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Bill Hwang Arrested: Archegos Owner Charged With Racketeering, Securities And Wire Fraud

Courtesy of ZeroHedge View original post here.

After the spectacular collapse of Archegos Capital Management, the SEC announced last October that they were investigating whether the firm engaged in market manipulation.

On Wednesday, owner Bill Hwang and his former CFO, Patrick Halligan, were arrested at their homes and charged with racketeering conspiracy, securities fraud and wire fraud in connection with a scheme to manipulate the share prices of public companies in order to boost profits, according to Bloomberg.

They said the plan, which relied heavily on leverage, helped pump up the firm’s portfolio from $1.5 billion to $35 billion in a single year. -Bloomberg

As a reminder, Archegos amassed a concentrated portfolio of stocks well in excess of $100 billion by using borrowed money in the form of TRS, which kept the exposure on the books of the various prime brokers working with Archegos, thus allowing Hwang to hide his full exposure. His funded imploded in March as some of the stocks tumbled, triggering margin calls from banks, which then dumped Hwang’s holdings.

The pain was especially acute for the fund's prime brokers such as Credit Suisse, Nomura and Morgan Stanley, who collectively lost more than $10 billion, prompting internal investigations and the forced departures of senior executives.

Credit Suisse came under fire last May for the paltry fees they received from Archegos, which FT said at the time "raises further questions about the risks the lender was prepared to shoulder in pursuit of relationships with ultra-wealthy clients," adding that "the low level of fees and high risk exposure have caused concern among the board and senior executives, who are investigating the arrangement, according to two people with knowledge of the process."

It also caused a flood of layoffs and terminations as the bank belatedly looked at its books and realized just how massive its exposure had been.

As Risk.net first reported, Credit Suisse demanded a margin of only 10% for the equity swaps it traded with Archegos and allowed the family office 10-times leverage on some transactions. That was about double the leverage offered by fellow prime broker Goldman Sachs, which took minimal losses when unwinding its positions.

In 2012, Hwang pleaded guilty to insider trading in Chinese bank stocks, and paid $44 million to settle the SEC's charges when he was head of Tiger Asia Management and Tiger Asia Partners. Hwang shorted three Chinese bank stocks based on insider information they received in private placement offerings. Tiger Asia became one of the largest Asia-focused hedge funds after its 2001 founding – running more than $5 billion at its peak. It was dealt a major blow in 2008 after Volkswagen AG's share price savaged short sellers.

Hwang is a former protégé of hedge-fund titan Julian Robertson, who founded Tiger Management in 1980, which as the Wall Street Journal reports, turned $8.8 million into nearly $22 billion. Several investors trained by Robertson became known as the "Tiger cubs."

More on Hwang's indictment:

And read the entire indictment below:


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