The rise and fall of Bill Hwang’s ‘house of cards’

Author of the article: WASHINGTON — Bill Hwang spent 25 years building his career, but his downfall took just four days. The now-notorious owner of Archegos Capital Management took extraordinary risks by leveraging stock positions and artificially inflating their prices, prosecutors alleged on Wednesday. When the private fund ran out of borrowed money a year…
The rise and fall of Bill Hwang’s ‘house of cards’

Author of the article:

WASHINGTON — Bill Hwang spent 25 years building his career, but his downfall took just four days.

The now-notorious owner of Archegos Capital Management took extraordinary risks by leveraging stock positions and artificially inflating their prices, prosecutors alleged on Wednesday. When the private fund ran out of borrowed money a year ago, it imploded and left global banks with losses of $10 billion.

“Over the course of less than a week in late March 2021, the house of cards collapsed,” the Securities and Exchange Commission said in a complaint against Hwang.

Hwang was arrested early on Wednesday and was hit with 11 criminal charges including racketeering, market manipulation and fraud.

Wearing a green turtleneck and beige slacks, Hwang later pleaded not guilty in a Manhattan court and was released on a $100 million bail bond. His lawyer said he was “entirely innocent.”

It was the second fall from grace for Hwang, who was punished by U.S. and Asian regulators in 2012 for violations at his former hedge fund, Tiger Asia.

Hwang, who has said he is inspired by his Christian faith, later restored his fortunes, revived his Wall Street relationships and had been making big money.

But in March 2020 he embarked on an aggressive investment strategy that would ultimately destroy everything he had worked to rebuild, according to the indictment.

Operating from his Manhattan apartment as COVID-19 swept New York, Hwang began amassing huge positions in a handful of securities using a derivative known as a total return swap.

In these trades, banks promised Archegos a return based on the performance of a handful of stocks. The strategy allowed Hwang to accumulate leveraged positions in the stocks without owning them and without having to disclose his stakes.

By late March 2021, Archegos had positions exceeding $10 billion in Baidu Inc and Tencent Music Entertainment Group and more than $20 billion in ViacomCBS Inc . Archegos derivatives’ position was equal to more than 50% of ViacomCBS.

The fund used as many as nine banks, making it appear that different parties were behind the activity. This allowed Archegos to accumulate leverage of as much as 1,000%.

When asked by banks about Archegos’ positions with other dealers, the fund misled them, obscuring its true exposure and enabling it to borrow and trade more, prosecutors said.

Viacom “held up pretty well today…Would you say that is a sign of strength?,” one analyst texted Hwang after he had loaded up on shares to avert a major sell-off. “No. It is a sign of me buying,” he replied.

COMEBACK KID?

The son of a Korean pastor, Hwang moved to the United States as a child and earned several U.S. business degrees.

He honed his stock-picking skills from 1996 to 2000 at Tiger Management, billionaire Julian Robertson’s pioneering hedge fund. In 2001, Hwang launched his own hedge fund business, Tiger Asia Management, with seed money from Robertson.

Tiger Asia grew quickly to more than $8 billion in assets after generating a dazzling 40% annualized return, according to a 2011 Institutional Investor article.

But losses and regulatory issues in Hong Kong and the United States led the firm to shut in 2012. Hwang pleaded guilty to wire fraud related to illegal trading of Chinese stocks and paid $44 million to settle U.S. insider trading charges.

Hwang turned Tiger Asia into a family office, renaming it Archegos Capital Management in early 2013. Wall Street banks were initially wary of Hwang due to his regulatory issues, but eventually Japan’s Nomura gave him a second chance.

CARDS COLLAPSE

On March 22, 2021 Hwang’s house of cards started to teeter. Viacom CBS announced a secondary stock offering that day, and its share price sank the next day, dragging down the value of Archegos’ portfolio.

Hwang mounted a massive offensive to boost Viacom, attempting to overpower the deteriorating market, according to the indictment. The $2 billion in trading consumed Archegos’ cash and it would not be able to meet its margin calls if the offensive failed.

But Viacom continued to fall.

Over the next two days, Hwang and his team scrambled to stall the banks from calling in their margin loans, prosecutors said. But on March 26, Hwang ran out of time. The banks began unwinding the trades, sending the shares tumbling.

“The bubble burst,” said U.S. Attorney Damian Williams. “The prices dropped. And when they did, billions of dollars of capital evaporated nearly overnight.” (Additional reporting by John McCrank, Cohen Luc, Lawrence Delevingne; editing by Megan Davies and Cynthia Osterman)

Financial Post Top Stories

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Read More

Total
0
Shares
Leave a Reply

Your email address will not be published.

Related Posts
U.S., EU strike LNG deal as Europe seeks to cut Russian gas
Read More

U.S., EU strike LNG deal as Europe seeks to cut Russian gas

Author of the article: Reuters Jarrett Renshaw and Vera Eckert and Joseph Nasr BRUSSELS/BERLIN — The United States will work to supply 15 billion cubic meters (bcm) of liquefied natural gas (LNG) to the European Union this year to help wean it off Russian gas supplies, the transatlantic partners said on Friday. The EU is…
Fed’s Bowman keeping open mind on possible half percentage point rate hike in March
Read More

Fed’s Bowman keeping open mind on possible half percentage point rate hike in March

Author of the article: Federal Reserve Governor Michelle Bowman said on Monday that she will assess incoming economic data over the next three weeks in deciding whether a half percentage point interest rate rise at the central bank’s next meeting in March is needed, a stance that underscores divisions among policymakers on how aggressively to…
AMD Launches Ryzen 7000 Series Desktop Processors with “Zen 4” Architecture: the Fastest Core in Gaming¹
Read More

AMD Launches Ryzen 7000 Series Desktop Processors with “Zen 4” Architecture: the Fastest Core in Gaming¹

Author of the article: New AMD Socket AM5 platform combines with world’s first 5nm desktop PC processors to deliver powerhouse performance for gamers and content creators AUSTIN, Texas, Aug. 29, 2022 (GLOBE NEWSWIRE) — Today, AMD (NASDAQ: AMD) revealed the Ryzen™ 7000 Series Desktop processor lineup powered by the new “Zen 4” architecture, ushering in the…