Goldman, Morgan Stanley win dismissal of lawsuits over Archegos collapse

By Thomson Reuters Mar 28, 2024 | 4:33 PM

By Jonathan Stempel

NEW YORK (Reuters) – A U.S. judge on Thursday dismissed seven lawsuits by investors who accused Goldman Sachs Group Inc and Morgan Stanley of misconduct that fueled the rapid March 2021 collapse of Bill Hwang’s $36 billion firm Archegos Capital Management.

U.S. District Judge Jed Rakoff in Manhattan dismissed the investors’ market manipulation and insider trading claims with prejudice, meaning they cannot be brought again.

A different judge had dismissed the lawsuits last March, but let the investors sue Goldman and Morgan Stanley again. The Wall Street banks had been two of Archegos’ prime brokers.

Archegos’ collapse stemmed from Hwang’s use of financial contracts known as total return swaps to take outsized stakes in his favorite holdings including ViacomCBS, Discovery and Baidu, building an estimated $160 billion of stock exposure.

Investors in Hwang’s stocks sought to hold Goldman and Morgan Stanley liable for selling those stocks, based on their inside knowledge that Hwang would also be a seller because he was unable to meet margin calls.

The investors said the combined selling saddled them with huge losses, while Goldman and Morgan Stanley escaped billions of dollars of losses of their own.

In a one-paragraph order, Rakoff did not explain his reasoning and said an opinion would follow in due course.

Lawyers representing the investors did not immediately respond to requests for comment. Goldman did not immediately respond to similar requests. Morgan Stanley declined to comment.

Archegos’ collapse caused billions of dollars in losses for banks such as Credit Suisse, which was later bought by Swiss rival UBS, and Japan’s Nomura Holdings.

Hwang and former Archegos Chief Financial Officer Patrick Halligan face a scheduled May 8 criminal trial in Manhattan over their roles in the collapse.

Both pleaded not guilty to securities fraud, wire fraud and racketeering conspiracy charges. Hwang has also pleaded not guilty to separate market manipulation charges. The trial could last months.

The investor lawsuits in the U.S. District Court, Southern District of New York are Tan v. Goldman Sachs Group Inc et al, No. 21-08413; Florio v. Goldman Sachs Group Inc et al, No. 21-08618; Merson v. Goldman Sachs Group Inc et al, No. 21-08752; Ulanch v. Goldman Sachs Group Inc et al, No. 21-08897; Felix v. Goldman Sachs Group Inc et al, No. 21-10286; Scully v. Goldman Sachs Group Inc et al, No. 21-10791, and Lee v. Goldman Sachs Group Inc et al, No. 22-00169.

(Reporting by Jonathan Stempel in New York; Editing by Daniel Wallis)