The Goldman Sachs Case Could Break In A Number of Different Directions

On Monday the Supreme Court heard oral argument in the long-running securities class action filed in 2010 against Goldman Sachs.  The case stems from a collateralized debt obligation transaction that Goldman underwrote in 2007 that lost CDO investors $1 billion.  Goldman allegedly helped one client short the CDO while simultaneously selling it elsewhere and failing to disclose the apparent conflict of interest. The bank settled the 2010 regulatory enforcement action brought by the DOJ for $550 million.

The civil case 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.  Goldman has now taken the case to the Supreme Court.

At issue is the standards to be used to evaluate a defendant’s attempt to rebut the presumption of classwide reliance recognized in Basic Inc. v. Levinson, 485 U.S. 224 (1988).  Generally speaking, Defendants argue that the bar is too high and defendants rarely succeed in doing this at the class certification stage.  Those supporting the Plaintiffs argue that this should come as no surprise as at the class certification stage the case has already been well-vetted under the demanding pleading standards of the PSLRA.

While Goldman initially sought to substantially lower the bar necessary rebut the Basic presumption in certain situations, at oral argument the parties seemed to have refined and limited their positions, leaving less to be decided.  “We are left in this position where you’ve both moved more closely together, and now we have to decide what to do with the 2nd Circuit’s opinion,” Justice Barrett remarked during oral argument.

So it appears that the decision, expected in June, may not bring the sea change initially thought possible.  Indeed, it may simply add further definition that does not substantially alter existing standards. However there is also the possibility the Court will remand the already long-running case back to the Second Circuit for further consideration.   That is the option advocated for by the SEC and the DOJ.  Each filed amicus briefs on behalf of “Neither Party.”  It will be interesting to see which way this case breaks in June.