Bill Hwang, founder of Archegos Capital Management, leaving court in New York City on Wednesday following his arrest.
Photo: Seth Wenig/Associated Press
Archegos Capital Management founder Bill Hwang and Chief Financial Officer Patrick Halligan were indicted on securities fraud and racketeering charges Wednesday for what prosecutors said was a massive fraud and manipulation scheme that nearly jeopardized the U.S. financial system.
Archegos collapsed in March 2021 in one of the most dramatic meltdowns on Wall Street in decades, leaving banks with more than $10 billion in losses and sparking calls for more regulatory oversight. More than $100 billion in stock market value vanished…
Archegos Capital Management founder
and Chief Financial Officer
were indicted on securities fraud and racketeering charges Wednesday for what prosecutors said was a massive fraud and manipulation scheme that nearly jeopardized the U.S. financial system.
Archegos collapsed in March 2021 in one of the most dramatic meltdowns on Wall Street in decades, leaving banks with more than $10 billion in losses and sparking calls for more regulatory oversight. More than $100 billion in stock market value vanished in a matter of days.
Manhattan U.S. Attorney
described the scheme as historic in scope, alleging the defendants and their co-conspirators lied to banks to obtain billions of dollars in loans, which they then used to inflate the stock prices of publicly traded companies.
“The lies fed the inflation and the inflation fed more lies,” Mr. Williams said at a news conference. “Last year, the music stopped. The bubble burst. The prices dropped. And when they did, billions of dollars evaporated overnight.”
Messrs. Hwang and Halligan, who were arrested Wednesday morning, face securities fraud, wire fraud, racketeering conspiracy and other charges.
Losses at Archegos Capital Management triggered the liquidation of positions approaching $30 billion in value, The Wall Street Journal has reported, and sent the shares of two major investment banks tumbling.
Who is Bill Hwang?
Mr. Hwang is a former protégé of hedge-fund titan
who founded Tiger Management in 1980 and turned an initial $8.8 million investment from family and friends into nearly $22 billion before stepping back almost two decades later. A number of investors trained by Mr. Robertson who went on to start their own hedge-fund firms became known on Wall Street as the “Tiger cubs.”
Mr. Hwang is Christian and has spoken about his faith publicly. In an interview posted on YouTube in 2018, he said one of his goals was “trying to be a great investor.” He also said he was investing in companies that were benefiting society.
He recalled being a big investor in LinkedIn, which he described as helping people realize their job potential. “Do I think God loves it? Of course!” he said. “I’m like a little child looking for what can I do today, where can I invest, to please our God?”
A number of investors trained by Tiger Management founder Julian Robertson, shown in 2014, went on to establish their own hedge-fund firms.
Photo: Peter Foley/Bloomberg News
Mr. Hwang, who is believed to be in his late 50s, emigrated to the U.S. after his senior year of high school in South Korea. He attended UCLA and later received an MBA from Carnegie Mellon University. His father, a pastor, died at the age of 50, according to a 2018 interview with Mr. Hwang in the South Korean Kukmin Ilbo newspaper.
The billionaire said in the interview that his business calamities a decade ago revived his interest in Christianity and that he uses his foundation to sponsor churches in the U.S. and South Korea. Tax documents for the foundation show that it has supported a variety of Christian, Korean and Asian-American causes in recent years.
“I’m decreasing the amount of money under my name, in order to do things that God loves,” he said in the 2018 interview. “I do it because I like God more than I like money.”
How much money did Archegos have under management?
Mr. Hwang managed around $10 billion of family money through Archegos. The firm made big bets on public stocks in the U.S., Europe and Asia. Unwinding of his positions caused sharp falls last week in many stocks, including ViacomCBS Inc. and Discovery Inc., even as broader markets rose.
What was Mr. Hwang’s association with Tiger Asia?
Mr. Hwang founded Tiger Asia Management LLC in 2001 with support from Mr. Robertson. The firm was based in New York and went on to become one of the biggest Asia-focused hedge funds, running more than $5 billion at its peak. In 2008, it was one of a swath of funds that suffered losses related to the soaring share price of Germany’s
Bill Hwang, shown in 2012, emigrated to the U.S. after attending high school in South Korea and went on to lead one of the biggest Asia-focused hedge funds.
Was Mr. Hwang involved in previous securities violations?
In the summer of 2012, Tiger Asia said it planned to wind down and return outside capital to investors. Later that year, the firm pleaded guilty to a criminal fraud charge and agreed to pay $44 million to settle civil allegations by U.S. securities regulators that it engaged in insider trading of Chinese bank stocks.
“Tiger Asia regrets the actions for which it accepts responsibility today and is grateful that this matter is now resolved and behind it in the United States,” Mr. Hwang said in a statement at the time.
He turned Tiger Asia into his family office and renamed it Archegos, according to its website.
What are swaps and why did Archegos use them?
Archegos would buy up stocks until it approached the 5% ownership threshold that triggers certain disclosure requirements, according to the indictment. At that point, Mr. Hwang required Archegos to switch over to derivative contracts known as total return swaps that allowed it to increase its exposure to those stocks.
If a stock went up, the bank selling the swap would pay Archegos a corresponding amount reflecting the stock’s increase. If the price fell, Archegos would pay the bank. The bank would earn a fee for its service. To avoid market risk, the bank would buy the underlying stock and simply pay out the gains on the shares to Archegos. As Archegos bought more swaps, the banks bought more shares, pushing up prices.
(These transactions move in the opposite direction if the buyer of the swaps makes a bet that the stock will fall.)
The use of swaps allowed Mr. Hwang to maintain his anonymity despite having exposure to stocks well in excess of the disclosure thresholds. Prosecutors say Mr. Hwang used this strategy to manipulate the prices of stocks in his portfolio.
Swaps are common and have been around for a long time. They are also controversial. Long Term Capital Management, a hedge fund advised by two Nobel laureates that nearly brought down Wall Street in the late 1990s, used swaps.
wrote about the risks of swaps in his 2003 letter to investors.
Write to Juliet Chung at email@example.com