In April 2022, Bill Hwang, founder of Archegos. Editor's note of Shannon Stapleton/Reuters/File: A version of this report appeared in the Newsletter before going to bed of CNN Business. To get it in your inbox, please register here for free. New York CNN — In the spring of 2021, you may have heard of Archegos, a small investment company with an odd name, which imploded almost overnight, resulting in the loss of billions of dollars by large Wall Street banks. Then again, it is understandable that you may be busy with the coronavirus pneumonia vaccine and get rid of the blockade for the first time in a year.
To make a long story short, Archegos Capital Management built huge bets, which exploded in a doomsday-like way and evaporated the market value of more than 0 billion in a few days.
This week, more than two years after the company's collapse, 60-year-old founder and CEO Bill Hwang will be tried in a court in lower Manhattan on 11 charges of fraud, conspiracy and fraud, and the whole Wall Street will pay attention to the lawsuit.
There are several reasons for this.
1. Bill Huang is a man of considerable personality (which will be introduced in detail later).
2. The collapse of 2.Archegos shook Wall Street, when investors were indulging in cheap capital and enjoying an epic bull market due to the unprecedented market intervention of the Federal Reserve-many people were eager to return to the era of low interest rates.
Advocates of market reform believe that the collapse of Archegos is a warning to the so-called lack of supervision of family offices. The family office is a small private company set up by the super-rich to manage individuals or family fortune.
What happened?
According to the indictment, Archegos (pronounced Ar-KHAY-gos) created a fraudulent planning network to raise the value of some publicly traded stocks, including Viacom and Discovery (now known as Warner Bros. Discovery, the parent company of CNN).
In short, the prosecution said that Hwang Woo-suk used a financial instrument called "Total Return Swap" to gain exposure to these stocks, but he did not actually own them.
Although this is a legal matter, it is very risky and controversial. Those who remember the bankruptcy of Long Term Capital Management Company in 1998 know what I'm talking about. )
As an analyst told my colleague Matt Egan in 2021, "You never really know how deep your reach is when it comes to derivatives."
The problem is that Huang and his team allegedly lied to the banks they borrowed from and used swaps to cover up the huge positions they had built to avoid government supervision.
It worked for a while. Prosecutors said that in one year, Hwang Woo-suk expanded his .5 billion portfolio to billion.
But when the prices of these stocks suddenly fell, Huang found himself in big trouble. The bank asked for more collateral to make up for the losses, and Huang's initial response was to try to buy more stocks to reverse its decline.
But it didn't work. The bank's margin calls kept coming in, eventually forcing the bank to liquidate the company's position, further depressing the stock price, which made Archegos owe the bank billions of dollars in debt, but the bank was left behind. One of the banks, Credit Suisse Bank, lost .5 billion on its loan to Archegos, which led to the bank's collapse a year later.
According to the indictment, in just one week, the collapse of Archegos made "the apparent market value of nearly 12 companies evaporate by more than 100 billion US dollars." It is worth noting that this sale has evaporated the market value of media giant Viacom by more than half.
Something about Bill.
According to a lawsuit filed by a former employee, Bill Hwang is the son of a Korean priest and a devout Christian. He is not ashamed to preach his beliefs, even to his employees.
In the lawsuit, a former employee accused Huang Yuxi of leading a "toxic culture" that valued "employee obedience and flattery". It is said that Hwang Woo-suk urged his employees to spend more time on their beliefs and take part in Bible reading activities. It is said that employees are required to invest at least 25% of their bonuses in the company's deferred compensation plan. When Archegos went bankrupt, the plan lost 0 million.
The civil case is still under trial. Huang Yuxi's lawyer did not immediately respond to requests for comment.
Even the name Achilles comes from the Greek "leader" and is used to refer to Jesus Christ in the Bible.
A recent article in Bloomberg described a large-scale artwork commissioned by Hwang Woo-suk, in which the blood of Christ washed away the gray skyline of new york City and "cleansed the evil of this metropolis".
His criminal trial will begin on Wednesday, which is not the first time he has broken the law. In 2012, he admitted to telecom fraud related to his Tiger Asia management hedge fund, which was caught in an insider trading scandal.
Why is this case important?
White-collar crime on Wall Street seems to be a distant problem for most Americans, which may be true. But if you have any kind of pension fund, then opaque market scams are very important. Sometimes, just like in the 2008 financial crisis, it is Wall Street's tinkering with derivative contracts that leads to bank bankruptcy and real estate market collapse.
Archegos' accusation shows that DOJ has taken a tougher attitude towards fraud than before, and investigated the personal responsibility of Huang Yuxi and his two associates according to the criminal law.
Dennis kelleher, CEO of the nonprofit organization Better Markets, said in a statement: "The collapse of Achagos did not happen in a vacuum." "This is caused by lax regulatory policies, which allow too much risk to enter our financial market. “
Hwang Woo-suk pleaded not guilty to 11 federal charges, each of which carries a maximum sentence of 20 years' imprisonment.