In the spring of 2021, the small investment firm Archegos Capital Management, led by founder and CEO Bill Hwang, imploded and left big Wall Street banks with billions of dollars in losses. Hwang is set to stand trial on charges of racketeering, conspiracy, and fraud. The collapse of Archegos shook Wall Street, highlighting issues with the lack of regulation of family offices, which are small private firms set up by the wealthy to manage their wealth. The collapse also occurred during a time of rock-bottom interest rates and cheap capital, leading to concerns about market reform and the impact of fraud on the financial system.
Archegos created deceptive schemes to inflate the value of publicly traded stocks, including Viacom and Discovery, using financial instruments called total return swaps. Hwang allegedly lied to banks and used swaps to conceal the huge positions he was building, ultimately leading to massive losses when stock prices fell. Banks demanded more collateral to cover the losses, causing liquidation of the firm’s positions and further depressing stock prices. The collapse wiped out over $100 billion in market value in a single week, with one bank, Credit Suisse, taking a $5.5 billion hit.
The founder of Archegos, Bill Hwang, is a devout Christian who has faced legal issues in the past. A lawsuit filed by a former employee describes a toxic culture at the firm that valued employee submission and adulation. Hwang allegedly pushed his faith onto his staff and required them to put a portion of their bonuses into the firm’s deferred compensation plan, which suffered losses during the collapse. Hwang’s criminal trial is set to begin, and he has pleaded not guilty to the charges. This is not his first run-in with the law, as he pleaded guilty to wire fraud related to his hedge fund in 2012.
White-collar crime on Wall Street is a significant issue that can impact the financial well-being of many Americans, especially those with retirement funds. The Archegos charges indicate that the Department of Justice is taking a tougher stance on fraud, holding individuals like Hwang personally accountable under criminal laws. Advocates for market reform point to the lax regulatory policies that have allowed excessive risk into financial markets, leading to events like the Archegos collapse. Hwang’s trial will shed further light on the impact of opaque market shenanigans and the need for stricter regulations to prevent similar incidents in the future.