People buy stocks for all sorts of reasons: Fundamental analysis. Black edge. Cult membership. Boredom. And, if you’re a truly sophisticated investor, like a major pension plan, because the company whose stock you’re buying promises that it is full to the brim with “integrity and honesty” and that its clients’ interests “always come first.”
And so, these pension funds bought shares of a small Wall Street concern by the name of “Goldman, Sachs & Co.” Thing is, these pension funds say, this “Goldman Sachs” didn’t act with integrity and honesty, and definitely didn’t always put client interests first, at least with respect to a small $1 billion CDO deal called ABACUS. (Other instances of alleged dishonesty, deceit and putting client interests very far down from first are not at issue here.) And since everyone who bought Goldman shares believed that it acted with integrity, honesty and with client interests at the forefront at all times, just like these pension funds did, Goldman shares enjoyed an integrity, honesty and commitment to client interests premium that they apparently didn’t deserve.
Goldman, all but acknowledging these pensions’ allegations, argues that no one actually believes companies such as itself when they trumpet empty boilerplate like client interests always coming first and meaningless words such as “honesty” or “integrity.” It’s called marketing. And, according to Goldman, and probably eventually the Supreme Court, you shouldn’t be allowed to file a class-action lawsuit over failure to adhere to these fatuous words that they for some reason insist upon saying anyway.
The 2nd Circuit presumed that shareholders relied on such statements when buying Goldman stock, and rejected the bank’s argument that allowing lawsuits based on seemingly generic statements would unleash a flood of litigation.
Goldman described its appeal as “the most important securities case” before the Supreme Court in several years, and drew support for it from business and financial industry groups.
The bank also won support from the Society for Corporate Governance, which said a Goldman loss could prompt companies to clam up on social issues such as diversity and racial justice, “out of fear that even generalized or aspirational statements” could prompt securities fraud claims.
Oh, no: What would we as a society do if corporations were rendered unable to make pat, tortuously crafted, ass-covering and very, very late statements about the important issues of our time that they almost certainly don’t believe but feel they have to say, anyway, you know, for marketing purposes? How would we manage to progress? Solve global problems? Make the world a better—nay, perfect—place? Surely we could not, and therefore, in order for all of us to prevail, Goldman must here prevail.
U.S. Supreme Court takes up Goldman securities class action appeal [Reuters]