Richman v. Goldman Sachs Group, Inc.
868 F. Supp. 2d 261
S.D.N.Y.2012Background
- Abacus synthetic CDO closed; Goldman acted as underwriter, lead manager, protection buyer.
- Plaintiffs allege Paulson & Co. influenced asset selection and profited from CDS positions; Goldman allegedly hid Paulson’s role.
- SEC issued Wells Notices; Goldman disclosed prior investigations but not Wells Notices; SEC later charged Goldman with related conduct.
- Hudson, Anderson, Timberwolf I were synthetic CDOs with disclosed long positions while masking large short positions.
- Plaintiffs claim these misstatements and omissions harmed Goldman shareholders; court granted dismissal of Wells Notice failure claim but denied others.
- Plaintiffs seek relief under §10(b) and §20(a) for alleged misstatements and conflicts of interest across the CDOs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Wells Notice disclosure duty under §10(b)? | Plaintiffs argue Wells Notices were material and should have been disclosed. | Goldman contends no duty to disclose Wells Notices; not a pending proceeding. | Dismissal granted for Wells Notice disclosure claim. |
| Was there an affirmative regulatory duty to disclose Wells Notices? | Item 103 and NASD/NASD rules require disclosure of such notices. | No explicit duty under Item 103; NASD/FINRA rules do not create private §10(b) rights. | No regulatory duty to disclose Wells Notices; claim fails. |
| Did defendants have scienter for Wells Notice omission? | Failure to disclose showed recklessness given known investigations. | Duty to disclose not established; omission not enough for strong inference of scienter. | No strong inference of scienter; Wells Notice omission not sufficient. |
| Were the Abacus/Hudson/Anderson/Timberwolf I statements and omissions actionable? | Goldman misrepresented conflicts of interest and short/long positions; omitted Paulson’s role and positions. | Statements were non-actionable puffery or opinions; disclosures adequate. | Plaintiffs plausibly alleged material omissions and misleading statements; material enough for §10(b) claims. |
| Section 20(a) control person liability viability? | Individual Defendants controlled Goldman and participated in fraud. | No primary violation established; insufficient scienter. | Count II viable; control person liability denied to be dismissed. |
Key Cases Cited
- In re Citigroup, Inc. Sec. Litig., 330 F.Supp.2d 367 (S.D.N.Y. 2004) (duty to disclose litigation risks; not required to predict outcomes)
- Bristol-Myers Squibb Co. Sec. Litig., 586 F.Supp.2d 148 (S.D.N.Y. 2008) (duty to be accurate and complete; not every risk disclosure necessary)
- GeoPharma, Inc. Sec. Litig., 411 F.Supp.2d 434 (S.D.N.Y. 2006) (recklessness standard for scienter; no obvious duty to disclose here)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (strong circumstantial evidence of conscious misbehavior or recklessness must be shown)
- ECA, Local 134b-13b IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (standard for scienter in the absence of motive; strong circumstantial evidence required)