Goldman U-Turns on Hwang Puts Bank at Nexus of Margin Call Mayhem

Photographer: Emile Wamsteker / Bloomberg

Bill Hwang, a former hedge fund manager who pleaded guilty to insider trading, was viewed as such a risk by Goldman Sachs Group Inc. that recently, in late 2018, the company refused to do business with him.

These doubts did not last.

Wall Street’s premier investment bank, lured by the tens of millions of dollars a year in commissions a whale like Hwang paid to rival dealerships, removed his name from its blacklist and allowed him to become a client major. Much like Morgan Stanley, Credit Suisse Group AG and others have done, Goldman has fueled a billion-dollar pipeline of credit for Hwang to make high-leverage bets on stocks such as the Chinese tech giant. Baidu Inc. and media conglomerate ViacomCBS Inc.

Now Hwang is at the center of one of the the biggest margin calls of all time, his giant wallet in a messy and painful liquidation, and Goldman’s overthrow plunged him into chaos.

According to two people with first-hand knowledge of the matter, Hwang’s Archegos Capital Management was forced by its lenders to get rid of more than $ 20 billion in shares on Friday in a series of deals so large and so rushed that investors were making them. described as unprecedented.

Goldman even emailed its customers on Friday night to let them know that it was, in fact, one of the banks selling. The email, a copy of which was seen by Bloomberg, detailed a total of $ 10.5 billion in transactions. The message did not name either Hwang or Archegos.

Representatives for Goldman, Morgan Stanley and Credit Suisse declined to comment. Efforts to reach Hwang and his associates in Archegos failed.

Great leverage

A so-called Tiger Cub who worked for Julian Robertson at Tiger Management, Hwang set up Archegos as a family office after shutting down his own hedge fund. Traders familiar with his orders describe Hwang executing a long-short strategy with unusually high leverage, meaning that for every dollar of his own, he would accumulate several times as much borrowed money.

For years, as they watched Archegos send business elsewhere, senior executives in Goldman’s equity division tried to cultivate Hwang as a client. Still, any attempt to open an account for him has been blocked by Goldman’s compliance department, according to people familiar with the discussions. The reason: Hwang’s turbulent past.

In 2012 he pleaded guilty on behalf of his company, Tiger Asia Management, to US charges of wire fraud. According to the Justice Department, Tiger Asia traded on material non-public information, reaping $ 16 million in illicit profits in 2008 and 2009.