Money manager Bill Hwang managed to lose a $36 billion fortune—and cost shareholders in the companies he targeted about $100 billion—in a series of stock trades that the Feds said were illegal. After a two-month trial and two days of deliberation, a Manhattan jury found him guilty on Wednesday on 10 of 11 counts of securities fraud, wire fraud, conspiracy, racketeering, and market manipulation. As CNN put it, the story of Hwang and his Archegos family office fund is the tale of “a little-known investor who made it big, lost everything, and briefly brought Wall Street to its knees.”
It’s also the story of how fragile the global financial system remains, more than 15 years after widespread mortgage fraud triggered the Great Recession. Hwang built a $25 million grubstake from a hedge fund he once worked for into a $5 billion investment before getting caught by regulators and admitting to trading Chinese bank stocks on insider information. So the next time around, he opened Archegos as a so-called family office, an investment boutique that’s much less regulated than a hedge fund. He leveraged his investments fivefold using a lightly regulated instrument called a total return swap.
Hwang made the rounds of the big investment banks, cutting total return swap deals with banks including Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura, Deutsche Bank, and UBS. Leveraging the leverage, he turned $10 billion in stock holdings into a $160 billion portfolio.
But it was only when his bets on companies including Discovery (now Warner Bros. Discovery) and ViacomCBS went south in 2021, and Hwang’s banks had to sell the shares underlying the swaps, that the market became aware of how large Hwang’s stakes were—and how little cash underpinned them. Tens of billions in assets vanished from Hwang’s own books, tens of billions more in share value was lost to ordinary shareholders as the underlying stocks were liquidated to pay Hwang’s debts, and some of his less fortunate creditors lost their shirts. The Archegos debacle helped push Credit Suisse into crisis and a forced merger with Swiss rival UBS.
Bank watchers say Hwang’s debacle reinforces the need for greater transparency in the opaque and sometimes related worlds of derivatives and family offices and greater accountability for the risks big banks take in highly leveraged situations like Archegos.
The Usual Suspects
- Elon’s World: At X, advertisers are worried about what they call “brand safety”—i.e., not having your ad show up next to an antisemitic, anti-trans, or otherwise offensive post, AdWeek reports, noting that X traffic in June dropped 13% in a year and that 73 of the top 100 advertisers have withdrawn from the platform, largely over brand safety concerns. Meanwhile, Tesla now has less than half of the U.S. EV market, research firm Cox Automotive reported. Competition appeared in the form of Ferrari’s new $200 million EV factory in Maranello, Italy, and China’s EV makers are marching toward full driverless capability. Tesla’s up 51.48% over the past month, but Pimco’s Bill Gross, the king of bond investors, says Tesla’s a meme stock: “sagging fundamentals, straight up price action.”
- Is there ever a good day for Boeing? On Sunday, the Justice Department offered Boeing a plea deal for the 2018 and 2019 crashes of the 737 Max, which killed 346 people. Boeing took it, pleading guilty to felony charges of defrauding federal aviation regulators. But victims’ families say they won’t take it: They want Boeing execs jailed for the failed control modifications that brought down the jets, and say the firm should pay more to victims’ families and more in fines. Meanwhile, Boeing said it’s confident the gas leaks aboard its Starliner spaceship can be fixed in time to return astronauts Suni Williams and Butch Wilmore to Earth from the ISS.
- The Powell play: Fed chair Jerome Powell says inflation is cooling, but it’s not yet near the 2% level he wants to see before cutting interest rates. Powell promised a politics-free decision, but he wants more data—and that could be a problem. “American statistics are at risk,” says a study from the American Statistical Association, noting that shrinking budgets, falling survey response rates, and the specter of political interference could destroy the integrity of U.S. economic data. On Thursday, the Labor Department said the headline Consumer Price Index inflation rate dropped 0.1% in June, the first drop since May 2020, as gas prices fell 3.8%, leaving the 12-month inflation rate at 3.0%. Still, the current Fed funds rate of 5% to 5.25% is putting the crunch on multi-family homebuilders who find it too pricy to borrow and build. That may not change much: Inflation will go up regardless of who the next president is, but under Trump’s tariffs it would be higher for longer, Oxford Economics says. And if mortgage rates stay above 6.5%, “the chances of an imminent recovery are slim” for housing demand, Capital Economics says.
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A Slam Dunk Deal
The NBA is close to signing a deal with NBC, Amazon, and ABC/ESPN, charging the networks and streamers $76 billion over 11 years for rights to broadcast America’s basketball games nationally. But Warner Bros.’ contentious CEO David Zaslav says his TNT channel may still make a bid, according to The Athletic.
Mixed Media
- Paramount finally found its paramour in David Ellison, Oracle Larry’s kid and Hollywood’s new prime nepo-mogul, after Ellison’s Skydance persuaded Shari Redstone to sell it to him.
- Kevin Costner went straight to video with his four-part Western epic, Horizon: An American Saga. Part one had been released to theaters, but after a sad box office showing, the remainder will get streaming debuts.
- CNN boss Mark Thompson says he’s canning 100 people, 3% of the channel’s workforce, to make way for AI and a single global newsroom, and is adding a pay channel and more “news you can use” (a phrase first conjured up in 1952 by dentist’s-waiting-room staple U.S. News & World Report).
Turbo-Ax
Intuit says it is about to fire 1,800 workers who do something and hire 1,800 workers who do something different, all because of AI. That’s 10% of its workforce, and the company said it plans to close sites in Boise, Idaho, and Edmonton, Canada. It’s not clear yet where the cuts will come from, but CEO Sasan Goodzari said 1,050 of those being turbo-axed “will be more successful outside of Intuit.” The new hires will largely be in engineering and “product,” another name for customer-facing software. The owner of QuickBooks, Credit Karma and Turbo Tax has been expanding to offer a more complete set of business financial management services for small businesses and has been developing tools such as a generative AI financial assistant. The company lost about 1 million of its 11 million customers when the Internal Revenue Service launched its own free tax software for consumers in 2023, and in January, Intuit was ordered by the Federal Trade Commission to stop calling its tax prep software “free,” finding two-thirds of users were dinged with a fee when they tried to file using the software. Still, Intuit shares are up 60 percent since the IRS began competing with it.
Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story.
