After Settlement With SEC In 2010 for $550 Million, Goldman Still Running From Investors

In 2010 the SEC alleged that Goldman Sachs misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities.  Goldman quickly settled with the SEC for a record $550 million.

Also in 2010, a civil securities class action was filed, led by three pension funds, alleging that Goldman made fraudulent statements, causing more than $13 billion of losses for shareholders from February 2007 to June 2010.  It was alleged that Goldman not only lied about the investment, but also assisted one of its own large clients in shorting the CDO while simultaneously promoting the investment to others.

The civil securities class action was certified as a class action by a federal Judge in New York in 2018.  However, Goldman appealed to the Second Circuit, challenging the standard for evaluating the impact of Goldman’s false statements.  The Second Circuit remanded the case for further consideration and the federal judge, after reconsidering the case, again certified the national class action. 

Goldman then appealed again to the Second Circuit and lost. Not stopping there, Goldman has now taken the case to the Supreme Court.  In its opening brief, filed January 25, 2021, Goldman claimed that this is “not a close case.”  Presumably the Second Circuit, which ruled against Goldman in a split decision would not agree.  Goldman investors with billions in losses would probably agree that eleven years is a long time to wait, and most everyone would agree that this will be an interesting case to watch.  The Supreme Court may set a new standard for how statements that are false by way of omission are treated.