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Who Is Archegos Fund Manager Bill Hwang?

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Archegos Capital Management founder

Bill Hwang

and Chief Financial Officer

Patrick Halligan

were indicted on securities fraud and racketeering charges Wednesday for what prosecutors said was a massive fraud and manipulation scheme that nearly jeopardized the U.S. financial system.

Archegos collapsed in March 2021 in one of the most dramatic meltdowns on Wall Street in decades, leaving banks with more than $10 billion in losses and sparking calls for more regulatory oversight. More than $100 billion in stock market value vanished in a matter of days. 

Manhattan U.S. Attorney

Damian Williams

described the scheme as historic in scope, alleging the defendants and their co-conspirators lied to banks to obtain billions of dollars in loans, which they then used to inflate the stock prices of publicly traded companies.

“The lies fed the inflation and the inflation fed more lies,” Mr. Williams said at a news conference. “Last year, the music stopped. The bubble burst. The prices dropped. And when they did, billions of dollars evaporated overnight.”

Messrs. Hwang and Halligan, who were arrested Wednesday morning, face securities fraud, wire fraud, racketeering conspiracy and other charges.

Losses at Archegos Capital Management triggered the liquidation of positions approaching $30 billion in value, The Wall Street Journal has reported, and sent the shares of two major investment banks tumbling

Who is Bill Hwang?

Mr. Hwang is a former protégé of hedge-fund titan

Julian Robertson,

who founded Tiger Management in 1980 and turned an initial $8.8 million investment from family and friends into nearly $22 billion before stepping back almost two decades later. A number of investors trained by Mr. Robertson who went on to start their own hedge-fund firms became known on Wall Street as the “Tiger cubs.”

Mr. Hwang is Christian and has spoken about his faith publicly. In an interview posted on YouTube in 2018, he said one of his goals was “trying to be a great investor.” He also said he was investing in companies that were benefiting society.

He recalled being a big investor in LinkedIn, which he described as helping people realize their job potential. “Do I think God loves it? Of course!” he said. “I’m like a little child looking for what can I do today, where can I invest, to please our God?”

A number of investors trained by Tiger Management founder Julian Robertson, shown in 2014, went on to establish their own hedge-fund firms.



Photo:

Peter Foley/Bloomberg News

Mr. Hwang, who is believed to be in his late 50s, emigrated to the U.S. after his senior year of high school in South Korea. He attended UCLA and later received an MBA from Carnegie Mellon University. His father, a pastor, died at the age of 50, according to a 2018 interview with Mr. Hwang in the South Korean Kukmin Ilbo newspaper.

The billionaire said in the interview that his business calamities a decade ago revived his interest in Christianity and that he uses his foundation to sponsor churches in the U.S. and South Korea. Tax documents for the foundation show that it has supported a variety of Christian, Korean and Asian-American causes in recent years.

“I’m decreasing the amount of money under my name, in order to do things that God loves,” he said in the 2018 interview. “I do it because I like God more than I like money.”

How much money did Archegos have under management?

Mr. Hwang managed around $10 billion of family money through Archegos. The firm made big bets on public stocks in the U.S., Europe and Asia. Unwinding of his positions caused sharp falls last week in many stocks, including ViacomCBS Inc. and Discovery Inc., even as broader markets rose.

What was Mr. Hwang’s association with Tiger Asia?

Mr. Hwang founded Tiger Asia Management LLC in 2001 with support from Mr. Robertson. The firm was based in New York and went on to become one of the biggest Asia-focused hedge funds, running more than $5 billion at its peak. In 2008, it was one of a swath of funds that suffered losses related to the soaring share price of Germany’s

Volkswagen AG

.

Bill Hwang, shown in 2012, emigrated to the U.S. after attending high school in South Korea and went on to lead one of the biggest Asia-focused hedge funds.



Photo:

Bloomberg

Was Mr. Hwang involved in previous securities violations?

In the summer of 2012, Tiger Asia said it planned to wind down and return outside capital to investors. Later that year, the firm pleaded guilty to a criminal fraud charge and agreed to pay $44 million to settle civil allegations by U.S. securities regulators that it engaged in insider trading of Chinese bank stocks.

“Tiger Asia regrets the actions for which it accepts responsibility today and is grateful that this matter is now resolved and behind it in the United States,” Mr. Hwang said in a statement at the time.

He turned Tiger Asia into his family office and renamed it Archegos, according to its website.

What are swaps and why did Archegos use them?

Archegos would buy up stocks until it approached the 5% ownership threshold that triggers certain disclosure requirements, according to the indictment. At that point, Mr. Hwang required Archegos to switch over to derivative contracts known as total return swaps that allowed it to increase its exposure to those stocks. 

If a stock went up, the bank selling the swap would pay Archegos a corresponding amount reflecting the stock’s increase. If the price fell, Archegos would pay the bank. The bank would earn a fee for its service. To avoid market risk, the bank would buy the underlying stock and simply pay out the gains on the shares to Archegos. As Archegos bought more swaps, the banks bought more shares, pushing up prices. 

(These transactions move in the opposite direction if the buyer of the swaps makes a bet that the stock will fall.)

The use of swaps allowed Mr. Hwang to maintain his anonymity despite having exposure to stocks well in excess of the disclosure thresholds. Prosecutors say Mr. Hwang used this strategy to manipulate the prices of stocks in his portfolio.

Swaps are common and have been around for a long time. They are also controversial. Long Term Capital Management, a hedge fund advised by two Nobel laureates that nearly brought down Wall Street in the late 1990s, used swaps.

Warren Buffett

wrote about the risks of swaps in his 2003 letter to investors.

How total-return swaps work

A total return swap allows an investor, such as a hedge fund, to invest in assets without owning them. In the deal, the fund makes payments to an investment bank based on fees and an interest rate such as Libor.

If the underlying assets falter, the hedge fund must pay the bank an amount based on the negative returns plus the regular fees it has agreed to pay.

The investment bank buys assets, such as a basket of stocks, and makes payments to the hedge fund based on the total return of the assets.

With heavily

leveraged positions, the bank may make

a margin call,

requiring a client to put up more collateral. If the client fails to comply, the bank may sell the assets, triggering more declines in price.

The bank owns the assets, not the hedge fund. So while a hedge fund may have heavy exposure to a stock through swaps with multiple banks, it isn’t subject to disclosure laws that a very large shareholder would be.

How total-return swaps work

A total return swap allows an investor, such as a hedge fund, to invest in assets without owning them. In the deal, the fund makes payments to an investment bank based on fees and an interest rate such as Libor.

If the underlying assets falter, the hedge fund must pay the bank an amount based on the negative returns plus the regular fees it has agreed to pay.

The investment bank buys assets, such as a basket of stocks, and makes payments to the hedge fund based on the total return of the assets.

With heavily

leveraged positions, the bank may make

a margin call,

requiring a client to put up more collateral. If the client fails to comply, the bank may sell the assets, triggering more declines in price.

The bank owns the assets, not the hedge fund. So while a hedge fund may have heavy exposure to a stock through swaps with multiple banks, it isn’t subject to disclosure laws that a very large shareholder would be.

How total-return swaps work

A total return swap allows an investor, such as a hedge fund, to invest in assets without owning them. In the deal, the fund makes payments to an investment bank based on fees and an interest rate such as Libor.

If the underlying assets falter, the hedge fund must pay the bank an amount based on the negative returns plus the regular fees it has agreed to pay.

The investment bank buys assets, such as a basket of stocks, and makes payments to the hedge fund based on the total return of the assets.

With heavily

leveraged positions, the bank may make

a margin call,

requiring a client to put up more collateral. If the client fails to comply, the bank may sell the assets, triggering more declines in price.

The bank owns the assets, not the hedge fund. So while a hedge fund may have heavy exposure to a stock through swaps with multiple banks, it isn’t subject to disclosure laws that a very large shareholder would be.

How total-return swaps work

A total return swap allows an investor, such as a hedge fund, to invest in assets without owning them. In the deal, the fund makes payments to an investment bank based on fees and an interest rate such as Libor.

The investment bank buys assets, such as a basket of stocks, and makes payments to the hedge fund based on the total return of the assets.

The bank owns the assets, not the hedge fund. So while a hedge fund may have heavy exposure to a stock through swaps with multiple banks, it isn’t subject to disclosure laws that a very large shareholder would be.

If the underlying assets falter, the hedge fund must pay the bank an amount based on the negative returns plus the regular fees it has agreed to pay.

With heavily leveraged positions, the bank may make a margin call, requiring a client to put up more collateral. If the client fails to comply, the bank may sell the assets, triggering more declines in price.

How Archegos Roiled the Markets

Write to Juliet Chung at juliet.chung@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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