Morgan Stanley, Nomura, UBS, Credit Suisse, MUFG and Mizuho were involved in the saga. The banks, and Archegos, have declined to comment.

Archegos Capital Management, the failed hedge fund/family office based in New York, is in talks to avoid a drawn-out courtroom fight that would expose deals which caused it to unravel, the Financial Times reported yesterday, quoting unnamed sources.

The potential legal tussle centres on billions of dollars of swaps contracts agreed between banks such as Morgan Stanley and Credit Suisse and the family office run by former hedge fund manager Bill Hwang, which imploded last March.

The talks to agree a truce come as financial watchdogs and the Department of Justice in the US have expanded a wide-ranging probe into apparent irregularities in Wall Street’s lucrative practice of marketing large blocks of shares, the report said. In particular, regulators are looking at whether banks broke rules when they negotiated the “block trades” – the private sale of large quantities of shares to hedge fund clients – including during the failure of Archegos last year.

The report noted that Morgan Stanley, which was exposed to Archegos and was among the first to put large blocks of shares it held on behalf of the investor up for sale, disclosed last week that the Securities and Exchange Commission had been examining the bank’s block trading business since 2019 and that the Department of Justice recently launched its own investigation.

Six banks that provided services through their prime brokerage or trading divisions to Archegos – Credit Suisse, Nomura, Morgan Stanley, UBS, MUFG and Mizuho – lost around $10 billion. This happened when they liquidated the family office’s positions in US-listed companies such as ViacomCBS after Archegos failed to meet margin calls.

A number of the banks have threatened legal action against Archegos to recoup some of the money they lost.

The FT said that Morgan Stanley, Nomura, UBS, Credit Suisse, MUFG, Mizuho and Archegos declined to comment.

One result of the saga has been to prompt legislators, such as New York Democrat Congresswoman Alexandra Ocasio-Cortez, to call for tougher regulatory oversight of family offices, a move that figures in the sector claim is dangerously misplaced.