Goldman Sachs and Morgan Stanley Accused of Stock Dump, Trading on Insider Information

The New York Law Journal is reporting that investors in the Chinese company Tencent Music Entertainment Group have sued Goldman Sachs Group Inc. and Morgan Stanley, accusing the investment banks of using insider information to dump shares of the firm in March.

The lawsuit, filed last week in Manhattan federal court, named both Goldman and Morgan Stanley over a massive stock sell-off triggered by Archegos Capital Management’s failure to meet a margin call.  In the filing, a plaintiff who bought up the bank’s offloaded Tencent shares accused Goldman and Morgan Stanley of failing to disclose the key context behind their sales, leading to big investor losses. The allegations are that Goldman and Morgan Stanley, which both served as Archegos’ prime brokers, knew about the coming default as early as March 22, and used that information to unload large block trades of shares tied to Archegos’ doomed bets, in order to avoid billions of dollars in losses.

While news of Archegos’ default became public March 27, the lawsuit cited reporting by CNBC that Goldman had quietly sold about $5 billion in affected stock before the story burst into public view. Investors, who then bought up those shares, saw their prices plummet in the subsequent days.

Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC treats the detection and prosecution of insider trading violations as one of its enforcement priorities.  Investment bankers, accountants, lawyers and employees typically have access to inside information.  The federal securities laws prohibit these so-called “insiders” from trading on the basis of their inside knowledge, and they may be sued civilly for investment fraud either by the Securities and Exchange Commission (“SEC”) or by private parties if they trade in securities while in possession of inside information. Remedies include disgorgement and damages for investors who purchased from or sold to someone in possession of inside information.  Despite these deterrents, insider trading continues to happen all too frequently.

If you have questions or concerns about whether you have been the victim of a stock dump tied to insider information, Sanford Heisler Sharp has a number of financial services lawyers in San Diego, New York and Washington, D.C. with extensive experience dealing with complex investment data and investor documents to evaluate whether you have been the victim of investment fraud.

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