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Daily business and finance newsletter. visit look, a lot of people took up hobbies in the early stages of the pandemic. people were making pasta, they were cutting their own hair, buying dogs that they could clean up after – things like that. now, and that exact hobby turned out to be the undoing of bill hwang.
Under the influence of dave portnoy, and decided it was time to go all in. stonks so anyhow, this week, us federal authorities arrested and charged bill, the founder of archegos capital management -which is a family office – not a hedge fund as is often reported, with executing a vast scheme to manipulate stocks. he has
Been market manipulation charges. which is bad… strategy was to pick a basket of around ten a dozen prime brokers buy an awful lot of these stocks, he had mark to market profits. he would then use these profits, to get even more leverage from the banks, to buy even more of these stocks. this made
The prices go up even more, which created more profits, which gave our hero more money to buy more of the same stocks. i guess the idea was that this could continue on forever in an infinite loop, but sadly for bill, that is not what happened, but he did have a great run. bill used total return swaps and lots of leverage,
All of which were kindly provided by his prime brokers to build ginormous positions in stocks including viacomcbs, discovery and a number over the course of less than a week in late march 2021, the whole house of cards collapsed leading to huge losses at many of the prime brokers. viacom cbs whose stock bill had pushed
Up a lot, announced a secondary stock offering – basically to take advantage of the high stock price and raise some additional capital. this new supply of stock caused the stock price to sink the next day. this was bills largest position and according to the indictment, he mounted a massive offensive to
Boost viacom, attempting to overpower the market. the $2.6 billion in trading that he did that day their margin calls if the offensive failed. over the next two days, according to the complaint, hwang and his team scrambled to stall the banks from calling in their margin loans. on march 26, he ran out of time. the banks
When we look at the complaints you can see that in march 2020, archegos had $1.6bn in capital and $10.2bn in gross stock market exposure. so, he was trading big to begin with, but those figures just before the collapse in march 2021. street bets in the charges and bill has said nothing about his boredom during the
Pandemic, among the victims, according to the criminal and civil complaints, are the wall street banks that archegos deceived concerning its liquidity and trading positions. hwang’s attorney states that the biggest loser in this whole debacle was of course credit suisse, and i’m not sure that it is entirely
Fair to blame bill for that. in many ways it could be argued that being involved in scandals and taking losses in this manner was credit suisse’s hobby during the pandemic. i have heard that at credit suisse they initially wanted was a shortage of pasta machines early on, and so huge losses it was. in truth,
The losses at credit suisse can reasonably be blamed on supply now, before i go any further, let me quickly tell you about today’s video sponsor – the daily upside. if you are struggling to find useful and unbiased financial and business news, the daily upside might be the solution to your problem. the
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Sign up using the link in the description below. civil cases against archegos and hwang. archegos’s derivative and stock positions the company’s freely tradeable stock. he owned and 60% of the outstanding shares of discovery anyhow, when we look at the various accusations possibly the most significant
One is that bill is accused of deceiving his counterparties to tolerance would have otherwise permitted away with this this because of his use of derivatives. according to the complaints, common stock of a company it wanted to bet on. and only when their ownership approached 5 per cent of the overall business
— A threshold that with these swaps, archegos could make or lose money depending on if a stock rose or fell, with, would show as the actual owner of the of the shares – the bank would have to buy the shares to hedge their exposure to the swap. this trading style allowed archegos but they also provided
Leverage. bill went from assets of $1.6bn to more than to $36bn in just 12 months. at one point, archegos owned or had derivative exposure to more than 50 per cent of the outstanding shares in the media company taking large positions like this in a stock, and avoiding the disclosure rules is most likely illegal
Whether he used swaps or not. i pointed out in a recent video that elon musk broke the law by waiting ten days longer than is legally permitted to disclose his 5% stake in twitter, which allowed him to accumulate an additional stake at a cheaper price, saving him – and costing shareholders who sold to him $150
Million dollars. what hwang is accused of doing here is significantly worse. i’m not sure, but i don’t believe the use of derivatives allows the sec complaint points out that archegos’s trading of the equities referencing its top 10 holdings frequently and even surpassed 40% of certain issuers’ daily trading
Volume. they go on to say that hwang knew that trading in large volumes on a given day would create upward pressure on the share prices and it is not necessarily obvious that this is push up the price and there is not really any rule that says that your trading has to have volume you are allowed to trade. most
Traders typically aim to minimize their market impact, move a stock much when buying and selling it. they say he would buy in the premarket, when liquidity was low, in the middle of the day, to keep the price up, and at the close to “mark the close.” when we sum that up, it essentially the sec later say that
“None of this trading was based on a principled view of the true value of a particular issuer and instead was intended to artificially inflate share prices.” once again, i’m not sure that you have to show that you bought a stock based on good and thorough research. when asked by a colleague whether the relative
Of strength’” on a day when the broader stock sign of me buying.” he added the emoji for tears now, i’m not a lawyer, but it would appear that the sec view this emoji as being possibly key to at least part of their case, as the statement “no. it is a sign of me buying.” is just a statement of fact –
Buying a lot of a stock will push its price up – but maybe the sec feel there is something that can be read into the emoji – after all they didn’t send a text saying – the price is rising because i am illegally manipulating the stock to make money – and adding a devil emoji, as that statement might be more
Difficult for his lawyers to defend. if nothing else, we must commend bill i should add, that bill is a 58 year old, deeply religious man, so i’m guessing that his lawyers can get around any emoji related charges defense.” they can put forth that 58-year-old men have no idea what any emojis mean – other
Than maybe the happy face and sad face ones. that david cameron signed off all of his like i said though, i’m not a lawyer, and now, it would appear that the most is that they lied to their banks and brokers about their stock positions and their overall prices or not, it is illegal to lie to your the sec
Complaint says that archegos claimed substance, that as of november 30, 2020, the largest gross position in archegos’s portfolio made up 35% of archegos’s capital, and this was untrue according to the complaint. at the time, archegos’s largest long position viacomcbs made up approximately 96% of their overall
Capital. in fact, according to the sec, as of that date, archegos had six positions that were greater than 35% of capital. – these numbers sum to more than the department of justice allege in their hwang’s team claimed that archegos could unwind their entire portfolio in around a month without serious
Market disruption. in reality, according to the department of justice, archegos would archegos is additionally accused of claiming was not representative of their overall portfolio with other counterparties, and that their largest portfolio positions were large, liquid technology socks, like amazon, google, microsoft,
And apple. in truth – according to the complaints – none of these stocks ranked in their top ten positions. ubs, which lost $861mn from the debacle, ended up raising archegos’s trading limits by around $2bn a central problem here is that each bank only knew about archegos’s positions that were held might
Have seemed sensible for archegos to have a billion dollar position in a single stock, but not if they have an identically large position brokerage. in such a situation, if archegos defaulted – like they eventually did, all of the counterparties would be selling the same stocks all at once and in size, tanking
The stocks. banks were very aware of this risk, and asked archegos now, we can’t ignore the fact that the banks, a weapon that they had provided to archegos. they created these swaps and provided access to them, knowing that they could be used to conceal the mess that ensued has led to calls for better
Disclosure of swap holdings which currently avoid at the start of the covid pandemic, one of the biggest fears of bank and hedge fund executives was that if staff were allowed to work from home, the theory was that a lack of effective compliance oversight combined with cabin fever could lead this is possibly what
Happened with hwang. regular strategy meetings and talk to his analysts, arguing about investment cases and valuations. the complaints state that once he was confined to his home, he began “essentially ignoring his analysts recommendations” and “spent almost all of his workday with the traders”. far too
Much in his own ability and took it’s notable, that the other big losers in trading during the pandemic were retail options investors, communities that were informationally airtight against any disagreement. hwang was thinking? he is a bright guy, and he must have understood how this would end. the sec’s and justice
Department’s story is that he bought a lot of stock to make the stock go up buying more of the same stock. fine, but, what then? if he was doing this to manipulate the price, what was his overall plan – was there a point where he was supposed to run away with the money leaving the banks holding the bag?
He was doing this with his own money and appears to have lost it all. we have to wonder what the end game was? the strategy, as laid out by the sec and doj, inevitably ends in ruin, and it did. based on the complaints, bill hwang is accused of trying to manipulate these stocks up as high as they could go, essentially
To achieve a high score, knowing that shortly thereafter he would be entirely wiped out and go to prison for fraud. he would not be the first person to do something crazy like this i guess, but he would be the first to do it in this kind of size. it’s a strange idea and it doesn’t make an awful lot of sense.
Either though. maybe “he just liked the stock” link in the video description. it’s a great if you haven’t watched it yet, here rogue traders. hwang didn’t make that list, as the video predated his losses, see you later, bye.
Transcribed from video
Bill Hwang arrested on fraud charges! By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2022-04-29T221509+0000endTimestamp2022-04-29T223544+0000}
