Fulton County Employees' Retirement System v. Blankfein

Background

Fulton County Employees’ Retirement System brought a shareholder derivative action on behalf of The Goldman Sachs Group Inc. against current and former Goldman Sachs directors and officers. A derivative action is brought by a shareholder on behalf of a corporation for alleged harm to the corporation.

The claims arose from Goldman affiliates’ role as underwriters for three 1MDB bond offerings in 2012 and 2013 totaling $6.5 billion. The plaintiff alleged that hundreds of millions of dollars were diverted to shell companies controlled by Malaysian financier Jho Low. The complaint asserted claims for breach of fiduciary duty, unjust enrichment, contribution and indemnification, and violations of Sections 10(b) and 14(a) of the Securities Exchange Act of 1934.

The opinion states that Goldman entered into a deferred prosecution agreement with the United States Department of Justice and that Goldman and several affiliates reached criminal and civil resolutions related to 1MDB, resulting in more than $5 billion in fines, penalties, and disgorgement. The court expressly stated that its factual-background discussion was for background only and was not intended to be factual findings.

Procedural History

The plaintiff filed the action in February 2019 and later filed amended complaints. Defendants’ motion to dismiss the Second Verified Amended Shareholder Derivative Complaint was pending when the plaintiff moved for preliminary approval of the settlement in May 2022. The settlement motion was unopposed.

Settlement Terms and Court’s Analysis

The proposed agreement resulted from negotiations, including a two-day mediation. The parties accepted a mediator’s proposal on February 3, 2022, and later finalized and executed the agreement on May 13, 2022. After mediation, the plaintiff reviewed and analyzed more than 667,000 pages of Goldman documents.

The agreement includes a $79.5 million monetary component. Goldman agreed that the funds, less the amount allocated to attorneys’ fees, would be used for compliance purposes. The agreement also includes corporate-governance reforms directed at Goldman’s compliance program. These reforms require strong support for anti-corruption policies and compliance codes, periodic reporting by the chief compliance officer to the audit committee, possible use of internal and external investigators, an anonymous employee hotline, and designation of an outside party to monitor media and industry reports raising compliance concerns.

The court concluded that the agreement appeared to result from good-faith, arm’s-length negotiations, had no obvious deficiencies, and fell within the range of possible approval. The court considered the risks of continued litigation, including the difficulty of proving the plaintiff’s oversight claim under the legal standard discussed in the opinion. The agreement’s attorneys’ fees and expenses were capped at 25% of the monetary consideration, but the court stated that supporting affidavits and billing records would be examined at the final-approval stage.

Notice to the Class

The court reviewed a proposed notice plan that would provide the settlement documents through a filing with the Securities and Exchange Commission, a link on Goldman’s Investor Relations website, and publication of a summary notice in the Wall Street Journal, the New York Times, and through a national wire service. The court found that the plan was the best notice practicable under the circumstances, satisfied due-process requirements, and met the requirements of Federal Rule of Civil Procedure 23(c)(2)(B).

Disposition

Judge Vernon S. Broderick granted the plaintiff’s unopposed motion for preliminary approval. He preliminarily approved the settlement agreement and the proposed notice plan. The court stated that it would approve the settlement procedure and schedule in a separate order and directed the Clerk of Court to close the open motions. The opinion did not grant final approval of the settlement.