The arraignment on April 27 of Archegos Capital Management founder Bill Hwang and Patrick Halligan, the former chief financial officer, on charges of racketeering conspiracy, securities fraud and wire fraud will bring back memories that some would no doubt wish forgotten. Not least Credit Suisse, Nomura Holdings, Mitsubishi UFJ Financial, Morgan Stanley, UBS, Goldman Sachs and the other banks which financed Hwang’s heavily leveraged stock trades and lost so badly in consequence. Some US$100 billion in lost shareholder value buys a lot of regret. And it makes you wonder if things have gotten any better.
Was Bill Hwang’s track record really that hard to miss? As founder of Tiger Asset Management in Hong Kong, he settled in 2012 over charges of market manipulation and was barred from trading in public money for at least five years (in the end, until 2020). A little know-your-customer due diligence surely would have turned up that case.
A Google search turns up dozens of hits from 2012, including one at the US Securities and Exchange Commission (SEC). Here's a man who has been banned from trading in public money, thanks to an SEC investigation, and you're going lend him money to trade in stocks in the US?
High-net-worth individuals and investors in family offices might want to reflect that, to put it kindly, the banks which are supposed to be stewards of your money can get sloppy when big fees are on the table. Hwang doing an end run around existing market regulations is one thing – regulation is always going to be reactive, playing catch-up with those who have spotted existing loopholes. The actions of those with both fiduciary responsibility and discretion are a lot less forgivable.
According to news reports, Hwang’s lenders repeatedly took his assurances at face value, without serious due diligence. And it’s no surprise that sophisticated financial instruments like total return swaps once again facilitated a Wall Street catastrophe.
The exposure of Credit Suisse and UBS to these losses in particular confirms all my suspicions about the quality of regulation and internal culture in Swiss finance; and the fact that Credit Suisse’s chief risk officer resigned after the bank lost some $5.5 billion through Archegos invites a derisory shrug.
Yes, pension funds, endowments and other institutions, your money was safe from Hwang – because he gamed the slacker regulation of private wealth investment. So what are you supposed to think now? How lucky you were that Credit Suisse, Nomura, Morgan Stanley, Goldman Sachs, etc, etc, weren’t managing your money this time?
Market commentators are already saying that regulators should now bring large family offices within the scope of SEC oversight, audits and inspections. This affair leaves me far more concerned about the banks. This is what they get up to the moment the regulatory leash is slackened even slightly? God help us all – and our money.