Tan v. Goldman Sachs Group Inc.

Background

The court considered ten nearly identical proposed class actions, called the “Archegos Actions,” brought by purchasers of stocks issued by ViacomCBS Inc., Vipshop Holdings Ltd., Discovery Inc., Farfetch Ltd., Tencent Music Entertainment Group, Baidu Inc., IQIYI Inc., and Gaotu/GSX Inc. The plaintiffs allege that Goldman Sachs Group Inc. and Morgan Stanley engaged in insider trading related to Archegos Capital Management’s positions in those stocks. The opinion describes Archegos as a private family capital firm formed to manage Bill Hwang’s personal assets.

According to the allegations summarized by the court, Archegos held heavily leveraged positions through total return swaps. After ViacomCBS stock fell by more than 50 percent between March 23 and March 26, 2021, Archegos was forced to liquidate approximately $20 billion in positions. Plaintiffs allege that other investors sold at “fire sale prices,” while Goldman Sachs and Morgan Stanley had already sold billions of dollars of Archegos-related positions before the firm’s collapse became public.

The ten complaints assert identical causes of action based on the same alleged conduct, defendants, and time periods. They differ mainly in the proposed classes, which are based on the issuer of the purchased stock. Two actions concern Vipshop stock, two concern IQIYI stock, two concern Tencent stock, and one each concerns Gaotu, Baidu, Discovery, and ViacomCBS stock.

Consolidation and Coordination

The court held that actions concerning the same stock issuer should be consolidated under Federal Rule of Civil Procedure 42(a), which permits consolidation when cases involve a common question of law or fact. The court also relied on the Private Securities Litigation Reform Act, which contemplates consolidation when multiple class actions assert substantially the same claim.

The court ordered the following consolidations:

- The Vipshop actions, Case Nos. 21-cv-09420 and 21-cv-08413, were consolidated into Case No. 21-cv-08413. - The Tencent actions, Case Nos. 21-cv-09564 and 21-cv-08752, were consolidated into Case No. 21-cv-08752. - The IQIYI actions, Case Nos. 21-cv-10999 and 21-cv-10286, were consolidated into Case No. 21-cv-10286.

For the remaining related actions—Case Nos. 21-cv-08413, 21-cv-08752, 21-cv-10286, 21-cv-08618, 21-cv-08897, 21-cv-10791, and 22-cv-00169—the court ordered close coordination but declined to consolidate them at that time. The court found that coordination would promote efficiency because the complaints were highly similar. It nevertheless considered full consolidation premature because differences could later emerge involving facts, legal theories, discovery, class certification, or conflicts between classes. The court stated that its decision not to consolidate was without prejudice to possible further consolidation later.

The court also ordered that any additional cases arising from the same factual circumstances be marked as related. If such a case shares an issuer with an existing Archegos Action, it should be consolidated into that issuer’s docket unless good cause is shown against consolidation.

Lead Plaintiffs and Lead Counsel

The court did not yet select lead plaintiffs or lead counsel. Under the securities statute discussed in the opinion, the court must decide the lead-plaintiff issue after ruling on consolidation and when practicable. The court concluded that the submissions filed so far did not adequately address which plaintiffs were best suited to lead each coordinated action or how the proposed leaders would protect the interests of the different classes.

The court stated that it intends to appoint one lead plaintiff, or appropriate co-lead plaintiffs, for each action. Future submissions must explain not only why a proposed lead is best positioned to represent that action’s class, but also how the proposed lead would cooperate with the leads in the other coordinated actions. Submissions must also propose a structure for avoiding duplicative and inefficient litigation, including coordination of amended complaints and motions to dismiss.

The court imposed similar requirements for proposed lead counsel, including discussion of competence, expertise, cooperation, civility, and a leadership structure. Applications for co-lead plaintiffs or co-lead counsel must address the standards for such arrangements. Prospective lead plaintiffs were directed to file supporting papers by March 30, 2022, and the court stated that it would not consider lead-plaintiff motions filed before this order.

Disposition and Significance

The order consolidated three same-issuer pairs of cases, ordered close coordination of the remaining listed related cases without consolidating them at that time, established procedures for any additional related cases, and deferred the selection of lead plaintiffs and lead counsel pending additional submissions. It did not decide the merits of the alleged insider-trading claims.