Infamous Investor Bill Hwang Indicted For Securities Fraud

  • General
  • April 29, 2022
  • 2516
  • 5 minutes read

Bill Hwang

Ol’ Bill Hwang had $20bn and lost most of it in two days. That sounds like fiction but it isn’t. Hwang is indeed a real trader who amassed an enormous fortune through leveraged stock bets and lost it in substantially less time than he took to build it.

Hwang is the founder of Archegos Capital Management, a family office that managed his assets and is at the center of his recent misfortune. Before Archegos, he founded Tiger Asia Management, a hedge fund he shuttered in 2012 after paying a $44mn penalty for insider trading activity.

  • After starting Archegos in 2013, Hwang multiplied a $200mn fortune over 100-fold through highly-leveraged bets (trading using borrowed money). He built a startling $100bn stock portfolio financed by loans from major investment banks, including Credit Suisse, Goldman Sachs, and Morgan Stanley.

 

  • Hwang flew high on leverage until it came crashing down last year. Several stocks in his portfolio (ViacomCBS, RLX, Baidu, et al) dropped significantly over a short period, causing his bank lenders to trigger liquidations. The liquidations left some banks with big losses; $5.5bn for Credit Suisse and $2.9bn for Nomura.

Despite his enormous losses, all seemed cool for Hwang (he wasn’t going to starve anyways).  But, not so fast. He’s been indicted in Manhattan federal court for allegedly misling banks to borrow money that, in turn, was used to “unlawfully manipulate” the prices of publicly-traded stocks.

Hwang was indicted with one count each of racketeering conspiracy and wire fraud, two counts of securities fraud, and seven counts of market manipulation. His top lieutenant and former Archegos finance chief, Patrick Halligan, was also indicted on similar charges (except market manipulation).

  • Hwang didn’t buy shares directly while amassing his highly-leveraged portfolio. Instead, he used swaps, which allowed him to bet on the direction of share prices without actually owning shares. These swaps were bought from a number of banks, which federal prosecutors accuse Hwang of misleading to conceal the extent of his bets.

 

  • Prosecutors also allege that Hwang’s excessive use of swaps constituted market manipulation, as regular market participants were duped into thinking share price increases on specific stocks were caused by typical supply and demand rather than the result of Hwang’s trading.

 

  • According to prosecutors, Archegos’ implosion caused over $100bn in market capitalization losses for multiple companies. It also caused billions of losses for banks and millions for some Archegos employees that were required to invest 25% or more of their bonuses with the fund as deferred compensation.

Prosecutors also charged Archegos’ former chief risk officer, Scott Becker, and the firm’s former top trader, William Tomita, in separate cases. Both have pled guilty and are cooperating with the government.

Hwang and Halligan were arrested on Wednesday and both pleaded not guilty before a judge. They’ve been released on respective bail bonds of $100mn and $1mn.

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