Goldman Sachs, Morgan Stanley defeat Archegos traders’ insider buying and selling appeals

By Jonathan Stempel

NEW YORK (Reuters) -Goldman Sachs (GS) and Morgan Stanley (MS) defeated appeals by traders who stated the banks’ market manipulation and insider buying and selling fueled the March 2021 collapse of Archegos Capital Administration, the $36 billion household workplace run by the since-convicted Invoice Hwang.

In a 3-0 choice on Tuesday, the 2nd U.S. Circuit Courtroom of Appeals in Manhattan stated Archegos was not an insider that owed fiduciary duties to corporations whose shares it owned.

This meant Archegos didn’t make Goldman and Morgan Stanley chargeable for allegedly entrance working the market by tipping them about its impending collapse, the courtroom stated.

Goldman and Morgan Stanley have been accused in seven lawsuits of utilizing their information of Archegos’ illiquidity to dump billions of {dollars} of Hwang’s favourite shares together with ViacomCBS, Discovery, and 5 Chinese language corporations equivalent to Baidu.

Buyers in these shares stated the Wall Avenue banks, which had been two of Archegos’ prime brokers, ought to cowl their losses as a result of they knew Hwang couldn’t meet margin calls and in addition needed to promote.

Legal professionals for the traders didn’t instantly reply to requests for remark. Goldman and Morgan Stanley declined to remark.

Archegos’ collapse stemmed from Hwang’s use of monetary contracts referred to as whole return swaps to construct an estimated $160 billion of inventory publicity.

The collapse additionally brought about billions of {dollars} in losses for banks equivalent to Credit score Suisse, which was later purchased by Swiss rival UBS, and Japan’s Nomura Holdings.

Writing for the appeals courtroom, Circuit Choose Maria Araujo Kahn additionally stated Goldman and Morgan Stanley didn’t comply with act in Archegos’ finest curiosity, and located no proof they tipped most popular shoppers about its travails.

Hwang and former Archegos chief monetary officer Patrick Halligan have been convicted of fraud in July 2024, and later sentenced to 18 years and eight years in jail, respectively.

Each are interesting and free on bail. Hwang created Archegos in 2013, after his Tiger Asia funds settled a U.S. Securities and Change Fee insider buying and selling case the prior December.

In July, Goldman, Morgan Stanley and Wells Fargo agreed to pay a mixed $120 million to settle a lawsuit by former ViacomCBS shareholders who stated the banks hid conflicts of curiosity.

Tuesday’s choice upheld a March 2024 dismissal by U.S. District Choose Jed Rakoff in Manhattan.

The circumstances are In re Archegos 20A Litigation, 2nd U.S. Circuit Courtroom of Appeals, Nos. 24-1159, 24-1161, 24-1162, 24-1166, 24-1173, 24-1177 and 24-1178.

(Reporting by Jonathan Stempel in New York; Modifying by Matthew Lewis)