Why does Bill Hwang, the former boss of the Archegos fund, risk up to 220 years in prison?

Why does Bill Hwang, the former boss of the Archegos fund, risk up to 220 years in prison?
Why does Bill Hwang, the former boss of the Archegos fund, risk up to 220 years in prison?

The proceedings begin on Monday in New York at the trial of the former boss of the American investment fund Archegos Capital Management, Bill Hwang. He is accused of price manipulation and fraud, which cost several large banks billions of dollars.

Arrested in April 2022, the former boss of Archegos, whose real name is Sung Kook Hwang, faces eleven charges, mainly linked to fraud and market manipulation. He faces up to 220 years in prison. Now 60 years old, Bill Hwang will be tried in Manhattan federal court alongside former Archegos CFO Patrick Halligan.

Risks worth a few hundred billion dollars

To understand the origin of Bill Hwang’s descent into hell, we have to go back a few years. In the midst of the coronavirus pandemic, this American financier of South Korean origin had accumulated, in a few months, massive positions, essentially hidden, in a few companies.

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At its peak, in March 2021, Archegos was exposed to the tune of $160 billion through derivatives, which allowed it to influence, for example, more than 50% of the outstanding shares of the media group ViacomCBS, which has since become Paramount Global.

Thanks to these derivative products, “swaps”, and loans, Bill Hwang’s company had multiplied its strike force, but also the risks incurred. Its objective was to increase the price of the few companies in which Archegos had invested, to the point of almost quadrupling the valuation of ViacomCBS in a little over four months.

Among the targets of Bill Hwang, an affable and deadpan character with his hair always slicked back, also included Discovery, which has since become Warner Bros. Discovery, and the Chinese companies Baidu and Tencent.

At the same time, the fifty-year-old and three of his executives hid, according to the accusation, the size of their positions from the establishments which sold them these “swaps” or lent him money. Legally considered a “family office”, a family structure which only manages its own funds and not those of clients, Archegos was exempt from certain public information and regulatory control obligations.

Involvement in the fall of Credit Suisse

The fragile edifice collapsed when ViacomCBS announced, on March 21, 2021, a capital increase, which triggered a brutal movement of sales of securities on Wall Street.

This inflection caused a domino effect, which caused Archegos’ cash flow to melt at an accelerated rate and plunge the price of the securities held by the investment fund. Instead of trying to limit the damage, the fund’s managers injected their last dollars to try to raise stock prices, in vain.

Around $100 billion in market capitalization was lost, harming other shareholders of these companies and the establishments that had done business with Archegos, mainly banks.

The hardest hit was Credit Suisse, which lost some $5.5 billion. In total, the slate amounts to around 10 billion for the banks caught in this whirlwind. During the same period, Credit Suisse had to face another failure, that of the financing company Greensill Capital, in which its clients had invested around ten billion dollars.

These two events further weakened Credit Suisse, which came close to bankruptcy in March 2023 before being taken over by its Swiss competitor UBS, itself affected by the Archegos scandal, as well as, in particular, Nomura and Morgan Stanley .

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Two former Archegos executives, Scott Becker and William Tomita, have pleaded guilty and are expected to testify at the trial, scheduled to last up to eight weeks.

According to several American media, Bill Hwang’s lawyers intend to charge the banks, asserting that they dealt with Archegos knowingly.

Already before the courts

In 2012, Bill Hwang had already been indicted by the American justice system, and his investment fund Tiger Asia had to plead guilty to insider trading.

The financier had escaped indictment in the United States but agreed to pay $44 million to the American markets regulator, the SEC.

He was also sentenced by a Hong Kong court to a ban on selling or buying shares for four years.

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