Archegos Founder and CFO Arrested and Indicted

Posted Apr 27, 2022, 6:15 PMUpdated on Apr 28, 2022 at 10:48

The noose is tightening on the leaders of Archegos. The founder of the fund and its chief financial officer were arrested this Wednesday morning in New York and indicted for stock market fraud and extortion by a federal court in Manhattan. In total, the prosecutor retained eleven indictments. Bill Hwang and Patrick Halligan are suspected of seeking to manipulate the markets, causing billions of dollars in losses for major global banks and investors and causing the fund to implode a year ago.

The two men, as well as other leaders of the company, are also the subject of a complaint by the Securities and Exchange Commission (SEC), the American stock market policeman, before the same court, as well as a complaint to the civil law from the federal agency in charge of derivatives (CFTC). “Bill Hwang is completely innocent of any wrongdoing,” his attorney Lawrence Lustberg said in a statement, adding that his client was cooperating with authorities. There is no evidence that he committed any crime, not to mention the exaggerated allegations that line this indictment. »

Colossal losses for banks

According to the text of the indictment, the plan drawn up by Archegos management helped the fund’s portfolio grow from $1.5 billion to $35 billion in one year. Archegos has used derivative products called “total return swaps”, offered by banks and which allow you to bet big on shares, without having to buy them directly and to circumvent the rules of public disclosure. The investigation showed that the banks were unaware of the risk exposure taken by the fund. Exploiting the leverage effect to the maximum, the family office had taken 120 billion exposure on these values, while it only held 10 billion in capital.

When the stocks in question began to fall, the banks had to urgently liquidate their positions, resulting in heavy losses – more than $10 billion in total. Among the most affected are Credit Suisse, whose loss exceeded 5 billion dollars and weighed on its results at the start of the year, as well as UBS, Morgan Stanley and Nomura. Others, like Wells Fargo, Goldman Sachs or Deutsche Bank managed to limit their losses. According to the authorities’ investigation, Bill Hwang would have asked his traders to embark on a buying spree to support prices when they began to fall.

Calls for regulation

The dragnet is one of the biggest ever on Wall Street. It shows the extent of the shock in the financial community. It also raises the question of family offices, whose regulation is less restrictive than that of hedge funds, for example. Many voices have been raised since the affair broke out to review the regulatory framework for family offices, whose size sometimes approaches that of large funds.

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