Phoenix Network "Eye of the Storm" produced
Author: Fenghuang Finance Gu Bei
A hair combed behind the ears, a pair of thick black-rimmed glasses, and a blue jacket and khaki pants.
When Bill Hwang appeared at the scene of the federal court trial in New York, it was difficult to believe that this 58-year-old Korean-American who looked ordinary and was jokingly called "like Yue Yunpeng" by Chinese netizens single-handedly set off a capital shock on Wall Street.
Through financial means such as bank borrowing and leverage, Bill Huang's personal wealth soared from $1.5 billion to $35 billion in a year in early 2021, and his company's actual stock positions swelled to $160 billion, comparable to some of the world's largest hedge funds, according to prosecutors.
But the over-inflated bubble soon burst. In March last year, Archegos Capital Management, the family office founded by Bill Huang, was liquidated due to a sharp decline in Chinese stocks, the rupture of leverage led to a liquidation, and the 100 billion US dollar position was wiped out, and the fund finally went bankrupt.
Archegos' blowouts have also brought a series of chain reactions. Goldman Sachs, Morgan Stanley and other investment banks forced liquidation, and once again triggered a sharp decline in Chinese stocks. A frenzied, market-crashing sell-off ensued, costing Credit Suisse more than $5 billion and Japan's Nomura $3 billion.
"Lies spawn inflation, and inflation spawns more lies. It turns round and round. But last year, the music stopped. Damian Williams, the federal attorney for the Southern District of New York, described the "great crash" last March.
The collapse of Archegos sparked an investigation by regulators. In the indictment, Prosecutors in New York accused Bill Huang and Archegos' chief financial officer, Patrick Halligan, of "making materially false and misleading statements to the bank" and thus successfully implementing the "total proceeds swap" operation.
After a year or so of investigation, on April 27, U.S. time, Bill Huang and Patrick Haligan were arrested by federal law enforcement officers and indicted on charges including securities fraud, telecommunications fraud and extortion. If convicted, Bill Huang faces up to 380 years in prison.
It also means that bill Huang, a Wall Street Korean billionaire, a disciple of the godfather of hedge funds, and the founder of the Asian Tiger Fund known as "Little Tiger," Bill Huang, may spend the rest of his life in prison.
Bill Hwang outside federal court in New York on April 27 (Image: Bloomberg)
A historic "fraud"
Last March, a Man of Korean Descent made two "histories" on Wall Street — "the largest one-day loss in human history" and "a historic stock manipulation scheme in the U.S. stock market."
According to media reports, the Korean-American man named Bill Wong is a devout Christian. He founded Archegos, derived from a Greek word that is often thought to mean "Jesus—to administer his own personal wealth."
"We like to see in our eyes what God is doing by investing in capitalism." He said this in one of the few interviews.
And if God wants to destroy it, he must first make it crazy. Before last March's plunge, Bill Huang and his Archegos fund were undoubtedly "crazy."
From the information disclosed by securities companies, it is known that archgos fund uses leverage to hold US media giants Viacom and Discovery Channel, Chinese stocks Baidu, Tencent Music, Vipshop, who to learn from and so on.
Some of these positions are held through "total return swaps," a derivative that allows investors to buy large leveraged stakes without publicly disclosing their positions.
Before the March plunge, Viacom and The Discovery Channel shares rose more than 150 percent, while several Chinese stocks rose between 50 percent and 100 percent. Considering the extreme leverage, archgos funds are surprisingly profitable.
In its recently disclosed findings, the SEC also mentioned archegos' "crazy" wealth growth rate.
The SEC's investigative documents show that from March 2020 to March 2021, Bill Wong-controlled Archegos purchased billions of dollars in total return swaps on margin. These securities-based swaps allow investors to hold large positions in the company's securities with limited funds.
According to media reports, Bill Huang frequently traded related swaps in order to significantly raise the price of the company's stocks, thereby inducing other investors to buy them at high prices. Under Bill Huang's trading strategy, Archegos' management scale and profitability grew rapidly.
According to the SEC, the company used about $1.5 billion in principal to buy about $10 billion in securities in March 2020, and by March 2021, the company used more than $36 billion to buy about $160 billion in securities, increasing the size of its family office portfolio from $1.5 billion to $35 billion in just one year.
But on March 23, 2021, viacom's share price plunged due to its additional stock offering, kicking off the Archgos fund's explosion.
After Viacom fell for 3 consecutive trading days, archegos fund, which held viacom and made a lot of profits, had to sell a large number of stocks through major brokerage platforms, while selling other stocks in its positions.
On March 25, Chinese stocks such as Tencent Music and iQiyi fell by nearly 20% intraday. And this sharp decline also began to cause a chain reaction. Archegos, which holds heavily related stocks, is difficult to call for margin calls, which eventually triggers a wave of forced liquidation of investment banks such as Goldman Sachs and Morgan Stanley, and once again triggers a sharp decline in Chinese stocks.
The move spurred a frenzied, market-crashing sell-off that cost Credit Suisse more than $5 billion and Japan's Nomura $3 billion. U.S. banks such as Goldman Sachs came out of their positions relatively quickly and were largely unaffected.
Some people calculate that on the day of the liquidation, Archegos' fund lost more than $10 billion (about 65.4 billion yuan), which may have set a record for a single investor in human history.
The collapse of Archegos led federal prosecutors, the U.S. Securities and Exchange Commission (SEC) and other regulators to begin investigations.
According to a 59-page indictment document, the U.S. department of justice believes that he manipulated prices and artificially increased the value of his open positions, and the stocks he manipulated included the US media stocks Viacom and Exploration Communications, and the Chinese stocks included HeheXue (now renamed Gaotu Group), iQiyi, Tencent Music, Vipshop, Baidu, Futu Holdings, etc.
According to the indictment, Bill Huang influenced the stock price by buying 10% to 15% of the trading volume of the above-mentioned shares, such as from December 2020 to March 2021, he bought a large number of shares with whom to learn, with an average daily trading volume of 15%. Among them, 11 trading days exceeded 30% of the trading volume, and 5 trading days exceeded 35%. Between October 2020 and March 2021, he bought Tencent Music in more than 35% of the trading days in 8 trading days.
Chat history shows that when he was asked if the stock Viacom was doing well relative to the market, was it a sign of strength? Hwang's reply was stunning: "No, this is a sign that I bought." ”
On April 27, Archegos owner Bill Huang and its former chief financial officer, HarryGan, were arrested by federal law enforcement officers. Prosecutors said they were suspected of deliberately misleading banks in order to borrow money and manipulating a handful of stocks through complex securities operations.
According to the New York Times, family offices like Archegos, which manage the funds of insiders in investment circles, are less regulated. And it also uses complex financial instruments called swaps to spread bets across several banks, allowing Bill Huang to manipulate the direction of stock prices when he doesn't actually own the stock.
Damian Williams, a federal prosecutor for the Southern District of New York, said at the launch of the case: "Archaigos' stock manipulation scheme is 'historic.'"
Damian Williams, federal prosecutor for the Southern District of New York
Prosecutors said Bill Huang usually buys spot shares until the position is close to 5 percent of the company's issued shares. Once that threshold is reached, he moves on to a new way of trading to avoid public disclosure of his positions.
He would then use so-called "total return swaps" to sign contracts with banks; if the stock price went up, he would make money, but if it fell, he would lose money. The indictment alleges that in some cases his positions were equivalent to more than 50 per cent of the issued shares of the companies in which he invested.
According to Bloomberg, Bill Huang faces up to 380 years in prison if convicted of all charges. In other words, Bill Huang, who is already 58 years old, may spend the rest of his life in prison.
Still, at Wednesday's trial, Bill Huang and Patrick W. Bush were killed in the trial. Khaligan pleaded not guilty to any of the 11 criminal charges. Bill Huang has been released on $100 million bail, with a deposit of $5 million in cash and two properties.
A mystical Christian
Before setting the "record for the largest loss in a single day in human history" last March, Archegos and its owner Bill Huang were both low-key and mysterious.
In Bill Huang's 25-year investment career, he has almost never been interviewed by the financial media. Even the reporters of the top financial media "Wall Street Journal", "Bloomberg" and "Financial Times" have not been able to interview him.
There are only two public messages about him on the Internet, and the theme is about God.
According to employees, Bill Wong holds Bible readings at Archegos every Friday morning at 7 a.m., where 20 to 30 people huddled around a long table, sipping coffee and dancing Danish dances while listening to recordings of the Bible and trading their possessions.
Bill Wong also long-term funded a Korean philanthropic foundation called The Grace and Mercy Foundation, which has contributed to many religious causes.
In fact, before becoming an investor, Bill Huang was already a devout Christian. And Bill Huang's passion for religion may have a lot to do with his family and the environment in which he grew up.
According to information provided by an anonymous person who claimed to be a former Archegos employee, Bill Wong' Korean name was Sung Kook Hwang and was born in South Korea in 1964. His father was a Christian priest, his mother was a missionary, and he had an older brother.
After graduating from high school in Seoul, Bill Wong followed his parents to the United States. But soon after, his father, who was only about 50 years old at the time, died suddenly, and the family lost their source of income.
Bir Wong considered giving up his studies to help his family, but his mother strongly opposed it. After that, his mother worked odd jobs to subsidize the family, and Bill Huang worked hard in a small garage and eventually passed the UCLA. After graduating from college, Bill Huang was admitted to carnegie Mellon University for an MBA.
After graduating with an MBA, Bill Huang chose to work on Wall Street. In the rare era of Asians on Wall Street, Bill did not start high, doing stock sales in the New York branch of Hyundai Securities in South Korea, and his daily job was to let American investors buy Korean stocks.
Bill Hwang (Image: Wall Street Journal)
The turning point in his life came when Bill Huang met Julian Robertson, the founder of tiger fund, in 1996. Bill Wong was officially invited to join Tiger Fund after serving for a period of time as a stock salesman.
Bill Huang's talent for investing was appreciated by Julian Robertson. In 2001, with Julian's $25 million support, Bill Huang founded the Tiger Asia Fund, which is headquartered in New York.
With his personal investment talents and investment skills learned from Julian, Bill Huang made Tiger Asia fund more than $5 billion at one point, making it one of the largest hedge funds to invest in Asia at that time. During the 11 years of continuous operation, Tiger Asia Fund has achieved an annualized return of 16%.
However, an insider trading caused Bill Huang and Tiger Asia Fund to exit the Asian financial markets.
According to the Securities Times, on 31 December 2008 and 13 January 2009, in two Bank of China placements, Tiger Asia Fund was informed in advance of the details of the placements that were confidential and share-sensitive information, and shorted 360 million shares of BOC shares before the ALLOT, and estimated a profit of about RMB9 million when it first sold 104 million shares. When the second short sale of 256 million shares, the loss was estimated to be about 10 million yuan. That is, the net loss before and after is about 1 million yuan.
Subsequently, in the placement of China Construction Bank, Tiger Asia Fund once again offered the same move.
Even though insider trading lost money, both the SEC and the Hong Kong Securities and Futures Commission issued sky-high fines afterwards: the SEC imposed a $44 million fine, which banned Tiger Asia Fund from trading securities in Hong Kong and froze more than $30 million in assets.
Bill Hwang (right) and his lawyer, Lawrence Lustberg, leave the courtroom in New Jersey in 2012 (Image: Bloomberg)
A "baby tiger" that swallows money
Since then, Bill Huang has closed the Tiger Asia Fund and returned external investments to begin a family investment office transformation. In 2013, Bill Huang officially launched his own fund, Archegos.
Because it is not registered in the United States and does not publicly raise funds, Archegos has avoided the SEC's requirements for the disclosure of funds.
What stocks Bill Huang has bought in recent years and how many they have bought are unknown to outsiders. It wasn't until the week of March 26 last year that people in the midst of a plunge panic discovered that Archegos already held tens of billions of dollars in U.S. stock.
The obscure Archegos fund turned out to be a "young tiger" raised by Bill Huang, a disciple of the godfather of hedge funds, Julian Robertson.
Julian Robertson is a godfather of the investment world that must be mentioned. On Wall Street, Julian Robertson's name rivals George Soros's.
The Tiger Global Fund, which he founded in the early 1980s, was one of Wall Street's first hedge funds, managing $22 billion in assets at its peak, and was once the world's largest hedge fund.
But during the Asian financial crisis that erupted in 1997, Julian misjudged the yen and russian rubles, so much so that the fund suffered an annual loss in its history that year.
Subsequently, in 1999, Julian again misjudged the movement of the US stock market. Tiger Fund lost 19% that year. Before the closure of the fund in February 2000, the Tiger Fund's total assets fell from $21 billion at its peak in 1998 to $6.5 billion. Julian had no choice but to close the Tiger Fund.
After the end of the operation of his fund, Julian is still spreading his investment philosophy. Since 2000, he has been helping his old division create and nurture select hedge funds, which Robertson has been dubbed "tiger cubs", "young tigers" and "little tigers" by the industry.
Julian Robertson, founder of Tiger Fund and godfather of the hedge fund world
Bill Huang's Archegos Fund is also considered one of the "cubs". After costing Wall Street investors tens of billions of dollars at the end of March last year, Archegos was also called "a young tiger that swallows money" on social media such as Twitter.
The collapse of Archegos has sparked calls for large family-owned wealth managers to disclose more information to the SEC and to increase transparency in the derivatives market so that regulators can better gauge the risks traders and banks are taking.
According to the New York Times, Erik Gordon, a law and business professor at the University of Michigan, believes it's time to treat large family offices as if they were subject to SEC oversight, audits and inspections like all other investment institutions. "Unless the Martians invade, Argegos will definitely prompt the inclusion of large family financial institutions under the Investment Adviser Act," Gordon said.
Wall Street banks and investors can't tolerate the huge losses they suffered from being cheated by such an opaque fund, and they demand "catch this young tiger as soon as possible," according to foreign media reports.
Until his arrest, Bill Huang maintained an "ascetic" Puritan life. Despite his wealth, he lived in the austere environment of the suburbs of New Jersey and maintained a low-key life.
Williams, the prosecutor in charge of archegos, said that until the end, Bill Huang believed he could single-handedly bend the world market to his own will. "Arrogance and greed fuel its brazen plots to deceive banks and manipulate markets." Williams said.
Resources:
１、《Archegos stock manipulation scheme was ‘historic,’ U.S. attorney says.》，纽约时报；
２、《Bill Hwang’s Archegos Catastrophe Was Wilder Than Anyone Knew》，彭博社；
3. "Wall Street "gambler" Bill Huang: No one knows how to make tens of billions of dollars, and once the world has lost everything", Securities Times Network;
4. "Sudden! Trillion fund burst, fund manager arrested! " China Fund News