Securities Law Alert
In This Edition:• Supreme Court: The Basic Presumption Can Be Rebutted by Showing There Was No Price Impact Even
Though That Evidence Is Also Relevant to Materiality• Ninth Circuit: Affirmative Misrepresentation Allegations “Push” Mixed Securities Fraud Case Outside ofAffiliated Ute’s Presumption of Reliance• District of Maryland: Denies Dismissal of Securities Fraud Suit Alleging Suspect Sales Practices in Lightof Allegations in an SEC Cease-And-Desist Order• Eastern District of New York: Dismisses Securities Fraud Class Action for Failure to Plead With
Particularity That the Company’s Conduct Violated Antitrust Laws
• District of Oregon: Applies Recent Ninth Circuit Opinion to Hold That the PSLRA’s Safe Harbor
Protects “On Track” Forward-Looking Statements Concerning Progress Toward an Allegedly
Unattainable Goal
June/July 2021

Simpson Thacher’ssecurities litigationteam has “a deep benchwith top talent, and their
young lawyers andassociates provide a depthof experience.”– Chambers USA

Supreme Court: The Basic
Presumption Can Be Rebuttedby Showing There Was No
Price Impact Even Though
That Evidence Is Also
Relevant to Materiality
On June 21, 2021, in Goldman Sachs Groupv. Arkansas Teacher Retirement System,
2021 WL 2519035 (2021) (Barrett, J.),
the Supreme Court vacated the Second
Circuit’s class certification affirmance in asecurities fraud class action brought under
Section 10(b).1 The Court unanimously heldthat a court must consider all probative
1. Simpson Thacher filed an amici curiae brief on behalf of the
Securities Industry and Financial Markets Association, theU.S. Chamber of Commerce, the Bank Policy Institute, theAmerican Bankers Association, and the American Property
Casualty Insurance Association in support of defendantsappellants.

Simpson Thacher & Bartlett LLP

evidence, including the nature of the alleged
misrepresentations, in assessing price impact
at the class certification stage. An eight-justicemajority of the Court further held that it was
not clear that the Second Circuit properly
considered the generic nature of the alleged
misrepresentations at issue and for thatreason vacated and remanded back to theSecond Circuit. The Court directed the Second
Circuit on remand to reassess the district
court’s price impact determination, taking
into account “all record evidence relevant
to price impact, regardless [of] whether that
evidence overlaps with materiality or any
other merits issue.” A six-justice majority of
the Court also held that a defendant seeking
to overcome the Basic presumption bears
the burden of persuasion to prove a lack ofprice impact, which must be carried by apreponderance of the evidence.

Background
Plaintiff stockholders commenced thissecurities fraud class action against a bankand certain of its executives alleging that
defendants made misstatements about its
ability to manage conflicts of interest, such as“[w]e have extensive procedures and controlsthat are designed to identify and address
conflicts of interest.” Plaintiffs relied on astock price inflation-maintenance theory
asserting that the alleged misrepresentations
caused the bank’s stock price to remain
inflated until the truth regarding certain
conflicts of interest was revealed and thebank’s stock price fell. Plaintiffs sought tocertify a class of stockholders by invoking
the rebuttable presumption of relianceestablished in Basic v. Levinson, 485 U.S.
224 (1988). Defendants sought to defeat
class certification by rebutting the Basicpresumption with evidence that their alleged
misrepresentations had no stock price impact.
Both parties submitted expert testimony on
the issue of price impact. The district court
determined that defendants failed to carry
their burden of proving a lack of price impact
and certified the class, and the Second Circuit
affirmed.

The Nature of the Alleged
Misrepresentations Is Relevant toPrice Impact
Before the Court, defendants argued
that the Second Circuit erred in holdingthat the generic nature of their alleged
misrepresentations was irrelevant to
the price impact inquiry. The Court heldthat a court must consider all probative
evidence, including the nature of thealleged misrepresentations, in assessing
price impact at the class certification stage
and observed that the “generic nature of amisrepresentation often will be important
evidence of a lack of price impact, particularly
in cases proceeding under the inflationmaintenance theory.” In assessing priceimpact at the class certification stage, theCourt stated that courts “should be open to
all probative evidence on that question—
qualitative as well as quantitative—aided by agood dose of common sense.”
The Court explained that under the
inflation-maintenance theory, price impact
is the amount of price inflation maintainedby an alleged misrepresentation. The
Court reasoned that when the alleged
misrepresentation is generic and the back-end
corrective disclosure is specific, the argumentthat the back-end price drop equals front-end
inflation starts to “break down” and it is lesslikely that the disclosure corrected the alleged
misrepresentation, meaning that there is lessreason to infer price impact.

Defendant Bears the Burden of
Persuasion to Prove a Lack ofPrice Impact
Defendants also argued that the Second
Circuit erred by assigning defendants theburden of persuasion to prove a lack ofprice impact. The Court stated that “the best
reading of our precedents . . . is that thedefendant bears the burden of persuasion
to prove a lack of price impact” and that
defendants must do so by a preponderanceof the evidence. Quoting Basic, the Court
stated that the presumption of reliance may
be rebutted if defendants make “any showingthat severs the link” between the alleged
misrepresentation and the price paid (orreceived) by the plaintiff. The Court notedthat the allocation of the burden of persuasion
should rarely be outcome determinative
as “the defendant’s burden of persuasion2

will have bite only when the court finds theevidence in equipoise—a situation that shouldrarely arise.”

Justices Sotomayor and Gorsuch
Write Dissents
Justice Sotomayor dissented from the court’s
decision to vacate and remand because she
believed that the Second Circuit properly
considered the generic nature of the alleged
misrepresentations. Justice Gorsuch, joined by
Justices Thomas and Alito, dissented from the
Court’s burden of persuasion holding, statingthat the Court has never placed the burden of
persuasion on the defendant in this area and it“is incumbent on the plaintiff to prove reliance,
not the defendant to disprove it.”Ninth Circuit: Affirmative
Misrepresentation Allegations“Push” Mixed Securities Fraud
Case Outside of AffiliatedUte’s Presumption of Reliance
On June 25, 2021, the Ninth Circuit reversed
the denial of summary judgment to a
defendant auto manufacturer in a putative
securities fraud class action alleging that
defendant made omissions and affirmative
misrepresentations in offering memoranda
relating to its secret use of defeat devices in
its vehicles to hide unlawfully high emissions.
In re Volkswagen “Clean Diesel” Mktg.,
Sales Pracs., & Prods. Liab. Litig., 2021 WL
2621171 (9th Cir. 2021) (Smith, J.). The Ninth
Circuit held that the presumption of relianceestablished by Affiliated Ute Citizens of Utah
v. United States, 406 U.S. 128 (1972), did not
apply because plaintiff’s allegations could
not be characterized “primarily” as claims ofomission. The Ninth Circuit remanded thecase to the district court to further consider
whether a triable issue of material fact exists.

Background
Plaintiff commenced this securities fraudclass action after government regulators
issued notices of violation to defendant
relating to its use of defeat devices, whichwere designed to only neutralize vehicle
emissions during emissions testing.
Defendant moved for summary judgment
exclusively on the element of reliance in Rule10b-5, arguing that plaintiff had no evidence
that it or its investment advisor relied on theoffering memoranda and that the AffiliatedUte presumption of reliance did not apply.
The district court denied defendant’s motion
for summary judgment and then certified
the decision for interlocutory appeal on
the scope of the Affiliated Ute presumptionof reliance in “mixed” securities fraudcases—cases alleging both omissions andaffirmative misrepresentations.

The Ninth Circuit Examines the
Presumption of Reliance
The court began its analysis by discussing
Affiliated Ute, which established thepresumption of reliance in a case whereplaintiff stockholders alleged “primarily a
failure to disclose.”2 The Supreme Court
reasoned that if the stockholders wererequired to affirmatively prove relianceunder these circumstances, they “would havebeen forced to prove a speculative negative:that they would have relied on information
about the secondary market before selling
their stock had the bank disclosed it.”
Subsequently, Binder v. Gillespie, 184 F.3d
1059 (9th Cir. 1999), distinguished between“pure omissions” cases and “mixed” casesthat allege both omissions and affirmative
misrepresentations. In Binder, the Ninth
Circuit held that the “presumption should
not be applied to cases that allege both
misstatements and omissions unless the casecan be characterized as one that primarily
alleges omissions.”

Alleged Reliance on Affirmative
Misrepresentations Pushed theCase Outside of Affiliated Ute’s
Presumption of Reliance
After acknowledging that plaintiff allegedan overarching omission (that for years
defendant failed to disclose that it wassecretly installing defeat devices), theNinth Circuit pointed out that plaintiff also
alleged “more than nine pages of affirmative
misrepresentations that were made by[defendant] and relied upon by Plaintiff and
its investment advisor.” The court observedthat plaintiff “does not face the difficult or
2. In Affiliated Ute, plaintiffs alleged that bank officers bought
restricted stock from them without disclosing that the bankcreated a secondary market in which that stock could be
resold for profit, which allowed the bank officers to purchasethe stock below market value and then sell it on the secondary
market for a profit.
3

impossible task of proving a speculative
negative.” The Ninth Circuit concluded
that while this is a mixed case, plaintiff’s“allegations cannot be characterized primarily
as claims of omission, so the Affiliated Ute
presumption of reliance does not apply.” Thecourt determined that “[t]hese affirmative
misrepresentations, which Plaintiff alleges
it relied upon when purchasing the bonds,
push this case outside Affiliated Ute’s narrow
presumption.” The Ninth Circuit explainedthat to hold otherwise would make thepresumption available for all securities fraudclaims “because all misrepresentations can becast as omissions, at least to the extent they
fail to disclose which facts are not true.”

District of Maryland: Denies
Dismissal of Securities
Fraud Suit Alleging Suspect
Sales Practices in Light ofAllegations in an SEC CeaseAnd-Desist Order
On May 18, 2021, the District of Marylanddenied the dismissal of the complaint in aputative securities fraud class action alleging
that an apparel company and its former CEO
misled investors concerning the company’s
revenue growth and product demand andengaged in pull forward sales3 and otherallegedly suspect sales practices. In re Under
Armour Sec. Litig., 2021 WL 1985015 (D.
Md. 2021) (Bennett, J.). The court heldthat plaintiffs adequately alleged securities
law violations when their allegations were“read in light of and in combination with theallegations” in an SEC cease-and-desist order
entered against the company.

Plaintiffs’ Allegations
Plaintiffs alleged that defendants misledinvestors by, among other things, falsely
claiming that consumer demand for thecompany’s products was strong; leading
investors to believe that the company’s
26-consecutive quarter year-over-year
revenue growth streak was “safely intact”
when product demand was actually in decline;
3. Pull forward sales, sometimes called channel stuffing, occur
when a company ships more goods to distributors andretailers than end-users are likely to buy in a reasonable time
period, which can accelerate revenue recognition to reach
short-term revenue and earnings targets but can result in
lower future demand.

and manipulating the company’s financial
results with pull forward sales.

SEC Cease-And-Desist Order Is
Entered Against the Company
Defendants sought to dismiss, assertingthat the complaint generally failed to plead
adequate factual details to support plaintiffs’
claims. While the motion to dismiss was
pending, the SEC entered an order instituting
cease-and-desist proceedings against thecompany for violations of various federal
securities laws and ordering it to pay a $9
million civil penalty. The SEC order statedthat in anticipation of cease-and-desist
proceedings, the company submitted an offer
of settlement, which was accepted. While thecompany consented to entry of the order,
it neither admitted nor denied the SEC’s
findings. Following plaintiffs’ request, thecourt took judicial notice of the SEC order.

The SEC Order Lends Support toPlaintiffs’ Allegations
Taking into consideration the SEC order,
the court held that it was “satisfied that
Plaintiffs’ allegations survive the Defendants’
Motion to Dismiss.” The court clarified that
the SEC order did not supply dispositive
evidence as it stated that its findings
were not binding. Nevertheless, the court
determined that the SEC order lent support toplaintiffs’ allegations.
The court concluded that the SEC orderundermined defendants’ dismissal argument
because it provided “specific factual
allegations regarding the amount of the
products pulled forward and concludes that
because of the undisclosed pull forward
tactics used, investors were left with a4

misleading impression of how [the company]
was meeting or beating analysts’ revenue
estimates.” Further, the court pointed out that
the SEC found that the company’s reported
financial results “did not reflect its natural
revenue and revenue growth, and were notindicative of its future financial results.”

would still be false or misleading if thecompany’s cooperation with its rivals was
lawful and that plaintiffs also acknowledgedthat “not all forms of cooperation within theindustry are illegal.”

Eastern District of New York:
Dismisses Securities Fraud
Class Action for Failure to
Plead With Particularity
That the Company’s Conduct
Violated Antitrust Laws

District of Oregon: Applies
Recent Ninth Circuit Opinion
to Hold That the PSLRA’s Safe
Harbor Protects “On Track”
Forward-Looking Statements
Concerning Progress Towardan Allegedly Unattainable
Goal

On May 20, 2021, the Eastern District of New
York dismissed a putative securities fraudclass action against an auto manufacturer
and certain of its executives alleging thatthe company had engaged in a decadeslong anticompetitive conspiracy and that
defendants made various false or misleadingstatements concerning competition,competitive pressures, commodity prices,manufacturing inputs and compliance. Mucha
v. Volkswagen, 2021 WL 2006079 (E.D.N.Y.
2021) (Irizarry, J.). The court held thatplaintiffs failed to state a claim for securities
fraud because they failed to adequately allege
that the company engaged in any unlawful
conduct.
The court determined that plaintiffs “havenot alleged adequately that [the company]
engaged in any unlawful conduct. Thus,
they fail to state a claim for securities
fraud.” The court pointed out that thecompany’s statements were alleged to befalse or misleading because of the company’s
purportedly unlawful anticompetitive
conduct. However, the court observed thatplaintiffs did not contend that the statements

The court further determined that plaintiffs“failed to plead with particularity that[the company’s] coordinated actions withother car manufacturers were unlawful andanticompetitive.” Specifically, the court heldthat plaintiffs’ “failure to identify any specificlaws or to plead with particularity how [thecompany’s] conduct violated those laws isfatal[.]” The court stated that even though
the allegations regarding the company’s
cooperation with other manufacturers weredetailed, plaintiffs did not identify any specificlaws violated or explain how the conduct ran
afoul of those laws.

On May 24, 2021, the District of Oregon
entered summary judgment for a defendant
manufacturer, its CEO and its CFO in asecurities fraud class action alleging that thecompany’s announced earnings guidance
was close to impossible to attain, but that
its CEO continued to make materially false
and misleading statements that the company
was progressing toward its target. Murphy v.
Precision Castparts, 2021 WL 2080016 (D.
Or. 2021) (Beckerman, J.). The court held,in light of the Ninth Circuit’s recent opinion
in Wochos v. Tesla, 985 F.3d 1180 (9th Cir.
2021),4 that defendants’ “relatively generic”
statements “were not sufficiently concrete toqualify as a concrete factual assertion about
a specific present or past circumstances, nor
specific enough for Plaintiffs to establish
falsity.” After the Ninth Circuit issued its
opinion in Tesla, defendants moved forreconsideration of the court’s July 3, 2020
opinion denying summary judgment as to
4. Please click here to read our discussion of the Ninth Circuit’s
decision in Tesla.
5certain statements. Based on Tesla, the court
reversed its July 3 opinion with respect to
the PSLRA’s safe harbor for forward-looking
statements and falsity under Section 10(b).
The court stated that it interpreted Tesla—
where an electric vehicle manufacturer andcertain executives were alleged to have madefalse and misleading statements about anallegedly unattainable production goal—
to mean “that the Safe Harbor protects
statements that a company remains ‘ontrack’ to meet its target.” The court foundthat the non-actionable statements in Tesla(such as “it’s coming in as expected”; “there
are no issues”; and “we are on-track”) wereindistinguishable from the statements at issue
here (such as “we’re on that slope”; “we’repretty much on that drum beat”; “we hoveraround that line”; “the framework . . . is all
intact”; “nothing has gone negative”; “we’vebeen able to stay on that continuum”; and“there is no change to the . . . framework welaid out”). The court had previously held thatthe safe harbor did not protect the CEO’s

statements because they contained facts
about the company’s current circumstances.
However, applying Tesla, the court found theCEO’s “relatively generic statements do notinclude sufficiently ‘concrete descriptions’ ofpresent facts to fall outside the protection of
the Safe Harbor.”
The court further determined that thestatements in this case about the company’s
current circumstances were just as vague
as those in Tesla and thus under the Ninth
Circuit’s reasoning were not actionable.
Specifically, the court stated that “under
Tesla’s reasoning, [the CEO’s] statementsthat ‘the framework is intact’ cannot be
false unless there was no longer any part of
the framework intact.” As to the statementthat the company had achieved incremental
benchmarks, the court explained that it
read Tesla to “instruct that a company must
disclose that it reached a specific benchmark
for the statement to be actionable, not thatit reached an undisclosed or non-specificbenchmark.”

This edition of the
Securities Law Alert was edited byPeter E. Kazanoff / +1-212-455-3525
pkazanoff@stblaw.com
Lynn K. Neuner / +1-212-455-2696
lneuner@stblaw.com and
Joshua Polster / +1-212-455-2266
joshua.polster@stblaw.com

6New York

Los Angeles

Marc P. Berger+1-212-455-2197
marc.berger@stblaw.com

Linton Mann III+1-212-455-2654
lmann@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

Brooke E. Cucinella+1-212-455-3070
brooke.cucinella@stblaw.com

Joseph M. McLaughlin+1-212-455-3242
jmclaughlin@stblaw.com

Palo AltoPaul C. Curnin+1-212-455-2519
pcurnin@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Stephen M. Cutler+1-212-455-2773
stephen.cutler@stblaw.com

Michael J. Osnato, Jr.
+1-212-455-3252
michael.osnato@stblaw.com

Sarah L. Eichenberger+1-212-455-3712
sarah.eichenberger@stblaw.com

Joshua Polster+1-212-455-2266
joshua.polster@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Alan C. Turner+1-212-455-2472
aturner@stblaw.com

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Paul C. Gluckow+1-212-455-2653
pgluckow@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Nicholas S. Goldin+1-212-455-3685
ngoldin@stblaw.com

Jonathan K. Youngwood+1-212-455-3539
jyoungwood@stblaw.com

Peter E. Kazanoff+1-212-455-3525
pkazanoff@stblaw.com

David Elbaum
Senior Counsel+1-212-455-2861
david.elbaum@stblaw.com

Joshua A. Levine+1-212-455-7694
jlevine@stblaw.com

Stephen P. Blake+1-650-251-5153
sblake@stblaw.com
James G. Kreissman+1-650-251-5080
jkreissman@stblaw.com
Simona G. Strauss
Senior Counsel+1-650-251-5203
sstrauss@stblaw.com

Washington, D.C.
Meaghan A. Kelly+1-202-636-5542
mkelly@stblaw.com
Jeffrey H. Knox
+1-202-636-5532
jeffrey.knox@stblaw.com
Cheryl J. Scarboro+1-202-636-5529
cscarboro@stblaw.com

Hong Kong
Adam Goldberg+852-2514-7552
adam.goldberg@stblaw.com

Janet A. Gochman
Senior Counsel+1-212-455-2815
jgochman@stblaw.com

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
7SimpsonThacherWorldwide

UNITED STATESEUROPE

SOUTH AMERICANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

ASIA

Beijing
3901 China World Tower A
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999
Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

8