1329354, at *5 (S.D.N.Y. Mar. 23, 2020) (same). Even if I were to credit Defendants’ argument that Plaintiffs must show statistical significance at the 95% confidence level, that requirement would be met because on a close-to-close basis, there is a statistically significant price drop at a 95% confidence level. (See Doc. 326 (Transcript of February 22, 2024 Evidentiary Hearing) at 214 (“[W]hether it's in the first 15 minutes based on the 91 percent confidence level, whether it's based on a close to close with a 95 percent confidence level, yes, there is price impact for November 9.”).)

Defendants point to various confounding news items about Goldman that were revealed around the time of the corrective disclosure, including the release of Leissner's plea transcript, a Bloomberg article about the plans of various banks to transfer assets out of London following Brexit, reports about Peter Navarro's attacks on various banks for aiding China in trade disputes, and reports about amendments to the stress capital buffer impacting capital retention requirements for banks. (Defs’ Mem. 26; see also Doc. 307 at 25–26.) The Report walks through each of these news items in detail, explaining that each headline was not new to the market, not specific to Goldman, or—in the case of Peter Navarro's statements—immediately walked back. (See Report at 47–50.) Defendants’ own expert admitted that “[n]one of these [confounding news stories] had a statistically measurable impact.” (Kothari Tr. at 193.) I have reviewed each confounding news item and although I give some weight to Defendants’ argument that these stories may have had some impact, particularly the release of Leissner's plea transcript, none offer a credible alternative explanation for the entirety of the stock price movement on November 9. Notably, none of these news reports broke immediately before the largest price drop in Goldman's stock price at 3 p.m., which would have provided strong evidence of an alternative explanation. (See Report at 41 (“Defendants’ own theory that other confounding news caused the decline in Goldman's stock price on November 9 is inconsistent with their 15-minute rule, as none of the confounding news was within 15 minutes of the drop in price at 3 p.m.”).)

Defendants also rely on the expert report of Christianna Wood, a professional investor who was formerly the Senior Investment Officer of Global Equity at CalPERS, the largest public pension plan in the United States. (Defs’ Mem. 26; see also Doc. 308-2 (“Wood Report”).) Ms. Wood opines that the corrective disclosure “would not be expected to affect investors’ beliefs or investment decisions” given that it took place during the week of the 2013 UN General Assembly, a “champagne-soaked workweek” and a “business and political free-for-all” that is not generally tracked by investors. (Wood Report ¶¶ 18(c), 26 (internal quotation marks omitted).) Ms. Wood also points to the amount of information that was already publicly available about Goldman's role in the 1MDB scandal, including the information Goldman had disclosed in SEC filings, to support her conclusion that investors would not have reacted to the corrective disclosure. (Id. ¶¶ 27–29.) I find Ms. Wood's opinions about the general investor perception of run-of-the-mill client events during the UN General Assembly Week to be of limited utility in evaluating the investor reaction to this corrective disclosure, which revealed that Blankfein met with Low in 2013. In other words, the importance of this corrective disclosure could easily make it an exception to the general perception of UN Week events. As to the remainder of Ms. Wood's opinion, I have already addressed the information that was available prior to the corrective disclosure, such as the Leissner criminal complaint and Goldman's 10-Q, see supra section IV.B.1. I do not find anything in Ms. Wood's report that disturbs my conclusion that none of the previously available information is equivalent to the corrective disclosure. Nevertheless, I give some weight to Ms. Wood's opinion that in her experience “a reasonable investor would not infer that Mr. Blankfein's presence at [the 2013 meeting] meant he was ‘involved’ with 1MDB beyond what had already been disclosed.” (Wood Report ¶ 28.)

Defendants also quibble with the technicalities of intraday momentum, a theory credited in the Report as explaining why the most significant drop in stock price occurred around 3 p.m. Defendants argue that intraday momentum is inapplicable here because that theory describes a muted subsequent reaction to an earlier, more significant reaction, whereas here the later reaction was the bigger one. (Defs’ Mem. 25.) Defendants cite one source for this definition, an article in the Journal of Financial Economics stating that “the first half-hour return on the market since the previous day's market close significantly predicts the last half-hour return on the market,” such that “[t]he volume and volatility display a U-shape during the day.” Lei Gao, et al., Market Intraday Momentum, 129 J. Fin. Econ. 394 (2018). This summary of the concept of intraday momentum is not in conflict with Plaintiffs’ theory. Although the data in the study may support Defendants’ more specific version of intraday momentum, I decline to adopt such an exacting definition when the cited academic literature does not even define the term in that manner. Nor is the intraday momentum theory dispositive, as I have found that the relevant window in which to measure price impact is, at a minimum, close-to-close.

Looking at the totality of the evidence adduced by Defendants, I do not find that they have shown a lack of price impact on November 9, 2018 by a preponderance of the evidence. I therefore OVERRULE Defendants’ fourth objection to the Report.

E. Objection 5: The R&R Disregarded the Evidence Proving Lack of Price Impact on November 12.

Defendants next object that the Report ignored the preponderance of evidence proving lack of price impact on November 12, 2018 by misconstruing market efficiency principles, discounting confounding news, and misapplying my prior motion to dismiss ruling. (Defs’ Mem. 26–30.) Although Defendants present evidence of confounding news and thus the price impact on November 12 is a closer call, I find that Defendants still fail to show that it is more likely than not that the corrective disclosure had no impact on Goldman's stock price.

First, Defendants argue that the Report's finding that the stock price decline on November 12 could be connected to the corrective disclosure, which occurred at 11:17 p.m. on November 8, defies basic principles of market efficiency and therefore I should not consider any evidence of price impact on November 12.⁷ (Defs’ Mem. 27–28.) It is true that “[b]ecause the efficient market hypothesis, supported by considerable empirical evidence, suggests that stock prices react quickly to the release of new information, in many cases, the event window will be relatively short—as short as one trading day.” In re Sec. Cap. Assur. Ltd. Sec. Litig., 729 F. Supp. 2d 569, 600 n.5 (S.D.N.Y. 2010). However, it is also the case that the Basic court was clear that “[b]y accepting this rebuttable presumption, we do not intend conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price.” 485 U.S. at 248 n.28, 108 S.Ct. 978. See also In re Initial Pub. Offering Sec. Litig., 260 F.R.D. 81, 102 (S.D.N.Y. 2009) (“While in a perfectly efficient market share prices would adjust instantaneously, the Basic presumption does not require a perfectly efficient market, only a market efficient enough to incorporate information into the share price with reasonable speed.”). Neither Plaintiffs nor Defendants cite compelling authority articulating a standard for when the use of a multi-day price impact window is appropriate or inappropriate, and, as the Report correctly noted, there is no bright-line rule, (Report at 44–45).

Furthermore, Defendants correctly note that “[c]ertification is not an all-or-nothing proposition, and issues should not be certified for class-wide treatment as to which Defendants have rebutted the Basic presumption.” (Defs’ Mem. 26–27.) This point, however, highlights that Defendants’ market-efficiency argument conflates two different issues. The first issue is whether Defendants have successfully rebutted the Basic presumption as to November 12. Assuming they have, I agree that class certification as to any price impact on November 12 is inappropriate. The second, distinct issue is whether—regardless of whether Defendants have rebutted the Basic presumption as to November 12—there is some bright-line rule precluding the consideration of damages as to a second trading day in an efficient market or requiring the precise duration of the damages window to be determined at the class-certification stage. I find that there is no such bright-line rule, and I will confine my inquiry, at least at the class-certification stage, to whether Defendants have rebutted the Basic presumption. I therefore construe Defendants’ argument as going to the strength of the inference connecting the corrective disclosure to the price impact, and I give some weight to the fact that, in an efficient market such as Goldman's, the connection between the corrective disclosure and subsequent price impact gets weaker as time goes on.

Second, Defendants argue that the stock-price decline is fully explained by the announcement from Malaysia's Finance Minister, prior to market-open on November 12, that Malaysia would seek to recover a “full refund” from Goldman of its fees for the 1MDB deal, as well as consequential losses and interest (“Full Refund News”). (Defs’ Mem. 28–30.) Defendants’ expert, Dr. Kothari, performed an analysis in support of this argument. (Kothari Report ¶¶ 114–127, Exs. 13.A, 13.B.) Dr. Kothari models his analysis off a study where the authors compare the penalties imposed by SEC enforcement actions for financial misrepresentation with the penalties imposed by the market when news of enforcement action breaks, i.e., reputational penalties. See Jonathan M. Karpoff, D. Scott Lee & Gerald S. Martin, The Cost to Firms of Cooking the Books, 43 J. of Fin. & Quantitative Analysis 581 (2008) (“Reputational Penalty Study”). The Reputational Penalty Study notes that one challenge to disaggregating the impact of news about fines and other enforcement actions is that when such news is announced, market participants will often have already anticipated it and priced it into the stock price to some extent, therefore requiring an analysis of the stock price over time as the market prices in risk or various steps of an enforcement action are taken. (See Kothari Report ¶ 124.) Dr. Kothari applies this concept to the 1MDB scandal, looking at how the market priced in the likelihood of an enforcement action by the United States or Malaysia by summarizing Goldman's market capitalization decline on 12 dates, including the dates of news reports of United States investigations of Goldman in relation to 1MDB, the news of Leissner's criminal investigation, the Full Refund News, and Malaysia's filing of criminal charges against Goldman on December 17, 2018. (Id. ¶ 125.) Dr. Kothari's analysis shows a cumulative market capitalization decline of $8.0 billion over these 12 dates, in comparison with the $6.8 billion Goldman actually paid in fines and penalties related to 1MDB, consistent with the Reputational Penalty Study's finding that the market imposes additional penalties on top of enforcement actions.⁸ (Id.)

The fundamental issue with Dr. Kothari's analysis is that it does not disaggregate market capitalization decline that was caused by the 12 events he identified from decline caused by other events, such as the corrective disclosure. Dr. Kothari adopted the methodology from the Reputational Penalty Study, where the authors were attempting to compare a known quantity, penalties imposed by regulators, with an unknown quantity, reputational penalties imposed by the market. In that situation, total market capitalization decline is a useful metric because subtracting the known quantity can yield an approximation of the unknown quantity. Here, Defendants must show that the Full Refund News accounted for the entirety of Goldman's stock price decline on November 12, and that the corrective disclosure accounted for none of it. The two key metrics here are the amount by which (1) the Full Refund News and (2) the corrective disclosure caused Goldman's stock to decline, and both are unknown at this stage. Thus, looking at Goldman's total market capitalization decline is not useful because there is no way to show how much of the November 12 decline was caused by each event.

Dr. Kothari argues that his analysis demonstrates a pattern of the market reacting negatively to news related to American or Malaysian enforcement actions against Goldman regarding 1MDB, which shows that the entire decline on November 12 can be pegged to an event that sounds in regulatory action, e.g., the Full Refund News. (See Kothari Report ¶ 124.) This distinction cannot withstand scrutiny because the corrective disclosure also had clear regulatory implications. The corrective disclosure arguably showed the intimate involvement of Goldman's top leadership in the 1MDB scandal, creating newfound levels of liability for Goldman as an institution. Plaintiffs’ expert witness, Dr. Joseph R. Mason, a Fellow at the Wharton School at the University of Pennsylvania, cites numerous examples of press coverage following the November 12 price decline making that connection. (Doc. 315-1 ⁹ (“Mason Reply Report”) ¶ 137.) For instance, the New York Times reported on November 15, 2018 that “Goldman's shares are down nearly 13 percent since Thursday's close because of concern over whether the firm's leaders might be dragged into the case.” (Id.; see also id. (citing press coverage from Barron's saying that Goldman's shares are down “since the news about Blankfein”).) Furthermore, Dr. Kothari does not find that the impact of each of the 12 events in his analysis is statistically significant, (id. ¶¶ 136–37), he does not identify clear criteria for selecting these 12 events, (id. ¶ 136), he does not include November 8, 2018 in his analysis, (see Kothari Report Ex. 13.A), and there was no attempt to control for confounding news, (Mason Reply Report ¶ 136). To the extent that Dr. Kothari's analysis stands for the commonsense proposition that the market often reacts negatively to enforcement actions, this is undoubtedly true, but it does not suffice to rebut the presumption of price impact.

Finally, Defendants object that the Report misapplied my motion to dismiss decision, which held that the Full Refund News was not actionable as a corrective disclosure because it was a materialization of a known risk that the Malaysian government would seek to recover from Goldman. (Defs’ Mem. 30.) I agree with Defendants that my motion to dismiss ruling that the Full Refund News was not recoverable under loss causation principles does not preclude a finding that the Full Refund News accounted for the price decline on November 12, 2018. However, the fact that my motion to dismiss ruling does not bar such a finding does not mean that Defendants have succeeded in rebutting the presumption of price impact.

Giving due weight to the length of time that had elapsed between the corrective disclosure and the November 12 trading day, in addition to the significant confounding variable of the Full Refund News, I find that the issue of whether Defendants have rebutted the Basic presumption with regard to November 12 is a close call. However, in the absence of any compelling analysis disaggregating the price impact of the Full Refund News and the corrective disclosure, I find that Defendants have not shown by a preponderance of the evidence that the corrective disclosure had no price impact on November 12, 2018. Therefore, Defendants’ fifth objection is OVERRULED.

F. Remainder of the Report

Having overruled Defendants’ objections, I review the remainder of the Report for clear error. See Wilds v. United Parcel Serv., Inc., 262 F. Supp. 2d 163, 169 (S.D.N.Y. 2003). Finding no error, let alone clear error, I ADOPT these parts of the Report.

V. Conclusion

For the foregoing reasons, Defendant's objections to the Report are OVERRULED and I hereby ADOPT the Report in its entirety. Plaintiffs’ motion at Doc. 291 is GRANTED in part and DENIED in part. I hereby certify the following class: all persons and entities that purchased or otherwise acquired Goldman's common stock between December 22, 2016, and November 8, 2018, inclusive, and were damaged thereby, with the same exclusions noted in Section II, footnote 4, supra.

Defendant's motion for leave to file a reply brief, (Doc. 339), and Plaintiffs’ motion for leave to file a sur-reply, (Doc. 341), are hereby DENIED as moot. The Clerk of Court is respectfully directed to terminate the motions pending at Docs. 291 and 339.

SO ORDERED.

FOOTNOTES

1.   On September 19, 2019, I appointed Sjunde AP-Fonden lead plaintiff (“Plaintiff” or “AP7”). (Doc. 56.)

3.   The following are excluded from the proposed class: “(i) Defendants; (ii) Goldman's subsidiaries and affiliates; (iii) any officer, director, or controlling person of Goldman, and members of the immediate families of such persons; (iv) any entity in which any Defendant has a controlling interest; (v) Defendants’ directors’ and officers’ liability insurance carriers, and any affiliates or subsidiaries thereof; and (vi) the legal representatives, heirs, successors, and assigns of any excluded party.” (Doc. 293 at 1 n.2; see also Report at 3 n.2.)

4.   As proposed by Plaintiffs, the Report recommends that the class definition exclude the following parties: (i) Defendants; (ii) Goldman's subsidiaries or affiliates; (iii) any officer, director, or controlling person of Goldman, and members of the immediate families of such persons; (iv) any entity in which a Defendant has a controlling interest; (v) Defendants’ directors’ and officers’ liability insurance carriers, and any affiliates or subsidiaries thereof; and (vi) the legal representatives, heirs, successors, and assigns of any excluded party. (Report at 3 n.2; see also Doc. 293 at 1 n.2.)

5.   “ ‘[A] plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation’ ․ [t]o maintain a private damages action under § 10(b) and Rule 10b-5.” Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 750 F.3d 227, 232 (2d Cir. 2014) (quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008)).

6.   Where the match between the alleged misstatement and the corrective disclosure is strong but not an exact match, as it is here, the court can conduct further analysis, such as the ‘truthful substitute’ test described in Vivendi, addressed in Section IV.B., supra.

7.   November 9, 2018 was a Friday, and thus the next trading day was Monday, November 12, 2018.

8.   Dr. Kothari also performed this analysis using six dates associated with the Malaysian enforcement action, setting aside any dates associated with the investigation by American enforcement entities. (See Kothari Report ¶ 126.) According to Dr. Kothari's analysis of the six dates relating to the Malaysian enforcement action, Goldman's abnormal market capitalization decline was $5.7 billion, and 69% of this decline can be directly traced to Malaysian fines and penalties, while the remaining 31% is attributable to “indirect effect[s]” such as reputational harm, in Dr. Kothari's estimation. (Id.)

9.   Doc. 315-1 was initially filed under seal by Plaintiffs in deference to the parties’ protective order, although Plaintiffs clarified that they do not believe that Doc. 315-1 and Plaintiffs’ other exhibits should be maintained under seal, with the exception of redactions of personal identifying information such as cell phone numbers. (See Doc. 312.) Defendants filed a letter in reply “seeking to redact individuals’ names and other personal identifying information ․ in six exhibits,” not including Doc. 315-1. (Doc. 319.) On July 25, 2024, Judge Parker resolved the motion to seal with regard to the contested exhibits. (Doc. 344.) As neither party moved to seal Doc. 315-1, it is hereby unsealed in its entirety.

VERNON S. BRODERICK, United States District Judge: