Goldman Sachs (GS) endured a setback Monday when the U.S. Supreme Court refused to hear the company's appeal of a lower-court decision involving securities backed by residential mortgages.
The investment bank asked the court in October to overturn a ruling in September by the U.S. Court of Appeals for the 2nd Circuit that permits the NECA-IBEW Health & Welfare Fund, a pension fund for electrical workers, to sue Goldman for allegedly misleading investors about mortgage-backed securities the fund itself did not own.
The appeals court ruling could cost financial firms tens of billions of dollars and conflicts with a ruling in 2011 by the U.S. Court of Appeals for the 1st Circuit, Goldman argued in its appeal petition, which the Supreme Court denied without comment.
The case arose out of NECA's purchase in 2007 and 2008 of securities from two of 17 trusts offered by Goldman. The fund purchased $390,000 worth of securities from one trust and $50,000 from another.
In 2008, NECA filed a suit on behalf of buyers of securities from all 17 trusts. It contended Goldman mislead investors about the underwriting and appraisal standards used by the banks that originated the loans backing the trusts and omitted from securities filings information about the banks' lending practices.
A trial court dismissed NECA's claims involving securities from the 15 trusts it did not do business with, but the 2nd Circuit later decided that NECA could bring a class action on behalf of investors in the other offerings.
The 1st Circuit ruled in a separate case that investors may not sue an issuer over mortgage-backed securities they did not purchase.
Goldman's shares were down 2.1% midday Monday.