The rise and fall of Bill Hwang’s ‘house of cards’ -Breaking
By Michelle Price
WASHINGTON, (Reuters) – Bill Hwang worked for 25 years to build his career. But his demise took only four days.
Prosecutors alleged that Archegos Capital Management’s now-respected owner, Archegos Capital Management, took extreme risks in leveraging stock positions to artificially increase their prices. Global banks suffered losses of more than $10 billion when the private fund ran out on borrowed money last year.
In a complaint filed against Hwang, the Securities and Exchange Commission stated that “the house of cards collapsed” in less than one week.
Hwang was taken into custody early Wednesday morning and charged with eleven criminal offenses, including market manipulation, racketeering and fraud.
Hwang wore a green turtleneck with beige trousers and was later released by a Manhattan court on a $100,000,000 bail bond. According to his lawyer, he was completely innocent.
Hwang suffered his second loss of grace after being punished by Asian regulators and the U.S. in 2012 for violations at Tiger Asia, his former hedge-fund.
Hwang said that he was inspired by his Christian faith and later restored his fortunes. He also revived his Wall Street relationships.
According to indictment, he began an aggressive investment strategy in March 2020 that ultimately destroyed everything he had rebuilt.
Hwang was living in Manhattan as COVID-19 hit New York. As a result, he began to accumulate large positions in some securities by using a derivative known a total returns swap.
These trades were made by banks and promised Archegos a return on their performance in a few stocks. Hwang was able to acquire leveraged stocks positions without actually owning any of them, and without ever having to reveal his stakes.
Ende March 2021, Archegos held positions of over $10 billion in Baidu Inc. Tencent Music Entertainment Group (NYSE) and over $20 billion in ViacomCBS. (NASDAQ:) Inc. Archegos derivatives were equal to 50% of ViacomCBS.
There were nine banks involved, giving the impression that there was more than one party behind this fund. Archegos was able to build leverage as high as 1,000%.
Banks were asked about Archegos’ relationships with dealers. The fund misled banks, which allowed it to hide its true exposure, and allow it to borrow more and trade more.
Viacom held up quite well today…Would that be considered a sign strength?,” Hwang texted after an analyst had bought shares in order to avoid major stock-piling. “No. He replied, “It is a sign that I am buying.”
Hwang was the son of a Korean minister and received 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. Hwang started Tiger Asia Management in 2001 with seed money provided by Robertson.
According to an Institutional Investor article from 2011, Tiger Asia saw its assets grow quickly to over $8 billion. This was after it generated a stunning 40% annualized return.
The firm was forced to close in 2012 due to losses, as well as regulatory problems in Hong Kong. Hwang pleaded guilty in wire fraud to illegal trading Chinese stock and was fined $44 million for U.S. insider trading.
Hwang made Tiger Asia a family business and named it Archegos Capital Management. This was in 2013. Wall Street banks initially were wary about Hwang because of his regulatory problems, but Japan’s Nomura eventually gave him another chance.
Hwang started playing cards on March 22nd 2021. Viacom CBS made an announcement that day about a secondary stock offer. Archegos saw its shares fall the following day.
According to indictment, Hwang organized a huge offensive to help Viacom and attempt to dominate the market. Archegos lost $2 billion on trading, and would have difficulty meeting its margin call if it failed.
Viacom continued its fall.
Hwang and his associates tried for two days to prevent banks from calling them in on their margin loans. Prosecutors stated that Hwang was unable to stop the bank’s call. Hwang was out of time on March 26. Hwang ran out of time on March 26th, so the banks started to unwind the trades and sent the shares plummeting.
U.S. attorney Damian Williams said that the bubble burst. “The prices fell. “The prices dropped almost overnight, and billions of dollars in capital disappeared.”