Justice Department Looks Into Possible Collusion in Archegos Liquidation

The Justice Department has reportedly revived a probe into possible collusion in the liquidation of Archegos Capital Management amid fresh scrutiny of Wall Street banks.

At a Glance

Federal prosecutors are reexamining Wall Street banks’ losses in the 2021 Archegos collapse.
The DOJ is investigating whether banks coordinated the unwinding of their positions in Archegos.
The probe follows the conviction of Archegos’ founder Bill Hwang for fraud.
Banks, including Credit Suisse and Nomura, coordinated their selling efforts but incurred heavy losses.
The DOJ is investigating several large banks for alleged collusion during the liquidation.

Federal Prosecutors Reexamine Archegos Collapse

Federal prosecutors are reportedly taking another look at Wall Street banks that lost billions in the 2021 collapse of Archegos Capital Management. The 2021 incident led to significant financial turmoil and raised questions about regulatory oversight and banking practices.

The Justice Department’s investigation is focused on whether these banks coordinated their actions during the sell-off of Archegos assets, potentially constituting an antitrust offense. Such coordination, if proven, would fall foul of laws designed to maintain fair competition.

The investigation is part of a broader scrutiny by the Justice Department into the banking industry’s response to the collapse. The federal prosecutors aim to uncover whether banks conspired to minimize their losses at the expense of other investors and if any antitrust violations occurred.

Bill Hwang’s Fall From Grace

Archegos’ founder, Bill Hwang, was convicted earlier this year of fraud, racketeering, and market manipulation. Hwang and his firm were accused of using a risky strategy known as “total return swaps,” borrowing heavily to make large bets on a few stocks without owning the securities outright.

Hwang’s case has been described by his lawyers as “the most aggressive open market manipulation case ever” brought by prosecutors. During its peak, Archegos had $36 billion in assets and $160 billion in exposure to equities.

Impact on Major Banks

The collapse of Archegos had severe repercussions for major banks like Credit Suisse, Nomura, and UBS. Credit Suisse alone reported a $5.5 billion loss, which contributed significantly to its eventual collapse in 2023. Other financial institutions followed similar paths with significant financial losses from their exposure to Archegos.

Federal investigators are focusing specifically on Credit Suisse, Nomura Holdings, and UBS Group. These banks’ emergency discussions in March 2021 aimed to manage the fallout but now face scrutiny on whether these efforts amounted to collusion to control trade.

The US Justice Department is ramping up scrutiny of banks that collectively lost billions of dollars in the collapse of Bill Hwang’s investment firm Archegos— mere months after scoring a conviction against him for deceiving those very firms https://t.co/kPrp7OAeTc pic.twitter.com/DVvaO04oGs

— Bloomberg TV (@BloombergTV) September 17, 2024

Ongoing Inquiry and Future Implications

The DOJ’s renewed interest in this matter follows an initial investigation that did not lead to any charges. However, the intensified inquiry and potential legal actions signify a more assertive stance from the Justice Department under the Biden-Harris administration. The DOJ’s antitrust division is considering charges under the Sherman Act, which could have far-reaching implications for Wall Street and the wider financial industry.

The repercussions of this investigation will extend beyond financial penalties. It also challenges Wall Street’s sentiment towards government regulatory actions and emphasizes the necessity for stringent compliance measures to prevent future financial debacles.