The Archegos disaster isn’t over yet for banks as the feds reportedly revive criminal antitrust probe

Archegos Capital Management founder Bill Hwang (C) walks out of federal court

Federal prosecutors are reexamining Wall Street banks that lost billions in the 2021 Archegos collapse, anonymous sources told Bloomberg.

According to the people familiar with the matter, the US Department of Justice is investigating the degree to which these banks coordinated the collective unwinding of their positions in the investment firm, and whether this amounted to an antitrust offense.

The revived probe follows just months after Archegos’ founder Bill Hwang was convicted of fraud, racketeering, and market manipulation in July.

The investor and his firm were accused of lying to major banks to obtain billions in funding. The money was used to artificially pump up a select number of stocks in which Hwang had secretly built massive positions using derivative swaps.

However, this plot fell apart when the stocks fell in March 2021, sending Archegos’s $150 billion in bets fell into freefall. Losses and liquidations defined the debacle.

For lenders that backed the firm, this was made worse by the fact that they had also purchased underlying shares, Bloomberg said. These dealers had to consider how to effectively unwind their exposure.

Several banks came together to explore a joint wind-down strategy when the scheme became apparent. After an agreement failed to materialize, banks such as Goldman Sachs and Morgan Stanley unleashed their shares onto the market.

This was shortly followed by an agreement by banks including Credit Suisse, Nomura, and UBS to coordinate their selling while overlapping positions elsewhere, Bloomberg said. Each bank still took on heavy losses. Credit Suisse’ $5.5 billion hit has been cited as a factor in its eventual collapse in 2023.

For the DOJ, such efforts could constitute a conspiracy to control trade. Sources told Bloomberg that the department has begun making inquiries, with special attention paid to the 2021 banks’ emergency discussions.

Though the DOJ had similarly inquired in the aftermath of Archegos’ downfall, dealers felt they were secure due to the presence of lawyers at the talks, Bloomberg cited. However, one source said this doesn’t necessarily equal a defense.