Archegos founder Bill Hwang and CFO Patrick Halligan were arrested and charged with 11 criminal counts.
Federal prosecutors said Bill Hwang used Archegos as an “instrument of market manipulation and fraud.”
The hedge fund managed to inflate its portfolio from $1.5 billion to $35 billion before its collapse, causing massive losses for banks and investors.
Let’s break down everything that’s happening, together.
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Bill Hwang and Patrick Halligan arrested for market manipulation
Before he lost it all, Bill Hwang was worth $20 billion and was known as one of the greatest traders you could have heard of.
Hwang’s $20 billion net worth was almost as liquid as a government stimulus check.
And then, in two short days, it was gone.
The sudden implosion of Hwang’s Archegos Capital Management in late March is one of the most spectacular failures in modern financial history.
No individual has lost so much money so quickly, via Bloomberg.
Bill Hwang’s wealth briefly peaked at $30 billion.
He used swaps, a type of derivative that gives an investor exposure to the gains or losses in an underlying asset without owning it directly.
Another leverage tool hedge funds have access to, which concealed both his identity and size of his positions.
You’d think a regulatory agency would exist right?
Don’t count on the SEC.
On March 26th, investors learned that Archegos had defaulted on loans used to build a $100 billion portfolio.
Credit Suisse, one of Bill Hwang’s lenders, lost $4.7 billion.
How did Archegos manipulate the stock market?
Bill Hwang’s Archegos essentially used a ton of leverage to pump stock prices up.
As the price of stocks rose, they would buy more shares with those profits, and continue to borrow money from the bank to further pump the prices.
Archegos only held a small portfolio consisting of a few selected companies, of which whom they had many shares of.
When a few companies’ share prices began to plummet, Hwang’s entire empire crumbled almost instantaneously.
As the value of their portfolio sank, the hedge fund was forced to liquidate even more assets due to margin calls, further escalating the situation, and losses.
Archegos was forced to default, causing investors and banks billions of dollars.
Bill Hwang already had a troubled history with hedge fund Tiger Asia, who was shut down by the U.S. for insider trading and for manipulating Chinese stocks.
Still, Bloomberg vouches for Bill Hwang publishing an article he has done nothing wrong.
What was Bill Hwang charged with?
Hwang and Chief Financial Officer Patrick Halligan were charged with 11 criminal counts overall, including racketeering conspiracy, market manipulation, wire fraud and securities fraud.
Hwang was arrested early Wednesday and was expected to appear in Manhattan federal court later in the day.
This is a developing story.
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