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I'm not seeing the market manipulation unless it's some quirk of the formal definition rather than the informal meaning of the term? I was under the impression

by mhh__ 2y ago

I'm not seeing the market manipulation unless it's some quirk of the formal definition rather than the informal meaning of the term? I was under the impression that he had an old fashioned value play, levered up to the moon using total return swap (these do have real uses) which blew up on him. Unless he deliberately mislead his brokers should was it illegal?

bobthepanda 2y ago
The SEC is alleging that he did mislead his brokers: https://www.sec.gov/news/press-release/2022-70 https://www.sec.gov/news/press-release/2022-70 > The complaint also alleges that, as part of the scheme, Archegos repeatedly and deliberately misled many of Archegos’s counterparties about Archegos’s exposure, concentration and liquidity, in order to get increased trading capacity so that Archegos could continue buying swaps in its most concentrated positions, thereby driving up the price of those stocks. Ultimately in March 2021, price declines in Archegos’s most concentrated positions allegedly triggered significant margin calls that Archegos was unable to meet, and Archegos’s subsequent default and collapse resulted in billions of dollars in credit losses among Archegos’s counterparties. > The SEC’s complaint, filed in federal district court in Manhattan, charges Hwang and the other defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar individual defendants from serving as a public company officer and director.
pram 2y ago
Supposedly lying about the scale (and risk) of his positions to get more leverage from banks. It’s good old-fashioned fraud.
- psaux 2y ago
  Correct, it is underlying assets value and correctness. This fuzzy logic has always confused me
  - bobthepanda 2y ago
    the functioning of the market is dependent on everyone having faith that what is in the market is actually correct information. that's the entire reason the SEC was founded in the '30s, to restore confidence after 1929; if the market is believed to contain widespread fraud, then no one will invest and the market will essentially stop working. as a counter example, the Chinese markets are rife with accounting frauds, scams and scandals; and the market doesn't really track with the Chinese economy as a result because no one believes it is accurate
kjksf 2y ago
Imagine you have a house and you go to 5 different banks and take 5 different mortgages. One mortgage is safe for the banks because they can take back the house. Low risk means low rates. If you could take 5 mortgages, that would be very risky for the banks so they wouldn't give you a loan or charge much higher interest. Hence you can't take more than one mortgage. But what if you lie to the bank when you apply for mortgage? Well, to prevent that we made lying to the banks about such things a crime. Hwang is accused of a variation of that: he got loans from multiple banks without telling them about other loans i.e. lying to banks. He made leveraged investments into lousy stocks and when he got called on those loans, he couldn't repay them and banks that gave him loans lost billions.
- notfromhere 2y ago
  There is this notion that white collar crime is complicated but it’s really just lying, stealing, or cheating
  - bobthepanda 2y ago
    the complicated thing to prove is usually intent, and the paper trail. it turns out there are very complicated ways to lie, steal and cheat.
- hackernewds 2y ago
  Thanks for this helpful explanation
- waltbosz 2y ago
  Aren't there mechanisms in place to verify Hwang's financial claims? When I get a mortgage I have to provide proof of income and assets with bank statements. Did he forge documents, or did the banks just take his word for it ?
  - lotsofpulp 2y ago
    There is no credit reporting bureau for business debts, so it’s not as simple as looking up a social security number.
phire 2y ago
It's not great reporting. The article seems to be fixated on how he lied to his finance sources, and acts like that was the only thing he did wrong. If you read the SEC lawsuit [1], the problem is less that he lied to his finance sources and more about what he did with the funds, which was blatant market manipulation: "Archegos, through Hwang and Tomita, effected this scheme by dominating the market for its Top 10 Holdings, as well as by “setting the tone” (i.e., engaging in large pre- market trading), bidding up prices by entering incrementally higher limit orders throughout the trading day, and “marking the close” (i.e., engaging in large trading in the last 30 minutes of the trading day) and by other non-economic trading, all with the goal of artificially inflating the share prices of its Top 10 Holdings." I mean, obviously he lied to his finance sources. It's not like he was going to tell them that he was using their funds to manipulation the market. [1] https://www.sec.gov/files/litigation/complaints/2022/comp-pr2022-70.pdf https://www.sec.gov/files/litigation/complaints/2022/comp-pr...
- waltbosz 2y ago
  Interesting technique. Aren't there sophisticated automatic trading algorithms that enable high speed trades. I wonder if any of them are designed to watch out for this behavior and avoid those stocks.
  - luma 2y ago
    Why avoid? If you can detect, buy the stock and sell it back to them 30min before close at their inflated price.
tim333 2y ago
I think the essence is he bid up the price of some not terribly liquid stocks by buying a lot of them. He then borrowed money against those overpriced stocks he held. That can work if greater fools come and buy the overpriced stocks back off you but didn't in this case, ending with the stock prices falling back down and the lenders getting stiffed.

by mhh__ 2y ago

bobthepanda 2y ago

The SEC is alleging that he did mislead his brokers: https://www.sec.gov/news/press-release/2022-70 https://www.sec.gov/news/press-release/2022-70 > The complaint also alleges that, as part of the scheme, Archegos repeatedly and deliberately misled many of Archegos’s counterparties about Archegos’s exposure, concentration and liquidity, in order to get increased trading capacity so that Archegos could continue buying swaps in its most concentrated positions, thereby driving up the price of those stocks. Ultimately in March 2021, price declines in Archegos’s most concentrated positions allegedly triggered significant margin calls that Archegos was unable to meet, and Archegos’s subsequent default and collapse resulted in billions of dollars in credit losses among Archegos’s counterparties. > The SEC’s complaint, filed in federal district court in Manhattan, charges Hwang and the other defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar individual defendants from serving as a public company officer and director.

pram 2y ago

Supposedly lying about the scale (and risk) of his positions to get more leverage from banks. It’s good old-fashioned fraud.

psaux 2y ago
Correct, it is underlying assets value and correctness. This fuzzy logic has always confused me
- bobthepanda 2y ago
  the functioning of the market is dependent on everyone having faith that what is in the market is actually correct information. that's the entire reason the SEC was founded in the '30s, to restore confidence after 1929; if the market is believed to contain widespread fraud, then no one will invest and the market will essentially stop working. as a counter example, the Chinese markets are rife with accounting frauds, scams and scandals; and the market doesn't really track with the Chinese economy as a result because no one believes it is accurate

kjksf 2y ago

Imagine you have a house and you go to 5 different banks and take 5 different mortgages. One mortgage is safe for the banks because they can take back the house. Low risk means low rates. If you could take 5 mortgages, that would be very risky for the banks so they wouldn't give you a loan or charge much higher interest. Hence you can't take more than one mortgage. But what if you lie to the bank when you apply for mortgage? Well, to prevent that we made lying to the banks about such things a crime. Hwang is accused of a variation of that: he got loans from multiple banks without telling them about other loans i.e. lying to banks. He made leveraged investments into lousy stocks and when he got called on those loans, he couldn't repay them and banks that gave him loans lost billions.

notfromhere 2y ago
There is this notion that white collar crime is complicated but it’s really just lying, stealing, or cheating
- bobthepanda 2y ago
  the complicated thing to prove is usually intent, and the paper trail. it turns out there are very complicated ways to lie, steal and cheat.
hackernewds 2y ago
Thanks for this helpful explanation
waltbosz 2y ago
Aren't there mechanisms in place to verify Hwang's financial claims? When I get a mortgage I have to provide proof of income and assets with bank statements. Did he forge documents, or did the banks just take his word for it ?
- lotsofpulp 2y ago
  There is no credit reporting bureau for business debts, so it’s not as simple as looking up a social security number.

phire 2y ago

It's not great reporting. The article seems to be fixated on how he lied to his finance sources, and acts like that was the only thing he did wrong. If you read the SEC lawsuit [1], the problem is less that he lied to his finance sources and more about what he did with the funds, which was blatant market manipulation: "Archegos, through Hwang and Tomita, effected this scheme by dominating the market for its Top 10 Holdings, as well as by “setting the tone” (i.e., engaging in large pre- market trading), bidding up prices by entering incrementally higher limit orders throughout the trading day, and “marking the close” (i.e., engaging in large trading in the last 30 minutes of the trading day) and by other non-economic trading, all with the goal of artificially inflating the share prices of its Top 10 Holdings." I mean, obviously he lied to his finance sources. It's not like he was going to tell them that he was using their funds to manipulation the market. [1] https://www.sec.gov/files/litigation/complaints/2022/comp-pr2022-70.pdf https://www.sec.gov/files/litigation/complaints/2022/comp-pr...

waltbosz 2y ago
Interesting technique. Aren't there sophisticated automatic trading algorithms that enable high speed trades. I wonder if any of them are designed to watch out for this behavior and avoid those stocks.
- luma 2y ago
  Why avoid? If you can detect, buy the stock and sell it back to them 30min before close at their inflated price.

tim333 2y ago

I think the essence is he bid up the price of some not terribly liquid stocks by buying a lot of them. He then borrowed money against those overpriced stocks he held. That can work if greater fools come and buy the overpriced stocks back off you but didn't in this case, ending with the stock prices falling back down and the lenders getting stiffed.