Following the massive blowup of Archegos Capital Management that rocked Wall Street, the US Securities and Exchange Commission has taken notice, and opened a preliminary investigation into billionaire Bill Hwang’s leveraged trades.
People familiar with the matter revealed to Bloomberg that the SEC has recently initiated a civil probe into Hwang’s Archegos, after the investment vehicle defaulted on its margin calls, prompting a number of brokers to liquidate their positions. The inquiry is currently in the early stages, and is being overseen by the SEC enforcement division’s asset-management group.
Last week, several of Hwang’s positions moved against his favour, forcing the billionaire to put up more collateral. In the end however, he was unable to meet his margin calls, which prompted a number of banks including Morgan Stanley and Goldman Sachs to unwind the positions via a series of block trades. This in turn sent shares of several US and Chinese tech and media companies plummeting, including Baidu Inc, Discovery Inc, and ViacomCBS Inc.
However, several banks that served as brokers to Archegos were not as fortunate. Credit Suisse and Nomura Holdings, which lent Hwang extensive sums of money for his wagers, revealed they face “significant” losses as a result of the billionaire’s margin call default. In contrast, Goldman was able to swiftly reduce its exposure and anticipates the existing negative impact to have a minimal effect on its financial results.
The recent Archegos disaster has opened up questions about regulatory oversight (or lack thereof). Hwang was not required to disclose his positions with other market participants, despite accumulating tens of billions of dollars in stock bets. He was able to do this by getting into swaps transactions with numerous banks, which allowed him to gain exposure to price fluctuations without purchasing shares.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.