The Supreme Court of the United States Friday agreed to hear Goldman Sachs Group Inc appeal in a securities fraud case that could redefine shareholders’ ability to bring class actions against public companies with falling stock prices.
Goldman appeals an April ruling from the 2nd U.S. Court of Appeals in Manhattan allowing a class action lawsuit accusing the bank of hiding conflicts of interest when creating sub-risk securities before the 2008 financial crisis.
A decision is likely before the court’s current term expires in June.
The case stems from Goldman’s sale of secured debt securities, including Abacus 2007 AC-1, which it assembled with the help of hedge fund manager John Paulson.
|SG||THE GOLDMAN SACHS GROUP, INC.||408.10||-9.54||-2.28%|
In 2010, Goldman reached a $ 550 million settlement with the United States Securities and Exchange Commission to resolve accusations of deceiving Abacus investors into concealing Paulson’s role, including how he made a $ 1 billion profit betting the CDO would fail.
Shareholders run by three pension plans claimed that before the news broke, the bank misled them and inflated its share price with such claims that clients’ interests “always come first” and that “integrity and honesty” mattered.
Circuit 2 assumed shareholders were relying on such claims when buying Goldman shares and rejected the bank’s argument that allowing lawsuits based on seemingly generic claims would spark a flood of litigation.
Goldman described his appeal as “the most important securities case” before the Supreme Court in several years, and has won support from trade groups and the financial industry.
The bank also gained backing from the Society for Corporate Governance, which said a loss of Goldman could prompt companies to complain about social issues such as diversity and racial justice, “lest even widespread claims or ambitious “do not spark claims of securities fraud.