U.S. District Judge Jed Rakoff dismissed seven lawsuits against Goldman Sachs and Morgan Stanley related to the collapse of Archegos Capital Management. The dismissal includes claims of market manipulation and insider trading, barring their re-filing.
The decision follows a previous dismissal by another judge last March, which allowed investors to pursue claims against the banks again.
Goldman and Morgan Stanley, as prime brokers for Archegos, faced allegations of selling stocks while possessing inside knowledge of Hwang’s margin call struggles.
Causes of Archegos’ Collapse
Archegos’ downfall was triggered by Bill Hwang’s extensive use of total return swaps to accumulate substantial stakes in companies like ViacomCBS, Discovery, and Baidu. This strategy led to an estimated $160 billion exposure to the stock market.
Investors blamed Goldman and Morgan Stanley for exacerbating losses by offloading stocks based on foreknowledge of Hwang’s need to sell. While investors suffered significant losses, the banks managed to avoid substantial financial repercussions.
Legal Proceedings and Financial Ramifications
The collapse of Archegos resulted in significant financial losses for various banks, including Credit Suisse and Nomura Holdings.
Hwang and former Archegos CFO Patrick Halligan face criminal charges, with a trial scheduled for May 8 on securities fraud and racketeering conspiracy charges.
Despite the dismissals of investor lawsuits, the fallout from Archegos’ collapse continues to reverberate in both legal and financial arenas, with potential long-term implications for regulatory oversight and risk management.
