Goldman Sachs, Morgan Stanley Win Appeals Over Investor Claims in Archegos Collapse

Goldman Sachs and Morgan Stanley scored a major legal victory Tuesday after a U.S. appeals court rejected investor lawsuits seeking to hold them liable for losses tied to the March 2021 collapse of Archegos Capital Management, the $36 billion family office run by Bill Hwang.

In a unanimous 3–0 decision, the 2nd U.S. Circuit Court of Appeals in Manhattan found that Archegos was not an insider that owed fiduciary duties to the companies whose stock positions it amassed. As a result, the court concluded the banks could not be held responsible for alleged market-timing or tipping before Archegos’ meltdown.

Circuit Judge Maria Araujo Kahn, writing for the panel, said there was no proof that Goldman and Morgan Stanley “agreed to act in Archegos’ best interest” or that they tipped preferred clients about Archegos’ travails — facts central to the investors’ claims. The ruling upholds a March 2024 dismissal by U.S. District Judge Jed Rakoff in Manhattan and resolves seven related appeals (In re Archegos 20A Litigation, Nos. 24-1159, 24-1161, 24-1162, 24-1166, 24-1173, 24-1177, and 24-1178).

Plaintiffs had accused Goldman, Morgan Stanley, and other prime brokers of using advance knowledge of Archegos’ inability to meet margin calls to dump billions of dollars of Hwang’s favored stocks — including ViacomCBS, Discovery, and five Chinese companies such as Baidu — thereby accelerating price declines and inflicting losses on other shareholders.

How Archegos imploded

Archegos built massive, concentrated positions using total return swaps and similar contracts, creating what regulators and market participants called highly leveraged, opaque exposure (estimates of related exposure at the time approached $160 billion). When prices of core holdings fell, Archegos could not meet margin calls, triggering a rapid unwind that produced billions in losses for counterparties.

Credit Suisse suffered some of the largest write-downs and was later acquired by UBS; Nomura and several other banks also reported heavy losses.

Bill Hwang and Archegos’ former CFO Patrick Halligan were convicted of fraud in July 2024. Hwang received an 18-year sentence; Halligan received eight years; both are appealing and remain free on bail.

While the appeals court shielding Goldman and Morgan Stanley from these investor suits narrows civil exposure, legal and regulatory consequences continue to ripple through the banking sector. In July, Goldman, Morgan Stanley and Wells Fargo agreed to pay a combined $120 million to settle a suit by former ViacomCBS shareholders who alleged conflicts of interest tied to prime broker relationships with Archegos.

Why Archegos changed the conversation about derivatives and hedge fund transparency

Beyond courtroom rounds and shareholder lawsuits, Archegos left an outsized imprint on policy debates in Washington and at U.S. financial regulators. The episode exposed how large exposures can accumulate off-balance-sheet via swap contracts and prime broker arrangements, and it triggered renewed scrutiny of disclosure, market structure, and risk controls.

Archegos was not a registered hedge fund; it operated as a family office and used derivatives to achieve large economic exposure without holding the equivalent equity positions on public records. That opacity — and the speed with which the unwind produced extreme losses for some global banks — prompted lawmakers, regulators, and market participants to press for reforms aimed at reducing systemic blind spots:

• Policymakers and market observers focused on the role of total return swaps and other non-cleared derivatives in allowing private vehicles to magnify risk without public disclosure. Proposals discussed in the aftermath included expanded reporting requirements to regulators for large swap positions and enhanced transparency around prime broker flows.
• Regulators and industry groups revisited how prime brokers monitor. counterparties’ aggregate exposures, the adequacy of intraday margin calls, risk-based concentration limits, and how quickly firms can and should act when clients approach distress. The speed of the Archegos unwind prompted calls for more conservative margining and earlier risk mitigation.
• The crisis fed a debate over whether more types of economically significant swap exposure should be centrally cleared or otherwise standardized to reduce bilateral counterparty contagion.
• Lawmakers questioned the regulatory blind spot that family offices occupied compared with registered investment advisors and funds. Some policymakers argued for tailored disclosure rules for very large private investment vehicles that wield systemic economic influence.

Regulatory activity and political attention

In the months after the collapse, congressional committees held hearings, asking bank CEOs and regulators to explain what happened and what steps had been taken to prevent a repeat. Regulators—including staff at the Securities and Exchange Commission and the Commodity Futures Trading Commission, as well as bank supervisors—said they were reviewing the episode to identify gaps in supervision and market safeguards.

Crucially, the Archegos fallout did not produce a single, sweeping legislative overhaul. Instead, it sharpened the agenda across multiple forums.

Thus, Tuesday’s 2nd Circuit ruling removes a major avenue of investor claims against Goldman Sachs and Morgan Stanley tied to the Archegos collapse and cements the legal finding that Archegos was not a corporate “insider” in the way the plaintiffs alleged.