Courtesy of Pam Martens
BusinessWeek Cover, May 13, 2002
Last evening, Bloomberg News, followed by the Wall Street Journal, reported that the U.S. Department of Justice has opened a probe into the late March collapse of the Archegos family office hedge fund.
The Wall Street Journal reported that “Banks that lent to Archegos, including Credit Suisse Group AG, UBS Group AG, Goldman Sachs Group Inc. and Morgan Stanley,” had been contacted for information by the Justice Department.
According to media reports, Archegos is believed to have leveraged $20 billion of its own capital into more than $100 billion in stock and derivative exposure through margin loans from the banks named above, as well as others.
Among the laundry list of items the Justice Department may be investigating, is whether the banks violated the Federal Reserve’s Regulation T, which would have limited the banks to an initial margin loan of no more than 50 percent of the purchase price of the stock that Archegos was buying.
The banks apparently believed they could avoid Regulation T by cooking up a derivatives contract called a swap agreement that purported to magically allow the banks to claim ownership of the stock positions in SEC filings while allocating the gains and losses on the positions to Archegos.
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