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.
See Also: Archegos Founder Bill Hwang Hit With Fraud Charges: What You Need To Know
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 (NASDAQ: PARAA)
- Baidu Inc (NASDAQ: BIDU)
- Tencent Music Entertainment Group - ADR (NYSE: TME)
- GSX Techedu/Gauto Techedu (NYSE: GOTU)
- Vipshop Holdings Ltd - ADR (NYSE: VIPS)
- Discovery Communications/Warner Bros Discovery (NASDAQ: WBD)
- IQIYI Inc - ADR (NASDAQ: IQ)
- Discovery Communications Class C/Warner Bros Discovery (NASDAQ: WBD)
- Farfetch Ltd (NYSE: FTCH)
- Shopify Inc (NYSE: SHOP)
Another stock Archego is accused of manipulating that was not in its top 10 holdings was Rocket Companies (NYSE: RKT).
The banks that incurred the losses include:
