Goldman Sachs Class Securities Fraud Lawsuit is Dismissed

A class securities fraud lawsuit against Goldman Sachs & Co. was dismissed by the U.S. District Court for the Southern District of New York. The lawsuit had charged that a Goldman Sachs & Co. senior analyst issued false research reports with inflated projections of Exodus Communications Inc.’s financial growth on more than one occasion.

Judge Thomas Griesa granted the motion to dismiss after deciding that the second amendment complaint “fails to adequately plead loss causation.” The court dismissed the original lawsuit filed by Exodus investors based on the same grounds.

The Allegations:

Goldman Vice President of Investment Research and Senior Technology Analyst Matthew Janiga was the analyst appointed by Goldman Sachs to cover Exodus because he was known for letting investment bankers influence his published opinions. Janiga put Exodus on the “recommended list” in January 11, 2001. Just one day prior, Exodus closed a $1.9 billion acquisition. Goldman Sachs served as the strategic adviser on the deal.

On January 24, Exodus’s stock dropped dramatically during after-hours trading. Investment bankers from Goldman Sachs allegedly were working on Exodus’s debt and equity offerings scheduled to launch in February. On the first day of the class period, and to avoid any adverse effects, Janiga allegedly published a note that reemphasized and defended his recommended list rating.

According to the plaintiffs, Janiga repeated this alleged ‘cycle of deception’ for the entire class period-predicting in its reports that Exodus would rebound from its weak beginning in 2001 during the second quarter. Janiga reportedly made specific numerical projections indicating this recovery.

Janiga finally began to publish reports about its doubts regarding Exodus’s performance between June 14- 21. Exodus filed for bankruptcy in September.

The court granted the defendant’s motion to dismiss. It said that although the fraud on the market theory is applicable to cases involving analyst reports, the plaintiffs failed to properly allege lost causation and the complaint must therefore be dismissed.

As a victim of securities fraud, you must speak with an experience securities fraud attorney who can help you. Shepherd Smith and Edwards has successfully represented clients throughout the U.S. Contact Shepherd Smith and Edwards today.