A family office with $36 billion took on $160 billion of exposure, and its founder got 18 years in prison

Sung Kook “Bill” Hwang was sentenced to 18 years in prison on Wednesday for his role in the collapse of Archegos Capital Management. The firm’s failure left major banks with more than $10 billion in losses.

US District Judge Alvin Hellerstein handed down the sentence in Manhattan. A jury found Hwang guilty on 10 criminal charges in July, including wire fraud, securities fraud and market manipulation.

Prosecutors had asked for 21 years, an unusually long term for a white-collar crime. They also wanted $12.35 billion in forfeiture and restitution. Forfeiture means giving up money or assets the government links to the crime. Restitution means paying back the victims. The judge is expected to decide on both on Thursday.

A $36 billion firm carrying $160 billion in risk

Hwang started his career under Julian Robertson, a well-known hedge-fund manager. Later he ran Tiger Asia Management, which pleaded guilty to wire fraud in an insider trading case in 2012. He set up Archegos as a family office the following year.

Archegos managed $36 billion. But Hwang used borrowed money, and that left him exposed to $160 billion in stock market risk. That is more than four times the money the firm managed. The positions were held through total return swaps. In a swap like that, the bank buys and holds the shares, and the client takes the gains or losses without owning the stock directly.

When his favoured stocks started falling, the banks asked for more money to cover the drop. These requests are called margin calls. Hwang couldn’t meet them. The banks then began selling the shares behind his swaps, all at once. That pushed prices down further and wiped out more than $100 billion in market value.

The $100 billion is the fall in the value of the stocks. The banks’ own losses were the $10 billion-plus. Credit Suisse alone lost $5.5 billion, and Nomura Holdings also took heavy losses. Credit Suisse is now part of UBS.

Judge Hellerstein said the losses caused by Hwang’s conduct were larger than any other he had dealt with. Prosecutor Andrew Thomas called the collapse “a national calamity.”

Before passing sentence, the judge drew a parallel with Sam Bankman-Fried, the founder of the FTX cryptocurrency exchange. Bankman-Fried was sentenced to 25 years in March for stealing $8 billion from FTX users. Hwang’s term is seven years shorter.

Hwang’s lawyer, Dani James, said the cases were different. “Mr. Bankman-Fried was literally stealing from his customers,” he told the court. “I don’t think that’s what’s happened here.”

Hwang’s lawyers asked for no prison time, no forfeiture and no restitution. They wanted him free on bail while he appeals. They said he was unlikely to offend again and pointed to the charity work of his Grace and Mercy Foundation. “The notion that he would commit a crime in the future, it’s just not so,” James said.

In his own statement to the court, Hwang expressed remorse and said he wanted to make amends. The money question is still open, and the gap is large. His lawyers say his net worth is now “at most” $55.3 million. Prosecutors want $12.35 billion, which is more than 200 times that figure.

Patrick Halligan, the former Archegos chief financial officer, was also convicted at trial. He will be sentenced on January 27.