Goldman Sachs, Morgan Stanley Class Action Alleges Companies Avoided Billions in Losses at Expense of Hedge Fund Shareholders

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Goldman Sachs, Morgan Stanley Securities Class Action Lawsuit: 

• Who: Goldman Sachs and Morgan Stanley have been hit with a class action lawsuit alleging violations of the Securities Exchange Act.
• What: A shareholder says the banks violated federal laws by committing insider trading when they used nonpublic information to sell off shares to unsuspecting public shareholders, avoiding billions of dollars of losses.
• Where: The case is pending in New York federal court.

Goldman Sachs and Morgan Stanley violated federal laws by committing insider trading when they used nonpublic information to sell off shares to unsuspecting public shareholders, avoiding billions of dollars of losses, a new class action lawsuit alleges.

Su Yan filed the lawsuit in New York accusing Goldman Sachs Group Inc. and Morgan Stanley of Securities Exchange Act violations in relation to the sale of its shares in iQIYI, Inc., an online entertainment company in China.

The banks sold Yan and other “unsuspecting and unwitting public shareholders” shares in the entertainment company after they confidentially learned that Archegos Capital Management, a family office with $10 billion under management, failed to meet a margin call, requiring it to fully liquidate its position in the company, the claim alleges.

“Defendants sold a large number of iQIYI shares during the week of March 22, 2021, while in possession of material, non-public information,” Yan alleges. “According to subsequent media reports, Defendants unloaded large block trades consisting of shares of Archegos’ doomed bets, including billions worth of iQIYI securities, late Thursday, March 25, 2021, before the Archegos story reached the public, sending iQIYI’ s stock into a complete tailspin.”

Yan says Goldman Sachs and Morgan Stanley knew, or were reckless in not knowing, that they were prohibited from trading based on confidential market-moving information but traded anyway, “disposing to Plaintiff and other members of the class their iQIYI shares before the news about Archegos was announced and iQIYI’s shares plummeted.”

Yan is suing on behalf of investors who purchased or acquired iQIYI shares due to the banks’ “unlawful trades,” saying that the investors were damaged by the banks’ violations of U.S. securities laws.

Archegos Used Swap Strategies Allowing Founder To Avoid Margin Limits, Regulatory Requirements, Lawsuit  Claims

Archegos, the capital management firm at the center of the lawsuit, used swap strategies borrowing large amounts of money to gain exposure to more than $50 billion worth of securities, the lawsuit says, allowing the founder, Hwang, a means to avoid margin limits and regulatory disclosure requirements. Unbeknownst to investors and regulators, several large brokerage banks, including Goldman Sachs and Morgan Stanley, each had allowed Archegos to take on billions of dollars of exposure to volatile equities through swaps contracts, dramatically elevating the risk posed by these concentrated positions, the claim says.

That risk eventuated in a disaster for the company, when one of its investments — ViacomCBS — saw its stock price fall dramatically and the company did not have enough collateral to cover the its stock. Archegos had to liquidate more than $20 billion of its leveraged equity positions, causing billions in losses for some of the world’s most esteemed financial institutions, including Credit Suisse. However, Goldman Sachs and Morgan Stanley avoided losses by selling billions in shares of Archegos’ doomed bets in the days before the Archegos story reached the public, according to media reports

“As a result of these sales, which were made with confidential, insider information, including that iQIYI was among the few securities Archegos had to liquidate, Defendants Goldman Sachs and Morgan Stanley avoided billions in losses combined,” Yan says.

Yan seeks damages, legal fees and costs, interest, disgorgement and a jury trial.

Have you ever been affected by a company’s insider trading? Let us know in the comments section below!

Yan is represented by Jeremy A. Lieberman, J. Alexander Hood II and James M. LoPiano of Pomerantz LLP.

The Goldman Sachs, Morgan Stanley Insider Trading Class Action Lawsuit is Yan v. Goldman Sachs Group Inc. et al., Case No. 1:21-cv-10999 in the U.S. District Court Southern District of New York

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