Archegos Capital Management, a small investment firm, collapsed in the spring of 2021, leaving Wall Street banks with billions of dollars in losses. The founder and CEO, Bill Hwang, will stand trial on charges of racketeering, conspiracy, and fraud in a lower Manhattan courtroom. Hwang’s character, the impact of the collapse on Wall Street, and the lack of regulation of family offices are reasons why this trial is being closely watched.
Archegos used deceptive schemes to inflate the value of certain publicly traded stocks, including Viacom and Discovery. Hwang used financial instruments called total return swaps to gain exposure to the stocks without actually owning them. Hwang and his team allegedly lied to banks, used swaps to conceal huge positions, and evade government regulations. This led to the firm growing its portfolio from $1.5 billion to $35 billion, but when stock prices fell, the firm found itself in trouble, unable to cover the losses.
The collapse of Archegos wiped out more than $100 billion in apparent market value for nearly a dozen companies in just one week. Credit Suisse, one of the banks involved, took a $5.5 billion hit on its loans to Archegos, contributing to the lender’s downfall a year later. The collapse left Archegos owing billions to banks that were left holding the bag. Hwang’s trial is set to begin, and he has pleaded not guilty to 11 federal charges that carry a maximum sentence of 20 years in prison.
Bill Hwang, the founder of Archegos, is a devout Christian who isn’t shy about pushing his faith, even to his staff. A former employee filed a lawsuit alleging a toxic culture at the firm that valued employee submission and adulation. Hwang urged his staff to devote more time to their faith and attend scripture readings. The name Archegos comes from the Greek word for leader and was used in the Bible to mean Jesus Christ. Hwang has a history of legal troubles, having pleaded guilty to wire fraud in 2012 related to his hedge fund.
White-collar crime on Wall Street may seem distant to most Americans, but the impact of opaque market shenanigans can affect retirement funds and the wider economy. The Archegos charges suggest that the Department of Justice is taking a harder line on fraud, holding Hwang and his associates personally accountable under criminal laws. Market reform advocates are pointing to the Archegos collapse as a warning about lax regulatory policies that allow excessive risk in financial markets. The outcome of Hwang’s trial could have implications for future regulation and enforcement in the financial industry.
