Public Justice Joins Allies in Warning Against SCOTUS Ruling Unleashing Securities Fraud
Today, Public Justice joined three dozen groups and individuals in warning against a U.S. Supreme Court ruling in Arkansas Teacher Retirement System v. Goldman Sachs Group Inc. that would roll back investor rights and unleash corporate misconduct. Oral argument in the case is scheduled for Monday, March 29. Below is the joint statement:
It has come to our attention that the United States Supreme Court has agreed to hear a securities fraud case that has potentially far-reaching and devastating implications for investor protection and market integrity. At stake is investors’ ability to hold corporations accountable in court for securities fraud. We, the undersigned groups and individuals, represent a broad coalition of consumer, investor, and labor organizations that are committed to protecting investors and holding bad corporate actors accountable.
The case, Arkansas Teacher Retirement System v. Goldman Sachs Group Inc. (“Goldman”), was originally filed over ten years ago by shareholders of Goldman Sachs who bought stock in the early days of the 2008 financial crisis at a price artificially inflated by Goldman’s false statements regarding its high standards of conduct and strong protections against conflicts of interest. Unknown to the customers and investors of Goldman Sachs, Goldman was reaping rich rewards from the creation of a complex type of mortgage-backed security, known as a “collateralized debt obligation” (CDO), backed by mortgages that it knew were problematic and likely to fail.i In one particularly egregious case, Goldman worked with one favored hedge fund customer, who was planning to short (or bet against) a particular CDO, to maximize its chances of failure. Goldman then turned around and sold that CDO to other unsuspecting customers without warning them it had been designed to fail. Even worse, Goldman’s internal proprietary trading desk followed those funds with large bets against those mortgages to generate $4 billion in profits for itself.
During this time when Goldman was profiting from playing one set of customers off against another, it continued to issue solemn public assurances that it had “extensive procedures and controls that are designed to identify and address conflicts of interest” and that “[o]ur clients’ interests always come first.” Goldman’s executives knew there was a problem and began selling off their shares in the company at a fast pace in 2007 before the news broke. When the news of Goldman’s practices finally surfaced, the price of the company’s stock plummeted, and those investors who had placed their trust in Goldman’s assurances about its high standards suffered heavy financial losses. Some of those investors, led by the Arkansas Teachers Retirement System, sought to file a class action lawsuit to recoup their losses. Ten years later, as Goldman continues to try and evade accountability by fighting against the class action moving forward, the issue before the Supreme Court is not whether the investors should ultimately prevail, but simply whether the investors will even be allowed the opportunity to have their arguments heard.
We believe that no company should be able to hide behind procedural issues to avoid accountability for clear misconduct. For over ten years, Goldman Sachs has done just that; fighting to prevent the case from moving forward to a discussion on the merits. Second, no company should be able to claim that the public statements they make about their high standards of conduct are meaningless. Indeed, the statements Goldman Sachs made about managing conflicts and acting in customers’ best interest carry specific regulatory meaning and thus cannot be dismissed as mere “puffery.” Lastly, we believe that investors’ right to hold corporations accountable in court for securities fraud is critical to both deterring fraud and recouping investor losses. Together with strong government enforcement, private securities litigation helps to deter fraud and ensure the integrity and stability of the US capital markets.
Millions of Americans today are deeply disillusioned about the integrity of our markets, convinced that the markets are rigged against them. With this critical case, the Supreme Court has the opportunity to help restore their faith by showing that no company is too big or too powerful to be held accountable. Our hope is that, by allowing defrauded investors the right to seek accountability, the Court will make it clear that words do matter and companies have a responsibility to speak truthfully.
American Association for Justice
American Federation of State, County and Municipal Employees (AFSCME) Alaska PIRG
American Family Voices
Americans for Financial Reform Education Fund California Reinvestment Coalition and
Center for Economic Integrity Center for Economic Justice Center for Justice & Democracy Chicago Consumer Coalition
Columbia Consumer Education Council The Committee for the Fiduciary Standard Consumer Action
The Consumer Assistance Council, Inc. Consumer Federation of America Consumer Federation of California Consumers for Auto Reliability and Safety
Delaware Community Reinvestment Action Council, Inc. Demand Progress Education Fund
Florida Silver Haired Legislature Inc. Fund Democracy
Institute for Agriculture and Trade Policy International Brotherhood of Teamsters
Mid-Pinellas (Florida) Coalition of Neighborhood Associations New Jersey Citizen Action
People’s Parity Project Public Justice Revolving Door Project
Service Employees International Union (SEIU) Strategic Organizing Center
Virginia Citizens Consumer Council
Phyllis Borzi, Former Assistant Secretary, U.S. Department of Labor*
James D. Cox, Professor of Law, Duke University School of Law*
Erik F. Gerding, Professor of Law, University of Colorado Law School*
Michael Greenberger, Law School Professor, University of Maryland Carey School of Law