The Securities and Exchange Commission (SEC) has charged Sung Kook (Bill) Hwang, the owner of the family office Archegos Capital Management, with allegations of a massive fraud that “resulted in billions of dollars in losses.”
The SEC alleges that Hwang and Archegos purchased security-based swaps allowing investors to take on huge positions in equity securities of companies by posting limited funds up front. According to the SEC, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the securities. As a result of these actions, Archegos allegedly experienced a period of rapid growth, increasing in value from about $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.
According to the SEC’s complaint:
“Eventually, the weight of the Defendants’ fraudulent and manipulative scheme was too much for Archegos to bear, and over the course of less than a week in late March 2021, the house of cards collapsed. Price declines in some of Archegos’s Top 10 Holdings triggered significant margin calls that Archegos was unable to meet. In turn, without its trading activity to artificially inflate the prices of the Top 10 Holdings, those stock prices collapsed. And, Archegos’s subsequent default resulted in billions of dollars in credit losses among its Counterparties and significant losses to the market participants who invested in the stocks at inflated prices.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said they allege that Hwang and Archegos “propped up a $36 billion house of cards.”
“But the house of cards could only be sustained if that cycle of deceptive trading, lies, and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed, allegedly leaving Archegos’s counterparties billions in trading losses.”
It has been widely reported that Hwang has been arrested by federal agents as he is facing criminal charges alongside the SEC’s civil action.