Korean-American Bill Hwang, Who Caused $12 Trillion Loss on Wall Street, Arrested

US Federal Prosecutors Indict for Fraud
Up to 20 Years Sentence... Hwang Claims Innocence

Bill Hwang
[Photo by AP Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] Bill Hwang (Korean name Hwang Sung-guk), a Korean-American investor who caused losses of $10 billion (about 12.6 trillion KRW) to Morgan Stanley, Credit Suisse, Nomura Securities, and others in the Wall Street margin call crisis last March, has been arrested by the U.S. federal prosecutors.

According to major foreign media on the 27th (local time), the U.S. Attorney's Office for the Southern District of New York arrested Hwang, founder of Archegos Capital Management, and Patrick Halligan, Chief Financial Officer (CFO), and indicted them on charges including fraud. Prosecutors believe that he deceived international financial firms to borrow huge sums and manipulated stock prices by investing in derivatives on stocks he held.

Archegos invested about $50 billion (approximately 63 trillion KRW) in stocks, more than five times its assets, through derivative contracts such as total return swaps (TRS) and contracts for difference (CFD). According to prosecutors, Archegos' leverage ratio once reached 1000%.

However, when the stocks Archegos borrowed funds to invest in plummeted, a margin call situation arose requiring additional collateral payments. Goldman Sachs and others quickly sold the collateralized stocks through block trades (off-exchange transactions) to minimize losses, but other financial firms suffered losses as stock prices further declined due to the impact of the block trades.

The losses incurred by international financial firms that traded with Archegos exceeded $10 billion. Credit Suisse suffered the largest loss at $5.5 billion (about 7 trillion KRW). Nomura Securities also lost $2.85 billion (about 3.6 trillion KRW), and Morgan Stanley's losses amounted to approximately $911 million (about 1.1 trillion KRW).

[Image source=AP Yonhap News]

If the prosecution's charges are accepted by the court, Hwang and others could face up to 20 years in prison. Prosecutors stated, "Hwang used Archegos as a tool for market manipulation and fraud, inflating Archegos' portfolio from $1.5 billion to $35 billion, causing massive losses to banks, financial market investors, and employees."

The U.S. Securities and Exchange Commission (SEC) also indicted three Archegos members, including Hwang and Halligan, on charges of fraud and others on the same day. SEC Chairman Gary Gensler said, "The Archegos incident last year proved that a single company can cause widespread harm to investors and market participants."

Hwang pleaded not guilty in court, claiming the prosecution's charges were unjust. His lawyer stated in a press release, "Our client did nothing wrong. There is also no evidence supporting the crimes alleged by the prosecution."

The court granted Hwang bail on the same day. The bail bond was set at $100 million (about 126 billion KRW). It is reported that Hwang paid $5 million (about 630 million KRW) in cash to purchase a bail insurance policy and pledged real estate including his home in New Jersey as collateral.

Once known as a "Tiger Cub," Hwang was considered the most successful Korean-American fund manager on Wall Street. He moved to the U.S. with his parents during his senior year of high school, graduated from UCLA, and earned an MBA from Carnegie Mellon University.

A prot?g? of Julian Robertson, the "legend of hedge funds" who led the famous hedge fund Tiger Management, Hwang founded the "Tiger Asia Fund" in 2001, achieving an average annual return of 16% and managing assets exceeding $5 billion. However, in 2012, he was penalized by Hong Kong and U.S. authorities for trading Chinese bank stocks using insider information and subsequently liquidated the fund.