January 3, 2022
Some of the financial sector’s hottest trends and flashpoints in 2021 lie at the center of lawsuits that securities attorneys will have their eyes on in the coming year, from a challenge to the legality of the largest-ever special purpose acquisition company to multidistrict litigation against the controversial Silicon Valley titan of online trading.
The new year marks the next chapter in a highly anticipated test of the U.S. Securities and Exchange Commission’s jurisdiction over crypto assets and 2022 could be the year that a decade-old securities suit against Goldman Sachs, which raised key questions about class certification in the U.S. Supreme Court last summer, comes to a close.
Here, Law360 breaks down five securities cases to watch in the year ahead.
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Goldman Rolls On
Goldman Sachs and a class of its shareholders have tangled in court for more than a decade now over allegations the bank misled investors about conflicts of interest in a financial crisis-era transaction it underwrote.
Now back from a trip to the U.S. Supreme Court, the class action appears is finally pushing forward in New York federal court, though Goldman recently teed up a third challenge to the class’ certification.
The shareholders claim that Goldman’s assertions in corporate filings about avoiding conflicts of interest were misrepresentations used to keep the bank’s stock price artificially inflated until an SEC action, settled in 2010 for $550 million, revealed that Goldman helped a client short a collateralized debt obligation while simultaneously selling it elsewhere.
After the class won certification in 2015, lost it in January 2018 and regained it later that year, Goldman launched a second appeal over class certification, this time claiming it had successfully rebutted the presumption of classwide reliance — established under the 1988 Supreme Court case Basic v. Levinson — by showing that the allegedly misleading corporate statements were too generic to have affected the bank’s stock price.
A Second Circuit majority found in April 2020 that alleged corrective disclosures about these conflicts revealed new information and moved Goldman Sachs’ share price, but with the concerns of one dissenting judge in hand, the bank asked the Supreme Court to weigh in on whether defendants could point to the generic nature of alleged misstatements when attempting to rebut the so-called Basic presumption.
By the time the high court heard the case in March, the justices found that the dispute over whether a statement’s generic nature is relevant to price impact had “largely evaporated” since both sides agreed that courts could consider expert testimony and “use their common sense” when assessing a generic statement’s price impact.
The justices remanded the case with a directive for lower courts to include the generic nature of alleged misstatements as one of the many factors considered during a price impact analysis, leading the Second Court to kick the case back to U.S. District Judge Paul A. Crotty for clarification on whether he had indeed factored in the “genericness” of the alleged misstatements.
After reviewing the case with “fresh guidance” from the upper courts, Judge Crotty again certified the class, writing in his December order that the bank had still failed to prove its corporate statements were too generic to have kept its share price artificially inflated. Goldman claims that the judge got it wrong again, and has asked the Second Circuit to take its third look at the case.
Cohen Milstein Sellers & Toll PLLC partner Laura Posner said Judge Crotty was right to find that some of the alleged misstatements weren’t generic in nature and that others “that could, in a vacuum, potentially be seen as generic, were not in the specific context of the facts at issue in this case.” Posner added that “it would be a mistake” for Goldman to aim for yet another appeal.
“While I certainly cannot predict whether Goldman will continue to otherwise litigate the case, the facts appear to be quite strongly in support of the plaintiffs — as further supported by the $550 million penalty it paid to the SEC for related actions — and I believe the plaintiffs will succeed on the merits if the case does go to trial,” she told Law360.