Judge Crotty today mostly denied Goldman Sachs’s motion to dismiss a shareholder class action relating to various CDOs allegedly designed to fail, including the transaction which led to a $550 million settlement with the SEC. The motion was granted to the extent Judge Crotty found Goldman had no duty to disclose the SEC’s Wells notice: “At best, a Wells Notice indicates not litigation but only the desire of the Enforcement staff to move forward, which it has no power to effectuate. This contingency need not be disclosed.” The remainder of the claims concerned various statements by Goldman in public filings and elsewhere concerning its loyalty to clients, and procedures to avoid conflicts of interest — statements the plaintiffs claimed were false in light of the undisclosed conflicts in the CDOs at issue. Judge Crotty found the statements were not, as Goldman argued, non-actionable “puffery”:
Plaintiffs plausibly allege that Goldman’s material omissions in the [CDO] transactions: (1) made its disclosures, to its own shareholders, concerning its business practices materially misleading; and (2) conflicted with its shareholders’ interests, because fraudulent conduct hurts a company’s share price, and concealing such conduct caused Goldman’s stock to trade at artificially high prices, as discussed below. Given Goldman’s fraudulent acts, it could not have genuinely believed that its statements about complying with the letter and spirit of the law—and that its continued success depends upon it, valuing its reputation, and its ability to address “potential” conflict of interests were accurate and complete Goldman must not be allowed to pass off its repeated assertions that it complies with the letter and spirit of the law, values its reputation, and is able to address “potential” conflicts of interest as mere puffery or statements of opinion.