If a public company professes a commitment to gender equity, but is sued for pay discrimination, can shareholders also sue for fraud? This question is hypothetical (for now), but the Supreme Court on Monday will consider a similar question in Goldman Sachs Group v. Arkansas Teacher Retirement System.
Companies make many generic and aspirational statements in securities filings. Plaintiff firms linked with union pension funds have been taking that corporate boilerplate and turning it into shareholder class actions, and lower courts have indulged them.
The Arkansas teachers pension fund filed a class action alleging that such Goldman’s statements as “our clients’ interests always come first,” and “integrity and honesty are at the heart of our business” were fraudulent. They cite a Securities and Exchange Commission enforcement action against Goldman for not disclosing certain business conflicts to buyers of its collateralized-debt obligations. After news broke of this and other government investigations, Goldman’s stock price fell. They want $13 billion in damages.
Under the High Court’s securities doctrine known as the Basic presumption, shareholders seeking class-action certification must show that a company’s alleged misrepresentation was public and that they traded the stock between the time the alleged misrepresentation was made and the truth was revealed. This is essentially a slam dunk.
To prevent courts from being flooded with dubious class actions, the Court has also ruled that defendants must be “afforded an opportunity” to rebut the plaintiffs with “evidence that an alleged misrepresentation did not actually affect the market price of the stock.” Yet allegations like those made against Goldman are essentially irrebuttable.