Supreme Court Weighs Merit of Goldman Sachs Ethics Statements
March 29 2021 - 5:19PM
Dow Jones News
By Jess Bravin
WASHINGTON -- The Supreme Court on Monday examined whether
Goldman Sachs Group Inc.'s generic assertions of corporate ethics
and integrity, undermined when the company's role in the 2008
financial crisis was revealed, could expose it to a shareholder
class action over false statements.
The case is the latest in a series in which the court has
calibrated the standards and burdens of proof between plaintiff
shareholders and defendant corporations in big-dollar class
actions. But the tenor of Monday's argument suggested that the
court was leaning toward a minor clarification rather than a major
revision of class-action procedures.
Between 2006 and 2010, Goldman assured investors with statements
about its measures to ensure integrity.
"Our reputation is one of our most important assets. As we have
expanded the scope of our business and our client base, we
increasingly have to address potential conflicts of interest,
including situations where our services to a particular client or
our own proprietary investments or other interests conflict, or are
perceived to conflict, with the interest of another client," the
company said. "We have extensive procedures and controls that are
designed to identify and address conflicts of interest."
The bank also wrote: "Our clients' interests always come
first."
In that time period, Goldman's Abacus investment program
allegedly allowed the hedge fund Paulson & Co. to help bundle
mortgages into bonds that Goldman sold to investors while knowing
that Paulson was betting the investments would fail as a result of
short sales. The plan, which netted some $1 billion for Paulson at
investors' expense, led Goldman to pay $550 million in a 2010
settlement with the Securities and Exchange Commission in which it
acknowledged providing "incomplete information" in marketing
materials.
Investors in Goldman, led by the Arkansas Teacher Retirement
System, sued the Wall Street firm in 2011, alleging that it had
propped up its stock price by falsely asserting its safeguards
would prevent conflicts of interest while the firm was actually
working against its clients. The case has traveled up and down the
court system since, and at one point it appeared the justices might
rule on whether general statements like Goldman's assertion of
ethical conduct could be actionable at all.
But by the time the case reached the Supreme Court on Monday,
the parties' differences had narrowed, with neither Goldman nor the
Arkansas retirement system staking out a categorical position.
Justice Samuel Alito appeared frustrated that the claims had
shrunk to such incremental size.
"You now disclaim in your brief the argument that a statement in
itself can be so bland and innocuous and uninformative that there
can't be reliance," he told Goldman's lawyer, Kannon Shanmugam. "Do
you really want to say that?"
"What we're saying, Justice Alito, is that the more generic a
statement is, the less likely it is to have price impact," Mr.
Shanmugam said.
Justice Elena Kagan asked the reciprocal question of Tom
Goldstein, the lawyer representing the Arkansas retirement system.
Say the trial judge is overwhelmed with reports and testimony by
dueling experts in the case and says, "I've been getting
bleary-eyed, and there seem to be ambiguities, there seem to be
gaps, and I'm going to fill that in with my gut intuition of what
really matters to investors in the real world," Justice Kagan said.
"Would that be appropriate?"
"I think that if there are competing expert reports, the judge
is not required to turn himself or herself into a computer," and
can apply common sense to "assess those sorts of reports in the way
that judges evaluate expert testimony overall," Mr. Goldstein
said.
"I just don't think that what we should have is judges saying,
'Look, I just know how economic markets work'" and ignore what the
parties' expert evidence shows, he added.
With so little dispute between the parties, Justice Stephen
Breyer wondered why the court was hearing the case at all.
Both sides agreed that when it came to the impact of general
corporate statements on share prices, "the fact that it's general
doesn't mean never. The fact that it's general means sometimes it
can affect the price," he said, and determining whether that's so
depends on the evidence presented.
"Apparently, everybody agrees: Take the evidence for what it's
worth. Fine," Justice Breyer said. "Why isn't that the end of the
case?"
A decision in the case, Goldman Sachs Group Inc. v. Arkansas
Teacher Retirement System, is expected before July.
Write to Jess Bravin at jess.bravin+1@wsj.com
(END) Dow Jones Newswires
March 29, 2021 17:04 ET (21:04 GMT)
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