June 26, 2012

In a case of first impression, the District Court for the Southern District of New York on June 21, 2012, dismissed a class action claim that Goldman Sachs (Goldman) committed securities fraud by failing to disclose that it had received from the Securities and Exchange Commission (SEC) a Wells Notice indicating that the staff intended to recommend that the SEC bring an action against Goldman for alleged fraud in connection with Goldman’s Abacus Synthetic collateralized debt obligations.  At the same time, the court refused to dismiss the class action claim that the Abacus debt obligation transaction itself was fraudulent. Richman v. Goldman Sachs Group, Inc., Case No. 1:10-cv-03461-PAC (S.D.N.Y., June 21, 2012).  The issue of whether a Wells Notice must be reported has long been a difficult question, generally addressed by securities counsel on a case-by-case, facts-and-circumstances basis.  This client alert reviews the basis for and impact of this decision on reporting duties under SEC Regulation S-K, Item 103 and Rules 12b-20 and 408.