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There’s a Lot More to Investigate than Just Zombie Risk Managers in the Archegos Hedge Fund Blowup

Courtesy of Pam Martens

Archegos Made Simple

By Pam Martens and Russ Martens

The Swiss mega bank, Credit Suisse, lost $5.5 billion in late March and early April from the highly-leveraged, highly concentrated stock positions it was financing via tricked-up derivatives for Archegos Capital Management, the family office hedge fund of Sung Kook “Bill” Hwang. Archegos blew up on March 25 after it defaulted on its margin calls from its banks. U.S. mega banks, Goldman Sachs and Morgan Stanley, were also extending high levels of margin debt to Archegos at the time of its blowup, as were other foreign banks. Over $10 billion in total losses have thus far been acknowledged by the banks.

Brad Karp, Chair of Paul Weiss

Brad Karp, Chair of Paul Weiss

To get out in front of an ongoing Department of Justice investigation of the matter, Credit Suisse decided to hire the BigLaw firm, Paul, Weiss, Rifkind, Wharton & Garrison,  to conduct an investigation. Yesterday, Paul Weiss issued a 165-page report on its version of what happened. Paul Weiss found no fraud had occurred — just zombie risk managers at Credit Suisse that were incapable of seeing a train wreck bearing down on them. (We’re not sure how that finding is supposed to “limit legal and reputational exposure,” which is how Paul Weiss touts its internal investigation services.)

Credit Suisse is calling this an “independent” report (notwithstanding the fact that money obviously changed hands between Credit Suisse and Paul Weiss). To impress upon federal prosecutors that this report is the full skinny on everything that went down (nothing more to see here), Paul Weiss stresses that it conducted “interviews with more than 80 employees and the collection of over 10 million documents.”


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