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Several lawsuits against Goldman Sachs Group Inc and Morgan Stanley have been dismissed by a U.S. judge in connection with the rapid collapse of Bill Hwang’s USD 36 billion firm, Archegos Capital Management, in March 2021. The lawsuits, which accused the banks of misconduct fueling the collapse, were dismissed with prejudice, meaning they cannot be brought again. The banks had served as prime brokers for Archegos.
The collapse of Archegos was triggered by Hwang’s significant use of total return swaps to amass large stakes in companies like ViacomCBS, Discovery, and Baidu, leading to an estimated USD 160 billion in stock exposure. Investors in these stocks sought to hold Goldman and Morgan Stanley accountable for their alleged insider knowledge that Hwang would be forced to sell due to margin calls, thereby affecting the market.
Despite the claims by investors that they suffered substantial losses while the banks avoided significant losses of their own, U.S. District Judge Jed Rakoff in Manhattan dismissed the lawsuits without providing an explanation for his decision. The dismissal marks a significant legal victory for Goldman Sachs and Morgan Stanley in the aftermath of the Archegos collapse.
While lawyers representing the investors did not immediately comment, Goldman Sachs and Morgan Stanley declined to offer immediate responses. The collapse of Archegos resulted in substantial losses for various banks, including Credit Suisse, which was later acquired by Swiss rival UBS, and Japan’s Nomura Holdings.
Hwang and former Archegos Chief Financial Officer Patrick Halligan are scheduled to face a criminal trial in Manhattan over their roles in the collapse. Both have pleaded not guilty to securities fraud, wire fraud, and racketeering conspiracy charges. Hwang has also pleaded not guilty to separate market manipulation charges, with the trial expected to last several months.
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