CS crisis Archegos founder found guilty in the USA

The former head of the US hedge fund Archegos, Bill Hwang, was found guilty of fraud and market manipulation in New York on Wednesday. The collapse of Archegos was partly responsible for the downfall of Credit Suisse.

The jury at a federal court in Manhattan found the former financial manager guilty on ten of the eleven charges, as reported by several US media outlets. He therefore faces a prison sentence of up to 200 years. The former CFO of Archegos, Patrick Halligan, was found guilty on the three charges against him.

Hwang had built up massive and largely hidden positions in certain companies within a few months in the midst of the Covid-19 pandemic. At its peak in March 2021, Archegos was exposed to USD 160 billion via derivatives.

The investor's aim was to increase the share price of these companies. The valuation of the media group ViacomCBS (now Paramount Global), for example, quadrupled within just over four months.

At the same time, the American financial manager and three of his executives concealed the size of their positions from the institutions that lent them money. These included Credit Suisse.

Billions in losses for banks

When ViacomCBS announced a capital increase in March 2021, which triggered an abrupt sell-off of securities on Wall Street, the fragile construct of Archegos collapsed. With the market capitalization collapsing by around CHF 100 billion, Archegos' funds melted away at an accelerated rate.

The banks involved in the financing transactions lost around 10 billion dollars as a result of the collapse of Archegos. Credit Suisse was hit the hardest, recording a loss of 5.5 billion dollars alone.

Switzerland's second-largest bank was permanently weakened by the events. Around two years later, in March 2023, Credit Suisse was taken over by UBS in an emergency takeover orchestrated by the authorities following massive cash outflows.

False picture painted

The prosecution in New York relied on two former Archegos managers who testified in court. One of them claimed that Bill Hwang had instructed him to paint a false picture of Archegos' situation.

The main defendant's lawyers tried unsuccessfully to discredit these witness statements. They stated that Hwang had never sold his securities in order to make a profit from his business.