U.S. Supreme Court overturns class action ruling against Goldman Sachs

The U.S. Supreme Court on Monday ruled victory in favor of Goldman Sachs Group Inc as a lower court will have to consider again whether a shareholder class-action lawsuit against the bank can proceed.

The justices dismissed the Second U.S. Circuit Court of Appeals’ decision to allow the bank’s shareholders, including the Arkansas Teacher Retirement System, to sue the financial institution under a federal investor protection law.

The ruling was for an investor lawsuit filed in 2011 that alleged Goldman artificially inflated its share price by creating risky subprime securities before the 2008 financial crisis.

The lawsuit said the bank unlawfully hide conflicts of interest and misled shareholders while selling mortgage-backed securities.

The ruling by Justice Amy Coney Barrett directed the lower court to reconsider the matter, as “it is unclear whether the Second Circuit properly considered the generic nature of Goldman’s alleged misrepresentations.”

Supreme Court’s ruling gave Goldman another chance to avoid the lawsuit in which the plaintiffs said they lost more than $13 billion due to risky subprime securities.

The Arkansas Teacher Retirement System and other pensions that bought the bank’s shares between February 2007 and June 2010 filed a class-action lawsuit, accusing the company of violating an anti-fraud provision of the Securities Exchange Act of 1934.

The plaintiffs said that while buying Goldman shares, they relied upon the bank’s statements about its ethics and controls against conflicts of interest and the pledge that “clients’ interests always come first,” which they accused kept the bank’s stock price artificially high.

Goldman contended that these “aspirational” statements were too vague and general to have any impact on the stock price.

The case stemmed from the Abacus deal, as the banking giant allegedly allowed the hedge fund Paulson & Co to help select the mortgages bundled by Goldman and sold to investors while knowing that the hedge fund was betting that the investments would fail.

In 2010, Goldman settled the case with the U.S. Securities and Exchange Commission (SEC) for $550 million, where the bank hid Paulson’s role and helped to make a $1 billion profit.

Goldman’s share rose about 2.5% at 11:00 am ET, compared to the previous closing, which was in line with the rebound across the banking sector on Monday.

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