US Court Rules No Class Action on Goldman Sachs Crisis-Era Claims

US Court Rules No Class Action on Goldman Sachs Crisis-Era Claims – Shareholders of Goldman Sachs are not allowed to proceed with a class action that claims the bank provided false information to investors regarding its business practices before the subprime mortgage crisis. The U.S. appeals court, specifically the 2nd U.S. Circuit Court of Appeals based in New York, made this decision. 

This court ruled against the case brought by three pension funds, which had accused the bank of concealing conflicts of interest while developing high-risk subprime securities. These actions allegedly resulted in losses exceeding $13 billion for investors. The court ruled that the bank’s claims regarding its conflict of interest management weren’t directly connected to the 2010 U.S. fine for subprime investment product marketing, thus not impacting stock prices. 

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The bank’s spokesperson and investor attorneys haven’t responded to comment requests. The Arkansas Teacher Retirement System and other buyers of Goldman shares from February 2007 to June 2010 alleged securities fraud against the firm and three ex-executives, asserting that false statements inflated stock prices. 

The plaintiffs said that when they bought Goldman shares they relied upon the bank’s statements about its ethical principles and internal controls against conflicts of interest, and its pledge that its “clients’ interests always come first.” Goldman argued that these “aspirational” statements were too vague and general to have had any impact on the stock price.

The origins of the case trace back to Goldman’s sale of collateralized debt obligations, notably Abacus 2007 AC-1, a product created with involvement from hedge fund manager John Paulson. Back in 2010, Goldman settled with the U.S. Securities and Exchange Commission for $550 million. This was to resolve allegations that the company deceived Abacus investors by keeping John Paulson’s role hidden. 

Paulson had profited $1 billion by betting on the failure of the collateralized debt obligation sale. Plaintiffs argued that had the truth about the company’s conflicts of interest been known, the stock price would have been lower. In its recent ruling, the 2nd Circuit court referred to a 2021 U.S. Supreme Court decision. 

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This court found that Goldman effectively demonstrated that its statements did not artificially inflate the stock price, as they weren’t closely enough related to subsequent disclosures. Statements such as “integrity and honesty are at the heart of our business” are too generic to have affected the price, the court wrote. The case is Arkansas Teacher Retirement System et al. v. Goldman Sachs, No. 22-484, 2nd U.S. Circuit Court of Appeals.

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