Goldman, Morgan Stanley win dismissal of investors’ Archegos lawsuits

By Jonathan Stempel

NEW YORK (Reuters) -A U.S. judge on Friday dismissed seven lawsuits by investors who accused Goldman Sachs Group Inc and Morgan Stanley of market manipulation and insider trading before the collapse of Bill Hwang’s $36 billion Archegos Capital Management LP.

U.S. District Judge Paul Crotty in Manhattan rejected claims that the Wall Street banks, two of Archegos’ prime brokers, should be liable for dumping stocks they knew Archegos would be forced to sell after failing to meet margin calls in March 2021.

Investors who bought the stocks, which included ViacomCBS, Discovery and Baidu, said the combined selling left them with huge losses, while enabling Goldman and Morgan Stanley to avoid billions of dollars of their own losses.

Crotty, however, said the investors failed to adequately allege that the banks breached any duty toward or concealed their selling from Archegos.

He also found no proof that Goldman and Morgan Stanley breached any duty to shareholders of the seven companies by virtue of having traded after Archegos gave them material nonpublic information about its financial distress.

Lawyers leading a committee representing the investors did not immediately respond to requests for comment. Crotty gave the investors a chance to amend their complaint.

Archegos’ collapse stemmed from its founder Hwang’s aggressive use of total return swaps, a type of financial contract, to boost the effective size of his market positions.

The New York-based firm’s demise caused billions of dollars in losses for banks such as Credit Suisse Group AG, which agreed on March 19 to be acquired by Swiss rival UBS AG, and Nomura Holdings Inc.

U.S. prosecutors filed criminal fraud charges against Hwang in April 2022 for being the alleged mastermind of a vast market manipulation scheme at Archegos.

Hwang has pleaded not guilty. On March 23, another judge refused to dismiss the indictment, which Hwang said prosecutors obtained by tricking him into cooperating with their probe and divulging his defense strategy.

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 Jonathan Oatis and Richard Chang)