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Wall Street banks not liable for alleged front running

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Investors sued over losses from Archegos' 2021 collapse

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Archegos founder Hwang appealing fraud conviction

By Jonathan Stempel

NEW YORK, Sept 16 (Reuters) - Goldman Sachs ( GS ) and

Morgan Stanley ( MS ) defeated appeals by investors who said the

banks' market manipulation and insider trading fueled the March

2021 collapse of Archegos Capital Management, the $36 billion

family office run by the since-convicted Bill Hwang.

In a 3-0 decision on Tuesday, the 2nd U.S. Circuit Court of

Appeals in Manhattan said Archegos was not an insider that owed

fiduciary duties to companies whose stocks it owned.

This meant Archegos did not make Goldman and Morgan Stanley ( MS )

liable for allegedly front running the market by tipping them

about its impending collapse, the court said.

Goldman and Morgan Stanley ( MS ) were accused in seven lawsuits of

using their knowledge of Archegos' illiquidity to dump billions

of dollars of Hwang's favorite stocks including ViacomCBS,

Discovery, and five Chinese companies such as Baidu ( BIDU ).

Investors in those stocks said the Wall Street banks, which

had been two of Archegos' prime brokers, should cover their

losses because they knew Hwang could not meet margin calls and

also had to sell.

Lawyers for the investors did not immediately respond to

requests for comment. Goldman and Morgan Stanley ( MS ) declined to

comment.

HWANG, FORMER ARCHEGOS CFO APPEALING CONVICTIONS

Archegos' collapse stemmed from Hwang's use of financial

contracts known as total return swaps to build an estimated $160

billion of stock exposure.

The collapse also 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 ( NMR ).

Writing for the appeals court, Circuit Judge Maria Araujo

Kahn also said Goldman and Morgan Stanley ( MS ) did not agree to act

in Archegos' best interest, and found no proof they tipped

preferred clients about its travails.

Hwang and former Archegos chief financial officer Patrick

Halligan were convicted of fraud in July 2024, and later

sentenced to 18 years and eight years in prison, respectively.

Both are appealing and free on bail. Hwang created Archegos in

2013, after his Tiger Asia funds settled a U.S. Securities and

Exchange Commission insider trading case the prior December.

In July, Goldman, Morgan Stanley ( MS ) and Wells Fargo ( WFC ) agreed

to pay a combined $120 million to settle a lawsuit by former

ViacomCBS shareholders who said the banks hid conflicts of

interest.

Tuesday's decision upheld a March 2024 dismissal by U.S.

District Judge Jed Rakoff in Manhattan.

The cases are In re Archegos 20A Litigation, 2nd U.S.

Circuit Court of Appeals, Nos. 24-1159, 24-1161, 24-1162,

24-1166, 24-1173, 24-1177 and 24-1178.