More Fallout From Hedge Fund’s Sell-Off
A month after Archegos Capital Management (Archegos), a hedge fund and the family office of Bill Hwang, liquidated more than $30 Billion in equities when banks ordered it to post more collateral after borrowing on margin, news about the fallout continues.
UBS Group has finally disclosed that it lost $861 Million as a result of exposure to Archegos. Morgan Stanley also recently announced that it sustained $644 Million in losses from a “credit event” and $267 Million in related trading involving Archegos.
Meanwhile, Nomura, which initially thought it lost $2 Billion in the Archegos collapse, is now reporting that the total is more than $2.85 Billion. Credit Suisse earlier reported $5.5 Billion in related losses and Mitsubishi UFJ Group noted that its losses were likely at $300 Million.
What Happened in the Archegos Meltdown?
In late March, Archegos Capital, which had used derivatives while borrowing on margin, at first tried to meet the collateral requests to keep losses minimal. Instead, Archegos ended up having to liquidate millions of shares, including stock in Discovery, ViacomCBS, and a handful of Chinese tech companies.
This caused lenders to conduct a “fire sale” on the stocks, resulting in depressed prices. And, with so many shares becoming available on the market, their prices only took more of a hit. Over a two-day period, Archegos and the related banks unwound approximately $30 Billion of positions.
Archegos May Have Misled Morgan Stanley, Contends CFO
Morgan Stanley was the largest prime broker to Archegos Capital Management. During a call with analysts, the broker-dealer’s CFO Jon Pruzan said that Bill Hwang’s family office may have misled the firm.
He claims Morgan Stanley decided to hold collateral for the hedge fund because of facts that now have proven to be untrue. One of the reasons Morgan Stanley sustained such significant losses was that Morgan Stanley had been an underwriter on ViacomCBS. This caused Morgan Stanley to hold off on selling a block of that company’s stock.
Bill Hwang previously pleaded guilty to wire fraud related to insider trading on behalf of his Tiger Asia Management fund. The illicit activities reportedly earned his firm $16 Million in profits.
According to Fortune, just three years ago, Goldman Sachs Group still would not do business with Hwang. The firm then changed its mind, allegedly because of the high commissions Goldman Sachs could earn. However, Goldman Sachs, as another prime broker that handled Archegos’ trading, reportedly was able to act fast enough to limit losses from last month’s collapse.
Lax Regulation of Family Offices
A family office is a private wealth management advisory firm that works with ultra-high-net-worth individual investors. Unlike traditional wealth management firms, they provide outsourced solutions to wealthy individuals and families. Family offices are not strictly regulated. For example, 2010’s Dodd Act exempted family offices from certain reporting requirements by which other investment firms overseeing over $100 Million must abide.
According to the Wall Street Journal, Archegos also seemed to have skirted certain mandated stock-ownership disclosures because of its use of total return swaps derivatives. This allowed Hwang’s holdings to be hidden from the companies in which he invested.
Experienced Hedge Fund Fraud Attorneys
With Wall Street losses linked to Archegos Capital Management topping over $10 Billion, many investors are experiencing significant hedge fund losses. Our seasoned hedge fund fraud lawyers have been representing investors all over the United States recoup their losses as a result of securities fraud, broker negligence, and brokerage firm liquidation.
Contact us at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) today for a free case consultation.