Overview
In an opinion issued yesterday, Judge Crotty denied Goldman Sachs' motion for reconsideration of his refusal to dismiss securities fraud claims that Goldman argued were inactionable "puffery." See our post on that decision here. Goldman had pointed to three subsequent Second Circuit opinions -- in City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, Carpenters Pension Trust Fund of St. Louis v. Barclays PLC, and Boca Raton Firefighters & Police Pension Fund v. Bahash -- that it argued had changed or clarified controlling law on puffery. Judge Crotty disagreed:
The statements at issue in UBS, Barclays, and Bahash were too open-ended, indefinite, or subjective to be actionable under the circumstances. For instance, in UBS, the defendant’s statement that it strove to comply with applicable laws could not be interpreted as a guarantee that it would never be out of compliance, and its statement that it avoided “concentrated positions of assets” was not a guarantee that it would avoid investing 5% of its portfolio in RMBS. Likewise, in Barclays, stating that “[m]inimum control requirements have been established for all key areas of identified risk” was too general to constitute a guarantee that it had specific control systems for potential manipulations of LIBOR. Finally, in Bahash, statements about the reputation and integrity of S&P was not a guarantee against the specific deficiencies alleged to have afflicted its ratings process. In contrast, Goldman’s representations about its purported controls for avoiding conflicts were directly at odds with its alleged conduct. For instance, Goldman represented that “[w]e have extensive procedures and controls that are designed to . . . address conflicts of interest” and “we increasingly have to address potential conflicts of interest, including situations where our services to a particular client or our own proprietary investments or other interests conflict, or are perceived to conflict, with the interest of another client . . . .” (Compl. ¶¶ 134, 154 (Form 10–K).) Meanwhile, Goldman is alleged to have sold financial products to clients despite clear and egregious conflicts of interest—indeed, where its “services to a particular client” (Paulson & Co. in the Abacus deal) and its “own proprietary investments” (in short positions in the Hudson, Anderson, and Timberwolf I deals) “conflict[ed] with the interest of [the] []other client[s]” investing in those deals. Particularly in light of Goldman’s statements prior to the class period regarding its “aligned incentives” with its clients, the Court cannot say that as a matter of law no reasonable investor would have relied on the statements above in making an investment decision.