📉 Bill Hwang gets 18 years for Archegos; banks lost about $10B

A federal jury in Manhattan found Bill Hwang guilty on 10 of 11 counts in July 2024, The New York Times reported, and The Wall Street Journal reported that he was sentenced to 18 years in prison. Hwang has denied wrongdoing, the Journal said, and his lawyer has indicated he intends to appeal.

The firm at the center of it was Archegos Capital Management, which Reuters described as a once-$36 billion family office. A family office manages one family's money. This one traded like a hedge fund, and its collapse left the banks that lent to it with about $10 billion in losses, according to Reuters. The money desk likes a number that arrives with its own bill.

Who ended up holding the loss

The losses did not land evenly. The Times reported that Credit Suisse lost $5.5 billion, which the paper called by far the biggest loss among the banks. Reuters reported that Goldman Sachs and Deutsche Bank exited their Archegos positions without losses, and the Journal reported that Goldman and Morgan Stanley moved quickly to sell blocks of assets, which helped limit their losses.

How a family office got that big

The Justice Department alleged in the April 2022 indictment that Hwang turned a $1.5 billion portfolio into a $35 billion portfolio in one year, using swaps (contracts with banks that let him bet on shares without owning them). Because Archegos was a family office, the department said, it was not required to tell regulators about its holdings and debt. Prosecutors alleged that by March 24, 2021, Hwang effectively controlled more than 50% of the freely trading shares of Viacom, and that no one outside Archegos knew.

Hwang’s lawyer Lawrence Lustberg told The New York Times the indictment “has absolutely no factual or legal basis” and that his client was “entirely innocent of any wrongdoing.” Hwang’s lawyers later argued in a December 2022 filing that Archegos’s trading was “entirely lawful,” Reuters reported.

"No. It is a sign of me buying."

Bill Hwang, replying in June 2020 to an Archegos employee who asked whether rising ViacomCBS shares were a “sign of strength,” as quoted in the SEC’s civil complaint and reported by The New York Times

Per the Times, the complaint says the reply was followed by a laughing emoji. Hwang has denied wrongdoing.

The weekend it came apart

Reuters reported that a disappointing ViacomCBS share sale in March 2021 triggered margin calls (demands for more collateral) that Archegos could not meet, and that its lenders then sold big blocks of stock. The Journal reported that the sales approached $30 billion in value and fueled a 27% plunge in ViacomCBS shares in a single day. In the Justice Department’s telling, the companies at the center of the trading lost more than $100 billion in market value in a matter of days.

Verdict, sentence and the fine that followed

The Times reported that the jury deliberated for nearly two days after a two-month trial with 21 prosecution witnesses. It found Hwang not guilty on one of the seven market manipulation counts and guilty on the other 10 counts he faced. Patrick Halligan, the former chief financial officer, was convicted on all three counts against him. Scott Becker and William Tomita, two former Archegos employees, had pleaded guilty and were cooperating with the government, according to the Justice Department.

The Journal reported the 18-year sentence on the Wednesday of sentencing week, noting that the scheme led to the biggest single-firm meltdown since the financial crisis.

The bill kept travelling. In July 2023 UBS agreed to pay $387 million in fines issued by US and British regulators over what the Times described as Credit Suisse’s acknowledged “fundamental failure of management and controls.” UBS had acquired Credit Suisse for $3.2 billion, and the Times reported the fine raised the takeover price by more than 10 percent. A fortune that started as one man’s private money ended as another bank’s line item.