The founder of fund management firm Archegos may spend the rest of his life behind bars after his speculative bets cost global investment banks a total of $10 billion in losses three years ago.
A jury in Manhattan federal court found 60-year-old Sung Kook “Bill” Hwang guilty on several counts of fraud for lying to lenders on billion-dollar bets on stocks, including the streaming service provider. ViacomCBSHwang lost everything in March 2021 after the precursor Paramount shocked the markets with a surprise stock sale that brought down its house of cards.
“This ruling should send a clear message that this office will continue to monitor financial markets with a keen eye and will swiftly hold to account those who believe they can cheat the system,” said U.S. Attorney Damian Williams in a opinion On Wednesday.
The jury members stood on the side Federal Prosecutors After key witnesses, including Archegos’ former head of risk and chief trader, testified that they misled creditors about the size and concentration of their bets in order to increase returns.
Also convicted of false assurances was Hwang’s 47-year-old chief financial officer Patrick Halligan.
CFO intends to appeal jury verdict
The duo is accused of lying to several people. Investment banksabove all Credit Suisse. Mortally wounded by the Archegos scandal, Trust in the Zurich bank evaporated despite numerous attempts to restore confidence in the risk culture. swallowed by UBS last year in the wake of Silicon Valley Bank spectacular collapse.
The two now face up to 20 years in prison for each of their multiple fraud offenses. Both men are free on bail until the verdict is announced on October 28.
Hwang’s lawyers could not be reached. Assets for comment, but Halligan’s lawyer Mary Mulligan told the media that her client would continue to fight. “We intend to appeal and believe that our client will be exonerated,” she was quoted as saying by the media.
Big warning signs right from the start
Hwang’s company, founded in 2001 and formerly known as Tiger Asia, was a so-called “Tiger cub”, an asset manager that Alumni of Tiger Managementthe highly successful hedge fund run by Julian Robertson in the 1990s.
But Hwang’s recent actions were not the first time he attracted the attention of prosecutors. plead guilty Amid U.S. wire fraud allegations in 2012 related to insider trading in Hong Kong-listed shares of Chinese banks, his Tiger Asia fund returned assets to outside clients, transformed itself into a family office to speculate on its own behalf, and renamed itself Archegos.
By then, Hwang was already a key client of Credit Suisse’s prime brokerage desk, which serves a bank’s most lucrative trading clients, such as hedge funds and family offices, with a range of tailored services.
“Isolated, one-off event”
An internal investigation by Credit Suisse found that many of its employees Warning signals not recognized to the upper management when it came to doing business with the high roller.
The fees earned from trading with Hwang generated millions of dollars in revenue, and the brokerage firm did not end the business relationship even when Hong Kong authorities banned Hwang from trading stocks on its exchange for four years.
US bank managers reported to their superiors in Zurich that it was merely a “isolated, one-off event“ in an otherwise fruitful relationship, and the business continued.
Streaming stock sale inadvertently lights fuse
In 2021, Hwang’s family office appeared to be thriving, with net worth growing from half a billion at the start to $10 billion. What analysts didn’t know was that Hwang appeared to be running from one Wall Street investment bank to another to borrow money for his speculative bets, which focused on a number of hot technology and media stocks such as ViacomCBS and Tencent Music Entertainment.
In March, everything came crashing down when ViacomCBS announced a $3 billion stock sale. The industry was going through a pandemic lockdown era Gold rush in streaming stocks and CEO Bob Bakish needed to build a content library large enough to compete with his Paramount+ service Netflix And Disney.
Without knowing it, Bakish lit a fuse that caused Hwang’s fund to collapse. At $5.1 billion, ViacomCBS was Hwang’s largest long position and the threat of dilution from the share sale promptly led to the Price drops.
Emergency sale to competitor UBS
While alarmed risk managers at Credit Suisse scheduled several phone calls with the bank to demand that Archegos post additional collateral as security—all of which were canceled at the last minute by Hwang’s team—the bank’s prime brokerage division ensured that the bank was able to raise an additional $2.4 billion in those crucial days that led to its collapse.
When Wall Street competitors got wind of Archegos’ liquidity crisis, several banks liquidated large parts of their Archegos exposure. Wipe away $100 billion various securities and plunged Hwang’s company into a death spiral.
When Zurich finally asked Hwang for a $2.8 billion deposit to cover the risk, he told the Swiss bank that the margin calls had exhausted the reserves of the other prime brokers. Credit Suisse and – to a much lesser extent – its Japanese competitor Nomura were left to foot the bill.
Credit Suisse was unable to shake off its reputation as Europe’s most scandalous bank and when SVB collapsed, the resulting Sector-wide earthquakes proved to be too much. The Swiss Government intervened as an intermediary in an emergency rescue by rival UBS, End of a nearly 170-year history.