From March 2020 through its collapse in March 2021, Archegos Capital Management, headed by Sung Kook (Bill) Hwang and partners, entered into a manipulative scheme that increased Archego’s bottom line from around $4 billion to $36 billion, according to a SEC lawsuit filed against Archegos.
Archego went undetected by leveraging existing minimal regulations governing family offices and exploiting a regulatory loophole that would not force it to disclose its stake in certain companies.
The SEC said the firm inflated its value by dominating the market for its top 10 holdings, as well as "setting the tone" (i.e., engaging in large premarket trading.)
It also said Archego bid up prices by entering incrementally higher limit orders throughout the trading day, "marking the close" (engaging in large trading in the last 30 minutes of the trading day) and engaging in other non-economic trading, with the goal of artificially inflating the share prices of its top 10 holdings.
The firm sought extreme leverage from banks such as Goldman Sachs and Morgan Stanley to carry out market-moving transactions, artificially pumping the share prices of its top holdings, according to the SEC.
The scheme's capacity became too much for Archego to bear in March 2021, when price declines in some of those holdings triggered a margin call that the firm was too illiquid to cover, resulting in defaults that cost creditors more than $10 billion.
Archego’s Top 10 Holdings included:
- CBS Viacom/Paramount Global PARAA
- Baidu Inc BIDU
- Tencent Music Entertainment Group - ADR TME
- GSX Techedu/Gauto Techedu GOTU
- Vipshop Holdings Ltd - ADR VIPS
- Discovery Communications/Warner Bros Discovery WBD
- IQIYI Inc - ADR IQ
- Discovery Communications Class C/Warner Bros Discovery WBD
- Farfetch Ltd FTCH
- Shopify Inc SHOP
Another stock Archego is accused of manipulating that was not in its top 10 holdings was Rocket Companies RKT.
The banks that incurred the losses include:
- Credit Suisse CS
- Nomura Holdings
- Morgan Stanley MS
- Wells Fargo & Co WFC
- Deutsche Bank AG DB
- Goldman Sachs GS
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