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Pomerantz LLP announces that a class action lawsuit has been filed against Goldman Sachs Group Inc. and Morgan Stanley on behalf of investors in Tencent Music Entertainment Group. The class action, filed in the United States District Court for the Southern District of New York, and docketed under 21-cv-09564, is on behalf of all those investors who purchased or otherwise acquired Tencent shares contemporaneously with Defendants’ unlawful trades from March 22, 2021 through and including March 29, 2021 (the “Class Period”), pursuant to Sections 20A, 10(b), and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78t-1, 78j(b), and 78t(a).
If you are a shareholder who purchased Tencent’s securities during the Class Period, you have until December 27, 2021 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at newaction@pomlaw.com or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
Archegos Capital Management (“Archegos”), a family office investment fund, was founded and run by Sung Kook Hwang (“Hwang”), a former portfolio manager of Tiger Asia Management, a hedge fund he also founded.
Goldman Sachs is a global financial services institution. Goldman Sachs served as one of Archegos’ prime brokers, helping it make trades and lending it capital in the form of margin lending.
Morgan Stanley is a global financial services institution. Morgan Stanley served as one of Archegos’ prime brokers, helping it make trades and lending it capital in the form of margin lending.
Archegos described itself as focused on public stocks in the U.S., China, Japan, South Korea, and Europe. Its assets of approximately $10 billion included the likes of ViacomCBS Inc. (“ViacomCBS”), Vipshop Holdings Ltd., Discovery Inc., Farfetch Ltd. (“Farfetch”), Gaotu Techedu, Inc., Baidu Inc. (“Baidu”), iQIYI Inc., and Tencent.
Archegos took big, concentrated positions in these companies through financial instruments called “total return swaps,” whereby the underlying securities (stocks) are held by banks that broker the investments. The swaps allow investors such as Archegos to bet on stock price moves, often with high levels of leverage, without owning the underlying securities. Instead, banks buy and hold the stocks and give the fund a performance-related return. The fund secures the trades by giving the bank collateral, such as cash or equities.
These swaps also allow investors to take huge positions while posting limited funds up front, in essence borrowing from the bank, which, in turn, also enables investors the ability to maintain anonymity, even as Archegos, for example, was estimated to have had exposure to the economics of more than 10% of multiple companies’ shares. Since investors holding more than 10% of a company’s securities are deemed to be company insiders and are subject to additional regulations around disclosures and profits, these swaps were particularly beneficial to Hwang.
Moreover, Archegos utilized the leverage provided by its swaps strategy to gain exposure to more than $50 billion worth of securities. Again, this strategy was designed in part to allow Hwang a means to avoid margin limits and regulatory disclosure requirements.
Unbeknownst to investors and regulators, several large brokerage banks, including Defendants, each had simultaneously allowed Archegos to take on billions of dollars of exposure to volatile equities through swaps contracts, dramatically elevating the risk posed by these concentrated positions.
Hwang’s swaps strategy began backfiring in March as the stock price of companies in which Archegos had significant exposure, including Baidu, which saw its shares dropping in value more than 20% from its February highs, and Farfetch, which experienced a 15% decline, began to sell off.
However, it was a March 23, 2021 announcement by ViacomCBS that ultimately swept out the rug from under Archegos. On that day, in what was perceived to be an effort to take advantage of its meteoric stock price rally, ViacomCBS announced a new $3 billion offering to help fund investments in its streaming service, Paramount+, which had launched earlier in the month.
According to later reports citing people familiar with the matter, this announcement put significant stress on Archegos, since news of the deal sparked a slide in ViacomCBS’s share price, adding to Archegos’ mounting losses. In fact, according to the same report in The Wall Street Journal (published April 6, 2021), the fund had already started selling some of its position in ViacomCBS to try to offset losses, which only added pressure on the stock.
On March 24, 2021, ViacomCBS priced that offering. 20 million shares of its Class B common stock were going to be made available at $85 a share and 10 million shares of its 5.75% mandatory convertible preferred stock were going to be made available at $100 a share. In addition, the underwriters, led by Defendants (among others), were going to receive an option to purchase up to an additional 3 million Class B shares and up to an additional 1.5 million shares of mandatory convertible preferred stock. All told, ViacomCBS expected to raise $3.06 billion if both options were exercised.
Unfortunately, not all were convinced that ViacomCBS deserved such a lofty valuation. For example, on March 25, 2021, one of Wall Street’s most influential research firms, MoffettNathanson, published a report questioning the company’s value, downgrading the stock to a “sell,” and setting a price target of only $55 per share, compared to the company’s $85 offer. “We never, ever thought we would see Viacom[CBS] trading close to $100 per share,” read the report, which was written by Michael Nathanson, a co-founder of the firm. “Obviously, neither did ViacomCBS’s management,” it continued, citing the new stock offering.
In the wake of that report, ViacomCBS’s stock cratered, losing more than half its value in less than a week. Indeed, by the close of trading on Friday, March 26, 2021, ViacomCBS was worth $48 per share.
This proved to be extremely problematic for Archegos, which had traded ViacomCBS on margin (i.e., with borrowed money). Because Archegos had to maintain a certain amount of collateral to satisfy its lenders, and since the value of ViacomCBS stock drastically declined, Archegos needed enough collateral to cover, or else a margin call (where the lender can force a sell-off of the stock to bring the investor back into compliance with margin requirements), could be triggered.
On March 27, 2021, it was reported that Archegos failed to cover and, as a result, had to liquidate more than $20 billion of its leveraged equity positions on Friday, March 26, 2021.
Archegos’ fallout received wide media coverage in the days and weeks following the firm’s remarkable liquidation for a number of reasons, including the fact that it dragged some of the world’s most esteemed financial institutions into the mud alongside it.
The complaint alleges that, throughout the Class Period, Defendants sold a large number of Tencent shares during the week of March 22, 2021, while in possession of material, non-public information. According to subsequent media reports, Defendants unloaded large block trades consisting of shares of Archegos’ doomed bets, including billions worth of Tencent securities, late Thursday, March 25, 2021, before the Archegos story reached the public, sending Tencent’s stock into a complete tailspin.
As a result of these sales, Defendants avoided billions in losses combined.
Defendants knew, or were reckless in not knowing, that they were prohibited from trading based on this confidential market-moving information, but traded anyway, disposing to Plaintiff and other members of the Class their Tencent stock before the news about Archegos was announced and Tencent’s shares plummeted.
As a result, Plaintiff and the Class have been damaged from Defendants’ violations of U.S. securities laws.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomlaw.com.
CONTACT:
Robert S. Willoughby
Pomerantz LLP
rswilloughby@pomlaw.com
888-476-6529 ext. 7980
