Vipshop Holdings, a Chinese e-commerce company has sued Goldman Sachs and Morgan Stanley in New York accusing both companies of utilizing inside information to dump blocks of shares of two companies under Archegos Capital Management earlier this year after the firm defaulted on margin calls in March of 2021.
Vipshop accuses both firms of knowing in advance that Archegos’ collapse was imminent, long before the information became public. In order to minimize their losses, the firms sold their shares prior to the news of the Archegos collapse. By doing so, the firms both avoided losses they would have suffered had they waited.
Most of the shares sold by the firms were from two companies:
- Baidu Inc., a large Chinese tech company specializing in artificial intelligence (AI),
- Farfetch Ltd, an e-commerce company based in London that sells high-end luxury goods from boutiques around the world.
Goldman Sachs and Morgan Stanley sold off these stocks between March 22, 2021, and March 29, 2021.
Both firms knew that once the news became public that Archegos was unable to meet the margin call, they would be required to sell their stock in both Baidu Inc. and Farfetch Ltd. at a substantial loss. By selling large blocks of the two company’s stocks ahead of time, both firms avoided these losses, at the expense of other investors.
Archegos Capital Management and Farfetch Ltd
While Bill Hwang isn’t really a household name, he quietly became one of the world’s richest individuals through his family office, Archegos Capital Management. As a “family office,” Archegos is not subject to the same regulatory scrutiny as a larger firm. These privately held companies handle wealth management for one family that generally has at least $100 million in assets. The idea is to grow the wealth for transfer to upcoming generations. In this case, Hwang is the ultra-high-wealth individual that Archegos services.
Hwang’s beginnings at Hyundai Securities in the early 1990’s led to working under the auspices of Julian Robertson at Tiger Management. He went on to found Tiger Asia Management with $25 million from Robertson. However, Hwang found himself the target of allegations of insider trading in 2012 and paid $44 million to resolve the case. Wall Street backed away from him for many years.
After closing Tiger Asia, he founded private investment firm Archegos Capital Management. He leveraged his talent for choosing stocks and grew its assets over 4900%, to $10 billion. Over time, banks began working with him again, Goldman Sachs being the last to sign on.
Hwang invested in a small number of companies. Things went well until some of the companies began to have losses at the same time. The result was that Archegos was unable to supply more cash when the banks requested more collateral. At that point, Archegos lost over $10 billion in just two days losing money in Farfetch Ltd, Baidu and other stocks.
Insider trading is the practice of utilizing confidential, nonpublic information to one’s advantage in the trading of securities. Many high-profile cases of insider trading make the news, and some individuals are charged and occasionally arrested.
In the case of Goldman Sachs and Morgan Stanley, the allegations mean that they were aware of Archegos’ collapse long before the information became public. Trading on that nonpublic information left other investors to lose from the eventual outcome of the margin call.
It’s an unfair and frequently illegal tactic because other investors aren’t aware of the nonpublic “insider” information and leaves them at a distinct disadvantage. Investors who have this kind of information before it happens can profit greatly at the expense of other investors.
Insider trading goes against the SEC’s mission to maintain a fair marketplace. This nonpublic information may also impact the investor’s decision on whether to buy or sell. By keeping this information out of the public domain, many investors can lose out if they are unaware of something significant.
Did You Lose Money in Farfetch Ltd?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.