On July 10, 2024, Archegos Capital Management founder Bill Hwang was found guilty on ten criminal counts involving varying levels of market manipulation that led to billions of dollars completely evaporating overnight. Archegos Capital Management, a hedge fund, collapsed in 2021 after margin calls prompted a mass sell-off where nearly a dozen companies, as well as banks and prime brokers duped by the hedge fund, lost billions overnight. Archegos collapsed during this time as well, with the total market damage being well over one hundred billion dollars. How exactly was something this monumentally disastrous ever allowed to happen?
The severity of this situation truly emphasizes how easily money markets can be manipulated by those who possess leverage. According to the Justice Department, Bill Hwang “lied to banks to obtain billions of dollars that they then used to inflate the stock price of a number of publicly-traded companies.” He turned a $1.5 billion portfolio into a $35 billion portfolio in just one year. Also, according to the Justice Department, “Hwang and his co-conspirators convinced major financial institutions to enter into agreements with them based on lies, the result of which ultimately led to a massive market manipulation scheme.”
How exactly did he pull this off? According to the Justice Department, “Hwang and his co-conspirators invested in stocks mostly through special contracts with banks and brokers called “swaps.” As alleged, these swaps allowed Hwang to cause massive buying of certain stocks, including at carefully selected days and times, to artificially pump up stock prices. Hwang, Halligan and their co-conspirators lied to banks and used a series of manipulative trading techniques to keep those prices high and prevent them from falling. This led to inflation of these stock prices. Last year (2021), when the prices fell, Hwang’s positions were sold off and he could no longer manipulate the prices, and billions of dollars of capital evaporated nearly overnight.” At the end of the day, it’s the average investor who truly feels the ramifications of these actions.
Sources:
(2024, July 10). Founder of collapsed hedge fund Archegos Capital is convicted in securities fraud scheme. AP News. https://apnews.com/article/archegos-capital-bill-hwang-b3b9068f0d30519f67d1a01a37056003
(2022, April 27). Four Charged in Connection with Multibillion-Dollar Collapse of Archegos Capital Management. United States Department of Justice. https://www.justice.gov/opa/pr/four-charged-connection-multibillion-dollar-collapse-archegos-capital-management
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