Bloomberg: "Goldman Sachs Stained by Dealings with a Person Once Blacklisted"

Bill Hwang [Image source= Bloomberg]

[Asia Economy Reporter Byunghee Park] On the 26th (local time), Bloomberg reported on the 28th that Bill Hwang, a Korean fund manager known as the cause of a massive block deal exceeding $20 billion (approximately 22.616 trillion KRW) in the New York stock market, was once on Goldman Sachs' blacklist. Bloomberg pointed out that Bill Hwang was a figure who admitted to insider trading charges in 2012, and Goldman Sachs tarnished its reputation again by trading with him once more.

Bill Hwang was once a successful fund manager at Tiger Management, a hedge fund founded by American hedge fund magnate Julian Robertson.

In the early 1990s, Bill Hwang worked at Hyundai Securities and established a relationship with Tiger Management. Tiger Management recognized his contribution to the fund's success and awarded him. In 2015, Bill Hwang was scouted by Tiger Management. With funding support from Robertson, Bill Hwang founded the hedge fund Tiger Asia Management in 2001. Tiger Asia once managed over $5 billion and enjoyed its heyday. However, in 2008, it suffered significant losses when Volkswagen's stock price surged sharply, and in 2012, it was accused of trading Chinese bank stocks using non-public information. Regulatory authorities such as the U.S. Securities and Exchange Commission (SEC) pointed out that Tiger Asia gained $16 million in unfair profits through insider trading between 2008 and 2009, and Bill Hwang admitted to insider trading at that time and paid $44 million in compensation.

Afterward, Bill Hwang renamed Tiger Asia to Archegos Capital Management and continued fund operations. Currently, Archegos' assets under management are estimated at about $10 billion. It is known to operate as a family office managing the assets of Bill Hwang and his family, with no external clients.

Goldman Sachs once included Bill Hwang, who admitted to insider trading, on its blacklist. Even as late as the second half of 2018, Goldman Sachs did not trade with Bill Hwang. However, as Bill Hwang operated Archegos and generated tens of millions of dollars in annual fee income for other banks, Goldman Sachs eventually removed him from the blacklist and resumed trading with him. Like other banks such as Morgan Stanley and Credit Suisse, Goldman Sachs provided Bill Hwang with tens of billions of dollars in funding, enabling large-scale leveraged trades, which ultimately led to a disaster.

Bill Hwang traded stocks of Chinese information technology (IT) companies such as ViacomCBS, Discovery, and Baidu using borrowed funds. Bill Hwang operated the fund with a long-short strategy, and it is known that the leverage ratio was unusually high. The long-short strategy involves buying (long) undervalued stocks and selling (short) overvalued stocks to earn arbitrage profits.

Earlier this year, as stock volatility increased, Archegos suffered massive losses on its holdings, and Goldman Sachs and others issued margin calls to Archegos. In cases like Archegos, when trading with borrowed funds, a certain amount of collateral must be deposited with financial companies as a form of security, and a margin call is a measure where the financial company demands additional collateral when significant losses occur on the invested principal.

When Archegos failed to meet the collateral requirements, Goldman Sachs and others ultimately sold large amounts of Archegos' stock holdings through block deal transactions before the opening of the New York stock market on the 26th. A block deal is a system where institutional investors buy and sell large quantities of a specific stock outside regular trading hours to reduce sharp price fluctuations caused by the volume burden. As a result of the block deal, the stocks held by Archegos plummeted in the trading on the 26th. Discovery's stock price plunged 27% on the 26th, the largest drop since the global financial crisis triggered by Lehman Brothers' bankruptcy in September 2008. ViacomCBS's stock price also fell 27%. The volume of Archegos-related sales on that day exceeded $20 billion, with some analyses suggesting up to $30 billion. Additionally, there are speculations that some selling volume may still remain.

This content was produced with the assistance of AI translation services.