- Litigation claims unadequately disclosed conflicts prompted fall of sales of ViacomCBS shares.
- The loss of Archegos brought up almost 10B and shook the big financial institutions.
Morgan Stanley, Goldman Sachs and Wells Fargo will settle claims associated with the implosion of Archegos Capital Management by paying 120 million dollars in total. The settlement resolves a case against the banks over the covert dealings of conflicts in the sales of ViacomCBS shares that led to the demise of the investment firm.
The case is based on the 2021 implosion of Archegos, a family office run by Bill Hwang that lost it all after margin calls on loans to purchase major shareholdings in ViacomCBS and other shares. The investors accuse the banks that acted as prime brokers to Archegos of concealing their own holdings and selling stocks of ViacomCBS to keep their losses at a minimum.
Investors Allege Concealed Conflicts Behind the Scenes
The shareholders of ViacomCBS, which recently changed its name to Paramount Global, sued the three banks, alleging that they did not disclose the conflicts in underwriting a March 2021 offering of the company stock. Market support for this secondary offering was not sufficient and this caused a crisis which revealed the risky bets made by Archegos.
Morgan Stanley was the underwriter for the ViacomCBS offering, and the company was responsible for roughly 45 percent of the offering. Both Goldman Sachs and Wells Fargo made donations that were not as significant, with the former donating around 3.2 percent and the latter contributing less than 2 percent. Investors said that the banks were more concerned with protecting their own self-interests than with maintaining openness, which resulted in an increase in losses.
The compensation was carried out despite the fact that the banks had not acknowledged responsibility for the wrongdoing. The fact that they have made this decision indicates that they do not want to spend years on the court in order to finance exorbitant fees and become preoccupied. The breakdown of payments among the banks is kept a secret inside the organization.
Fallout From Archegos Shakes Finance Industry
The collapse of Archegos resulted in losses of about ten billion dollars for the company’s clients, as well as enormous losses for a number of the most prominent financial institutions, including Credit Suisse of Switzerland. Last year, Bill Hwang and Archegos chief finance officer were found guilty of defrauding banks by misstating trading capacity artificially inflating stock prices including ViacomCBS.
As investors seek to hold market leaders accountable, the regulatory and legal fallout is still being felt throughout wall street. The settlement of 120 million dollars is a landmark event, coming as it does after many years of litigation, and a reminder that there remains a fear of transparency and risk management in the prime brokerage relations.
