U.S. Supreme Court takes up Goldman securities class action appeal (updated)

Abacus Mining & Exploration

11/12/2020 23:54

(Adds case background)
    By Jonathan Stempel
    Dec 11 (Reuters) - The U.S. Supreme Court on Friday agreed
to hear Goldman Sachs Group Inc's  GS.N  appeal in a securities
fraud case that could redefine the ability of shareholders to
pursue class actions against public companies whose stock prices
fall.
    Goldman is appealing an April decision from the 2nd U.S.
Circuit Court of Appeals in Manhattan allowing a class action
accusing the bank of hiding conflicts of interest when creating
risky subprime securities before the 2008 financial crisis.
    A decision is likely before the end of the court's current
term in June.
    The case stemmed from Goldman's sale of collateralized debt
obligations including Abacus 2007 AC-1, which it assembled with
help from hedge fund manager John Paulson.
    In 2010, Goldman reached a $550 million settlement with the
U.S. Securities and Exchange Commission to resolve charges it
cheated Abacus investors by concealing Paulson's role, including
how he made a $1 billion profit by betting the CDO would fail.
    Shareholders led by three pension plans claimed that before
the news came out, the bank had misled them and inflated its
stock price with such statements that client interests "always
come first" and that "integrity and honesty" mattered.
    The 2nd Circuit presumed that shareholders relied on such
statements when buying Goldman stock, and rejected the bank's
argument that allowing lawsuits based on seemingly generic
statements would unleash a flood of litigation.
    Goldman described its appeal as "the most important
securities case" before the Supreme Court in several years, and
drew support for it from business and financial industry groups.
    The bank also won support from the Society for Corporate
Governance, which said a Goldman loss could prompt companies to
clam up on social issues such as diversity and racial justice,
"out of fear that even generalized or aspirational statements"
could prompt securities fraud claims.

 (Reporting by Jonathan Stempel in New York; Editing by Leslie
Adler and Tom Brown)
 ((andrew.chung@thomsonreuters.com; 646.223.8022; 646.407.9441
mobile;))