A former employee of the American fund Archegos, whose setbacks cost several large banks billions in 2021, including Credit Suisse, has filed a civil complaint against the fund and its leaders. He accuses them of having lied to the banks and to his employees.
In a court document filed Tuesday in federal court in Manhattan, Brendan Sullivan named charges against Archegos founder Bill Hwang and five other members of the management team. ‘They lied about the scale of Archegos’ investments,’ write the lawyers of Mr. Sullivan, a former analyst of the fund.
‘They lied about the amounts of cash Archegos had at their disposal. They lied about the nature of the shares held by Archegos. And we contend that their lie was intended to ensure that the banks had no idea that Archegos was engaging in extensive market manipulation,’ the lawyers continue.
Thanks to complex financial products, Archegos had accumulated risky bets in a few companies, putting several banking clients at risk who were unaware of their total exposure to the groups concerned. When stocks began to fall, these banks had to urgently liquidate their positions. Some, including Credit Suisse, UBS, Morgan Stanley and Nomura, recorded heavy losses, totaling 10 billion dollars (9.58 billion francs).
Mr. Sullivan also denounces in his complaint the ‘cult of personality’ with strong religious accents maintained by Mr. Hwang, whose obsession, according to the complainant, was to become ‘the richest person in the world’. The ‘faithful’ of the South Korean businessman, never questioning his decisions, obtained promotions, while those who issued the slightest criticism were heavily sanctioned.
The ex-employee also explains that Archegos employees were forced to place a large part of their annual bonus in a deferred compensation plan, presented as risk-free. But when the fund implosed in March 2021, management told staff that ‘the deferred compensation plan no longer existed’.
Mr. Sullivan, who is demanding financial reparations, claims to have lost $50 million. The total amount of deferred employee compensation amounted to $500 million. The court document also highlights the role of Mr. Hwang’s Christian charity, the Grace and Mercy Foundation, presented by the businessman as a refuge if Archegos ever ran out of money.
Mr. Hwang and Patrick Halligan, the former chief financial officer of Archegos, were arrested and indicted in late April for stock market fraud and extortion. Both men pleaded not guilty.
/ATS