What You Need to Know
- Led by the Arkansas Teacher Retirement System, the investors say they were deceived by the firm's assurances that it was being vigilant about avoiding conflicts of interests.
- Shareholders say the assurances proved false when the SEC sued the company over a portfolio known as Abacus.
- In its 2010 lawsuit, the SEC accused Goldman Sachs of creating and selling Abacus without disclosing that the hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle.
The U.S. Supreme Court gave Goldman Sachs Group Inc. a new chance to stop a lawsuit that accuses the company of misleading shareholders by masking conflicts of interest in mortgage-backed securities it sold.
The justices on Monday set aside a federal appeals court ruling that had let the suit go forward as a class action, saying it wasn’t clear the lower court adequately considered Goldman’s contention that its disputed statements were too generic to support the suit. The high court sent the case back to the New York-based 2nd U.S. Circuit Court of Appeals to revisit the issue.
The investors, led by the Arkansas Teacher Retirement System, say they were deceived by Goldman Sachs’s repeated public assurances that it was being vigilant about avoiding conflicts of interests. The shareholders say those assurances proved false when the Securities and Exchange Commission sued the company in April 2010 over a portfolio known as Abacus.
The case was the first high court clash over shareholder lawsuits since former President Donald Trump appointed three justices. Goldman and its business allies argued that the appeals court ruling made it too easy for shareholders to press class action fraud suits.
The Supreme Court decision “shifts a little power back” to companies defending against shareholder suits, said Noelle Reed, head of the litigation group in the Houston office of Skadden, Arps, Slate, Meagher & Flom.
Still, she said the ruling is narrow and won’t place major new hurdles on investors. “I don’t think it dramatically undercuts the ability of plaintiffs to bring class actions,” Reed said.
During arguments in March, the justices suggested the issues had narrowed as the case bounced up and down the court system.
Goldman’s shares were up 2.0% at 2:33 p.m. in New York. That was in line with the rebound across the sector on Monday after shares of the major banks had slumped last week.
“We are pleased the Supreme Court has vacated the grant of class certification and we will continue to vigorously defend ourselves as the case returns to the lower courts,” Maeve DuVally, a spokeswoman for Goldman Sachs, said in an emailed statement.
Paulson & Co.
The law firm for the suing shareholders said it welcomed the decision in the long-running case.
“Since this case was first filed more than 11 years ago, Goldman Sachs has spared no expense to avoid facing a jury for misleading investors about its role in the financial crisis,” Robbins Geller Rudman & Dowd LLP said in an emailed statement.
In its 2010 lawsuit, the SEC accused Goldman Sachs of creating and selling Abacus without disclosing that the hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle. Shares of Goldman Sachs dropped 13% that day, and the firm later paid $550 million to settle with the SEC.