Updates from Archegos C -ital Management
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Archegos C -ital Management employees face losses of about half a billion dollars after the value of a salary deferral set up by the company coll -ses along with their other investments.
The family office, headed by Bill Hwang, has yet to release money it owes to former employees, who saw the value of their deferred bonuses rise to about $ 500 million before Archegos coll -sed in March, according to two sources close to the company.
Archegos sent shock waves through global financial markets when it was forced to execute several highly leveraged trades made using derivatives called total return sw -s. The episode left the banks it traded with, including Credit Suisse, Morgan Stanley, and Nomura, in losses of more than $ 10 billion.
Money claims from former employees are now also at stake.
As part of the deferred compensation plan, Archegos transferred a significant portion of its employees’ annual bonuses with a promise to pay out as soon as a person leaves the company.
While the initial amount employees invested in the mandatory plan was “less than $ 50 million,” according to a third party familiar with the company, its value fluctuated in line with Archegos’ main mutual fund.
“The company will increase or decrease the amount of deferred payment by the percentage that the fund’s invested c -ital has increased or decreased in value,” stated a Financial Times document that sets out the terms of the plan for an employee.
According to the document, 25 percent of the plan participant’s year-end bonus was withheld by Archegos to be paid upon the employee’s departure. It states that the payout would not drop below its original value.
However, some former employees have not received any of their pay deferrals, including the original amounts. A person close to the company told the Financial Times that “the money is gone” and “no pot of gold to pay them out of.” Another said that Archegos staff are “in a difficult position” and “warrant compassion”.
An Archegos representative declined to comment.
Former employees of Hwang’s family office would have to line up with other creditors if the company went bankrupt, said a person close to Archegos. Archegos has hired restructuring advisors to investigate potential legal claims by banks trying to get back some of the money they lost on their sour bets and plan a possible wind-up.
David Pauker, a financial advisor who worked on major bankruptcies like Lehman Brothers, has been hired as Archegos’ chief restructuring officer, according to his profile on the LinkedIn social network. Pauker declined to comment.
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The US Department of Justice opened an investigation against Archegos earlier this year and requested information from banks that were its main trading partners. Prime brokers had agreed to do business with Hwang despite its previous dispute with regulators.
Hwang, who worked at Julian Robertsons Tiger Global before going self-employed, had previously reached a major settlement with U.S. regulators to resolve insider trading allegations and was banned from trading in Hong Kong.
Hwang’s leveraged betting and the potential for lucrative fees to run his trades ultimately drew some of the biggest players on Wall Street to Archegos. The group took concentrated positions in derivatives linked to companies such as ViacomCBS and Discovery, which drove the share prices of both media groups higher in the early months of 2021.
But a ViacomCBS stock sale in March was one of the factors that rocked the stock and panicked many of Archegos’ prime brokers. In a few feverish hours, they were selling billions of dollars worth of shares in the companies they had bought under their total return sw -, some doing so without Archegos’ -proval.
With the price losses, the value of the company’s own funds also slipped.
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