Remember Archegos? Arch. Egos. As a description of many in finance it can scarcely be bettered. A novelist might even think it a tad too unbelievable, unless you were seeking to write satire.
But why bother when reality serves it up on a plate.
The founder of Archegos Capital Management, Bill Hwang, described himself in 2008 as “like a little child looking for where can I invest to please our God.” Not long after – in November 2009 – Goldman Sachs’s Lloyd Blankfein described bankers as “doing God’s work“. Oh dear. The full extent of what bankers had been doing had yet to reveal itself, whether to God or anyone else. Still, PR advisers would do well to note that such statements tend to bring to mind the Ralph Waldo Emerson quote: “The louder he talked of his honour, the faster we counted our spoons.”
This is all very medieval. Money being magicked out of thin air like latter-day alchemy. The financier seeking to buy his way to Heaven through good works.
Back to Mr Hwang. At the time of his humblebrag he was running Tiger Asia Management, which ended up being one of the largest investors in the expanding and profitable Asian market.
What God thought of Mr Hwang’s activities is unknown. What the SEC thought is, however. For in 2012 following a lengthy investigation, also involving the Hong Kong regulator, he pleaded guilty to insider trading and manipulation relating to trading in various Chinese stocks in late 2008 / early 2009 and was banned from trading in HK for four years. Surely not when he was trying to please God? Yes, apparently so.
A humongous fine inevitably followed. And almost as inevitably, the following year in 2013 Tiger Asia Management was wound up and Archegos rose, Phoenix-like, in its place, with an impressive list of banks supporting and enabling its trading.
Alas, for all those banks which funded it, when Archegos collapsed in 2021 they ended up nursing some very large losses indeed – ranging from $5.5 billion (Credit Suisse), $2.85 billion (Nomura), $1.9 billion (Morgan Stanley) to $744 million (UBS).
What about its founder, Bill Hwang? The man who used his fabulous wealth to set up The Grace and Mercy Foundation, a charitable organization which sponsors Bible readings, religious book sales, and funds Christian organisations. What happened to him?
Well, in April 2022 Mr Hwang was arrested and charged by the US Federal authorities with 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation. His Chief Financial Officer, Patrick Halligan, was charged with three counts of conspiracy, securities and wire fraud.
On July 10, 2024 Mr Hwang was convicted on 10 of those counts. Mr Halligan was convicted on three counts. Unless they succeed on appeal, they will face a long spell in a Federal prison.
According to the prosecution, both Mr Hwang and his CFO had lied about Archegos’s “positions in the companies” whose shares it traded and “just about every other materially important metric investment banks would use in determining the firm’s creditworthiness.”
Well now. There’s a phrase – “materially important metric”. Did it perhaps include the most important metric of all – the character of the person running it?
What God thought of Mr Hwang’s activities is unknown. What the SEC thought is, however.
Other questions really ought to have been asked by now by the banks whose client Mr Hwang was. What due diligence did they do on him? And his fund? Was a fund run by a convicted insider dealer really a suitable client? How did banks get comfortable with this? Did they really know their customer? And if they did, how did they assess the risk this fund might pose? How was it monitored? And so on. Above all, was his character even a metric – let alone a “materially important” one?
The prosecution went on. The lies both men had told the banks had allowed them to “fraudulently inflate a $1.5 billion portfolio into a $36 billion one”.
This is all very medieval. Money being magicked out of thin air like latter-day alchemy. The financier seeking to buy his way to Heaven through good works, though, alas, not with a Scrovegni Chapel painted by today’s equivalent of Giotto. Would it be impertinent to mention the 8th Commandment at this point? Far from being a wealthy financier seeking to preserve and enhance family wealth, Mr Hwang was essentially a “pump and brag” merchant, freewheeling and reckless, who used sophisticated derivative products and loans to mislead banks.
There is something rather Robert Maxwell-like about Mr Hwang: a man with a dodgy record, an eye for the main chance, a willingness to brag and puff himself up, who would not let the mere matter of a regulatory finding against him stop him, who managed to get some of the most apparently sophisticated banks in the world to enable and fund his ambitions, ambitions which turned out to be so much fraudulent hot air. (He even looks a bit like him.) Something rather Maxwell-like too about the way so many banks rushed to facilitate his trading and lend him money.
As is all too common, there was plenty of greed to go round. And stupidity.