In question in this scandal is whether Goldman Sachs showed ethical behavior. What is not in question is that Goldman Sachs could have lost up to $13 billion if it failed to sway the United States Court of Appeals for the Second Circuit, in New York.
2008 Financial Crisis
The case goes back to before the financial crisis of 2008, where the investment bank had positioned itself with slogans such as: “Our clients’ interests always come first,” and “Integrity and honesty are at the heart of our business.”
In the view of the investors suing the organization, the statements gave them a false sense of security. They were purchasing what has been referred to as “complex debt instruments” from the investment bank.
According to The New York Times (June 21, 2021):
“The investors argued that the statements were at odds with what they said were conflicts of interest at the bank, which they accused of packaging and selling securities intended to fail even as it and its favored clients bet against them. Goldman has denied deceiving investors.”
Therefore, on one side of the equation is the investment bank claiming it should not be liable to investors for certain “conflicts of interest” which might have resulted in failure, versus investors who pointed to the “ethical statements” as to how the bank represents itself.
The contention was so serious that the case was kicked up to The Supreme Court. The justices came to the conclusion that in the course of the litigation the two sides have moved closer to the middle.
Argued Justice Amy Coney Barrett said for the majority opinion “They’ve [the investors] backed off on how important they think generality is and whether it can be decided categorically. But you’ve [Goldman Sachs] also conceded that generality is relevant.”
In other words, when the case goes does come back to the lower court, the two sides will undoubtedly argue over the complexity of the investment and whether the conflicts of interest were serious enough to warrant a lawsuit, but the statements about integrity and honest and all that, will be in the background.
Watch What You Say
Nevertheless, the Goldman Sachs case does warrant us to stop and to take a close look at “what we do,” versus “what we say.” A potential, massive lawsuit was just hanging in the balance as the result of boiler-plate copy churned out by the Goldman Sachs advertising department.
The copy made generalized and substantial claims about how ethical the firm was. It did not line up with the confusion and complexity created by the failed, “complex financial instruments.”
It is easy for us to assume that since the generalized copy on ethical behavior such as “our clients interests come first,” was disallowed in this instance by the Supreme Court, that any future ethically-oriented statements by a company would also be disallowed.
It would be quite foolhardy to think so.
The use of statements claiming a high degree of ethics and then seeing an egregious violation of that policy might very well result in a massive lawsuit next time around. Also, let’s not forget that the “ethics language” in the copy got the case to be argued before the Supreme Court in the first place. It was important enough to do so.
The seriousness of this issue can best be summarized by understanding that if an organization claims to be ethical, it must be ethical. It almost cost Goldman Sachs $13 billion to realize that.
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