The U.S. Securities and Exchange Commission sent Goldman Sachs Group Inc. shares tumbling by 13% in a single day in 2010, when it accused the firm of defrauding customers by selling them a mortgage-backed investment that was secretly designed to fail.
Eleven years later, shareholders who lost money that April day are before the U.S. Supreme Court in a case that could deal an even more sweeping blow to investors. In an argument set for Monday, Goldman Sachs will urge the court to put new limits on class-action shareholder suits, and toss out a case that seeks to recoup potentially billions of dollars.
Investor advocates say they're nervous ahead of the first Supreme Court clash over shareholder lawsuits since former President Donald Trump appointed three justices and created a 6-3 conservative majority. The court is scheduled to rule by late June.
"I am very concerned, and very concerned where this particular court might come out," said Lynn Turner, a former SEC chief accountant.
The investors, led by the $19.5 billion Arkansas Teacher Retirement System, say they were deceived by Goldman Sachs' repeated public assurances that it was being vigilant about avoiding conflicts of interests. They say the assurances proved to be false, as details emerged about a group of so-called collateralized debt obligations, known as CDOs, including the Abacus portfolio that was at the center of the SEC suit.
The SEC said in its lawsuit that Goldman Sachs created and sold Abacus without disclosing that the hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle.
Later that year, Goldman paid $550 million to settle with the SEC, a record amount for a Wall Street firm. Though Goldman didn't admit wrongdoing, the firm said it made a "mistake" in not disclosing the Paulson & Co. role, an unusual acknowledgment in an SEC case.