In one of the biggest financial stories of this year, Bill Hwang lost over $20 billion which was tied up with his bets on major stocks in the US in just two days. It all started after Hwang’s investment firm, Archegos, was forced to liquidate huge positions in blue-chip companies in the US. What came thereafter was nothing short of a raging storm in the market, which decimated the market value of stocks of major companies like ViacomCBS, Discovery, China-based Tencent Music, Baidu and Vipshop.
The US Securities and Exchange Commission (SEC) started investigating Bill Hwang after the collapse of his investment firm Archegos Capital Management. This was not the first time he was in trouble with the SEC.
In 2012, the SEC fined Hwang and his hedge fund, Tiger Asia Management, $44 million for “illegal trading in Chinese bank stocks.” In fact, the SEC charged him with wrongdoing and insider trading for using confidential information gained during private offerings to short sell three Chinese national banks.
“Hwang today learned the painful lesson that illegal offshore trading is not off-limits from US law enforcement, and tomorrow’s would-be securities law violators would be well-advised to heed this warning,” Robert Khuzami, Director of the SEC’s Division of Enforcement, had said.
The US Attorney’s Office for the District of New Jersey also filed criminal charges against Tiger Asia Capital Management.
So how did a well-known hedge fund manager fined for insider trading manage to get $30- billion worth of major US company stocks?
Following the debacle in 2012, Hwang managed to land on his feet and open a family hedge fund, Archegos, which is similar to a regular hedge fund but manages the wealth of only a few chosen families. He then borrowed heavily from banks, including esteemed banks like Zurich-based Credit Suisse, Japan’s Nomura, and US-based Morgan Stanly and Goldman Sachs. Hwang then leveraged his borrowing power with the banks and used it to bet on particular stocks.
The extent of this market fiasco can be estimated from the losses in a single day. Eight stocks associated with Archegos lost a combined $35 billion worth of market value, thanks to the sell-out forced by the banks extending him credit.
It was not just Wall Street which suffered but the banks associated with Archegos also reported losses in the billions. Credit Suisse recently stated that their losses amount to $5.5 billion and Japan’s Nomura has said that their “US client” has caused losses of $2 billion.
Currently, there is a line of banks and investors determined to find the value of his remaining assets in the aftermath of his financial disaster. And to top it all, the landlord of his office space in New York, Vornado Realty Trust, is also suing Archegos for over $160,000 in unpaid rent.
(Edited by : Shoma Bhattacharjee)
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