Goldman Sachs, Morgan Stanley Prevail in Archegos Investor Appeals

Appeals Court Affirms Goldman Sachs, Morgan Stanley Victory in Archegos-Related Lawsuits

NEW YORK – Goldman Sachs Group Inc. and Morgan Stanley have secured a significant legal victory, with the 2nd U.S. Circuit Court of Appeals in Manhattan ruling 3-0 in their favor on Tuesday, September 16, 2025. The unanimous decision dismisses investor lawsuits that sought to hold the financial giants liable for losses stemming from the March 2021 collapse of Archegos Capital Management, the $36 billion family office founded by Bill Hwang.

The Legal Event in Detail

The appeals court explicitly found that Archegos was not an "insider" that owed fiduciary duties to the public companies whose stock positions it amassed. Consequently, the court concluded that Goldman Sachs and Morgan Stanley could not be held responsible for alleged market-timing or tipping before Archegos' meltdown. This ruling upholds a March 2024 dismissal by U.S. District Judge Jed Rakoff and resolves seven related appeals.

Plaintiffs had accused Goldman Sachs, Morgan Stanley, and other prime brokers of leveraging advance knowledge of Archegos' inability to meet margin calls to rapidly liquidate billions of dollars of Hwang's favored stocks, including ViacomCBS, Discovery, and Baidu. This action, they alleged, accelerated price declines and inflicted losses on other shareholders. However, the appellate court rejected these claims.

Analysis of Market Reaction and Legal Precedent

This legal triumph for Goldman Sachs and Morgan Stanley is likely to be viewed as a positive development for the financial sector, particularly for large investment banks involved in prime brokerage. The resolution removes a significant legal overhang, reducing uncertainty regarding potential liabilities from the Archegos collapse. While specific stock movements for GS and MS were not immediately tied to this announcement in the provided materials, the reduction of legal exposure typically supports investor confidence in the affected institutions.

Circuit Judge Maria Araujo Kahn, writing for the panel, underscored the court's reasoning:

There was no proof that the banks "agreed to act in Archegos' best interest" or that they tipped preferred clients about Archegos' financial difficulties.

This statement is central to the court's finding that the relationship between the prime brokers and Archegos was "at arm's length," rather than one implying insider knowledge or a fiduciary duty that would prevent the banks from trading to mitigate their own risks.

Broader Context and Implications for Prime Brokerage

The ruling has substantial implications for the broader financial markets and investor sentiment, particularly within the prime brokerage industry. It provides a clear legal precedent that major banks acting as prime brokers have a limited scope of liability when clients, such as large family offices, face financial distress and collapse. This clarification of responsibility boundaries could encourage continued robust activity in this segment of the market by offering greater legal certainty.

It is important to note that, in a separate but related development, Goldman Sachs, Morgan Stanley, and Wells Fargo previously agreed to pay a combined $120 million in July to settle a lawsuit by former ViacomCBS shareholders. This earlier settlement addressed allegations of conflicts of interest tied to prime broker relationships with Archegos, highlighting the multi-faceted financial fallout from the family office's collapse.

Looking Ahead

While this appeals court decision limits the civil exposure of Goldman Sachs and Morgan Stanley to these particular investor suits, the broader legal and regulatory repercussions continue to affect the banking sector. The Archegos episode exposed how large exposures can accumulate off-balance-sheet via swap contracts and prime broker arrangements, triggering renewed scrutiny of disclosure, market structure, and risk controls by regulators including the U.S. Securities and Exchange Commission (SEC).

Despite the clear victory for the banks in this appeals case, the regulatory environment may continue to evolve to address vulnerabilities highlighted by Archegos. Investors will likely monitor future regulatory proposals and potential further legal actions, although the immediate legal avenue for these specific investor claims against Goldman Sachs and Morgan Stanley has been closed by this ruling. The question of whether the original Archegos investors will pursue further appeals, such as to the Supreme Court, remains unaddressed in current reports.