The deputy’s words, now immortalized in a federal indictment, said it all: Inside Bill Hwang’s Arcagos Capital Management, panic was brewing. Hwang, the enigmatic billionaire behind Arcagos, had amassed one of the world’s great fortunes in virtual secrecy, and that trove — a staggering $160 billion in shares — was unraveling everywhere, all at once.
That was March 23, 2021 – and Wall Street had no idea what was going to go down.
A year after the collapse of Arcagos sent shock waves through global finances, Hwang was arrested Wednesday morning and, for the first time, federal prosecutors offered an official description of what really happened at the secret family office.
The chaotic story depicted in the 59-page indictment chart is unlike anything Wall Street has ever seen in the rapid rise and fall of wealth. By the end, Hwang – a devout Christian who, despite his wealth, lived in modest surroundings in suburban New Jersey – believed that he could single-handedly turn world markets around at will, prosecutors argue. . Prosecutors say arrogance and greed fueled a brazen scheme to defraud major banks and manipulate markets.
If convicted on all counts, Hwang faces a maximum sentence of 380 years in prison.
Hwang and Archegos’ chief financial officer, Patrick Halligan, both pleaded not guilty on Wednesday to 11 criminal charges, including racketeering conspiracy, market manipulation, wire fraud and securities fraud. Brown-haired Hwang, wearing a blue Patagonia vest, was released on $100 million bail. He is due back in court on May 19.
According to prosecutors, the disclosure of Hwang’s plan began after his personal fortune grew from $1.5 billion to $35 billion in the span of a year. Arcagos persuaded major banks to take advantage of their stakes in the stock market to lend them large sums of money – eventually, with disastrous results.
Downfall
He died when one of Hwang’s larger holdings, ViacomCBS Inc., began to collapse after selling off new stock. Archegos couldn’t possibly make a margin call — causing panic inside the firm and among banks lending Hwang billions.
Hwang’s response: He solicited his traders to buy the stock. Then buy some more. In the end, Arcgos added $900 million in one day.
Chief Risk Director Scott Baker protested. The firm’s lead trader, William Tomita, made a plea of his own to Hwang, only to return with his tail between his legs: “I talked to Bill and he said just keep working orders.” (Both have pleaded guilty and are cooperating with the authorities.)
It didn’t work out, and Archegos’ leadership team prepared for a margin call the next day. Hwang had other ideas, instead encouraging traders to use the firm’s final cash to manipulate certain stocks to raise their price. All the while, Baker was pulling as much money as possible from Wall Street banks, falsely claiming that the family office had $9 billion in extra cash while it ran on smoke.
Charging documents, press conferences and court appearances still leave many questions unanswered, including the big question: How exactly did Hwang think this would all end?
Even though ArcGos wasn’t another long-term capital management — as some feared at the time — it left its own mark on the financial world. The episode left global banks with billions of dollars in losses, encouraged a rethink on disclosure requirements for investment firms of the ultra-rich and prompted a broader US investigation into how Wall Street handles large block trades. Did.
largely unknown
This is more impressive given that Hwang was largely unknown prior to the spectacular collapse of Arcagos, save for a small group of managers associated with hedge fund legend Julian Robertson.
Hwang worked for Robertson until the closure of Tiger Management for $20 billion, then started his own firm, Tiger Asia. He was one of Robertson’s most successful former employees – until he ran away from regulators.
In 2012, after several years of investigation, the US Securities and Exchange Commission accused Tiger Asia of insider trading and manipulation of Chinese bank stocks. The agency said Hwang had “crossed the wall,” obtaining confidential information about pending share offers from underwriting banks and then using it to obtain illegal profits.
Hwang settled that case without admitting or denying wrongdoing, and Tiger Asia pleaded guilty to the Justice Department’s wire fraud charges.
The incident kicked him out of the wealth management industry, but he said it served to strengthen his faith.
He founded Arcagos – a Greek word often translated as “writer” or “captain” and often believed to refer to Jesus – to manage his personal destiny.
When Hwang traded his own fortune in Archegos, he held Bible readings on Friday mornings at 7 a.m. when 20 or 30 people would squeeze together around a long table and listen to recordings of the Bible over coffee and Danish .
Hwang also founded the Grace and Mercy Foundation, which has grown to hundreds of millions of dollars in assets and supports large-scale Christian organizations.
He also preferred funds operated by Kathy Wood’s Arch Investment Management. Like Hwang, Wood is known for holding Bible study meetings and figures in what some refer to as the “Believe in Finance” movement.
covid change
Yet as the federal government points out, something fundamentally changed in Hwang’s investment process as the COVID-19 pandemic hit. His holdings were once large and highly liquid stocks. But he soon turned to smaller companies, including a handful of Chinese ADRs.
According to the Charging documents, after previously holding weekly strategy meetings, they “sharply ignored internal Arcgos analyst research in 2020 and 2021.” Instead, “Hwang often spent almost all of his workday with merchants.”
In some cases, Hwang instructs traders to sell a stock or enter a short position in the morning, giving the family office more trading potential to buy when needed to push up the price.
According to the indictment, “Hwang referred to this practice as using ‘bullets.'” Hwang instructed traders to use the ‘bullet’, or trading potential, at opportune moments, which would increase the price of the stock. Will create pressure. Hwang employed it. As a strategy with increasing frequency, counterparties began to reduce or restrict his access to additional trading capacity.”
As his bets got bigger and bigger, Hwang expanded the roster of Arcagos’ banks and provided them with leverage—reportedly without others knowing about it.
In early 2021, just before its fall, Archegos acquired GSX Techedu Inc. and secured a position of over 50% in Viacom. Hwang coordinated the trades with a person identified as “Advisor-1,” who, as Bloomberg News reported, Tao Lee, head of Teng Yu Partners, a New York-based hedge fund that spent more than last year. was acquired for $4 billion. Lee also made heavy bets on the GSX.
Li and Teng Yu have not been charged with wrongdoing by US officials, and Teng Yu did not respond to messages seeking comment.
In the end, losses from Arcagos swept around the world as banks were forced to dump large blocks of stock into the market.
In Japan, Nomura Holdings Inc took a hit of $2.9 billion. Credit Suisse Group AG suffered a setback of $5.5 billion. And in New York, Morgan Stanley disclosed a loss of $911 million.
Banks were the victims of his fraud in telling the government about the Archagos affair. But one of the most enduring elements of its downfall is the way Wall Street slammed federal regulators about opening up Hwang’s vast portfolio.
This made him, in turn, begin to see the way Morgan Stanley and potentially other banks deal with block trades.
The US Attorney’s Office for the Southern District of New York, which is prosecuting Hwang, is now gathering evidence as to whether the bank engaged in illegal activities, specifically whether some market participants were tipped ahead of time. was given when a big transaction was coming up. Market.