Goldman shareholders can again pursue class action over CDOs

A federal judge on Tuesday said Goldman Sachs Group Inc shareholders may again pursue class-action claims that the bank concealed conflicts of interest when creating risky subprime securities before the 2008 financial crisis.

U.S. District Judge Paul Crotty in Manhattan said shareholders could sue as a group because Goldman had not shown it more likely than not that its alleged misstatements had no impact on its stock price.

Goldman spokesman Michael DuVally declined to comment. Class actions can allow plaintiffs to seek larger recoveries at lower cost than if they sued individually.

The Arkansas Teacher Retirement System and other investors from February 2007 to June 2010 claimed to have lost more than $13 billion because Goldman had in regulatory filings and public comments overstated its ability to manage conflicts.

They said Goldman did this while concealing short positions that the Wall Street bank or hedge fund manager John Paulson had made in four subprime mortgage collateralized debt obligations (CDOs).

These CDOs included Abacus 2007 AC-1, the centrepiece of a probe that led to Goldman`s $550 million settlement of civil claims by the U.S. Securities and Exchange Commission. Goldman did not admit wrongdoing in agreeing to settle.

Crotty had certified a class action in September 2015, but the federal appeals court in Manhattan overturned him in January, saying he imposed too high a burden on Goldman.

Tuesday`s decision came after Goldman offered new testimony from two expert witnesses, Harvard Business School professor Paul Gompers and New York University law professor Stephen Choi.

But Crotty said a damages model offered by the plaintiffs` expert John Finnerty, a managing director at AlixPartners, "at the very least, establishes a link between the news of Goldman`s conflicts and the subsequent stock declines."

That, he said, "is sufficient."

The plaintiffs "look forward to heading towards trial," Spencer Burkholz, one of their lawyers, said in a statement.

The case is In re Goldman Sachs Group Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 10-03461.

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