Stock Impact
In 1988, the top court said judges can presume that investors all relied on any public misrepresentations when they bought shares. But that ruling also said defendants can rebut that presumption—and block certification of the class action—by showing that the statements had no impact on the share prices.
Goldman Sachs says its assurances about conflicts were so “generic” they couldn’t possibly have been responsible for propping up the stock price. The statements included promises in regulatory filings that the firm had “extensive procedures and controls that are designed to identify and address conflicts of interest” and that “our clients’ interests always come first.”
The “extreme generality of the alleged misstatements makes it exceedingly unlikely that the statements had any impact on the stock price,” Goldman told the Supreme Court in court papers.
But a divided federal appeals court said the bank had to wait to make that argument and couldn’t use it as a reason to block class action status. A two-judge majority said Goldman was improperly “smuggling” an argument about the materiality of its statements into the class-action analysis.
Biden In The Middle
The suing investors have partial support from President Joe Biden’s administration and the SEC. The government says the appeals court should have considered Goldman’s contention that its assurances were too generic to prop up the share price. But the U.S. also says Goldman and its allies are going too far in seeking a categorical rule that some types of statements are legally incapable of affecting stocks.
“Courts considering particular facts may appropriately credit evidence that seemingly generic statements would have been significant to the trading decisions of reasonable investors,” acting U.S. Solicitor General Elizabeth Prelogar said in court papers.
Investor advocates say a ruling in Goldman Sachs’ favor could leave companies free to mislead investors with impunity.
“It runs to whether or not when you’re investing your money into the markets, you can trust them, you can have confidence that they’re giving you accurate, complete information, and they’re not omitting any facts,” said Turner, the former SEC accountant. “All too often, we’ve seen where management has put out false facts to hype their stock.”
University of Michigan law professor Adam Pritchard, a former SEC official who joined a brief supporting Goldman, called the shareholder activists’ concerns “nonsense,” and said the court is likely at most to take a middle ground in its decision. Part of the problem, he said, is that the case focuses on “trivial, procedural questions” that the justices, with little expertise in securities law, won’t fully comprehend.
“They will not do anything useful,” said Pritchard, who’s recently written a book on the Supreme Court and securities law. “They are in over their heads.”
The case is Goldman Sachs v. Arkansas Teacher Retirement System, 20-222.
This article was provided by Bloomberg News.