State Supreme Court Justice Charles Ramos dismissed the claims against Goldman Sachs today, saying the investors only reviewed data presented in offering documents for the securities and never asked to review files for the underlying loans.
“The true nature of the risk being assumed could, admittedly, have been ascertained from reviewing these loan files and plaintiffs never asked for them,” Ramos wrote.
Therefore, according to Ramos, if I sell you a box that is labeled 100% Grade A Chocolate and in fact there are dog turds in there I have committed no crime because you could have insisted on a bite before you paid me — and didn’t.
If you’re “sophisticated” enough to discern that you could ask for proof of my claims, and don’t, then it’s not a fraud upon you nor can you recover for my lie when it turns out that in fact what’s in the box is dog turds.
That’s the essence of this ruling — and it eviscerates the entire purpose of a law making fraud a crime (and a civilly-actionable event) in the first instance, in that anyone can demand strict proof.
Either I can rely on the label (in this case the offering prospectus) or I can’t. The fact of the matter is that all of these securities came with offering circulars and prospectuses that made representations as to the quality of the loans in them. Those representations were false and yet what this dismissal says is that as a matter of law if I don’t require you to prove the representations you make then the fault is mine — not yours — even if what you represent is not true and (as was the case here) you’re in possession of the data to know it’s false.
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