UK and US regulators are investigating whether global investment banks broke the rules by holding panel discussions shortly before launching an inflammatory sale of nearly $ 20 billion in assets owned by the troubled hedge fund Archegos Capital Management, according to reports.
The Securities Exchange Commission has reportedly requested additional information from major US banks Goldman Sachs, Wells Fargo and Morgan Stanley, as well as Japan Nomura and Swiss lender Credit Suisse about a meeting with Archegos founder Bill Hwang on Thursday.
It is understood that the Financial Conduct Authority has also contacted the UK operations of the lenders as part of its own investigations.
According to the Financial Times, the meeting with Hwang was part of the latest efforts to unwind the hedge fund’s investments in an orderly fashion. The lenders, who served as Archegos’ prime brokerage, reportedly tried to avoid an inflammatory sale that would reduce the value of assets they were trying to dispose of after Archegos defaulted on a series of margin calls.
A margin call occurs when investment banks, which act as brokers for a client like Archegos, ask clients to top up their account with additional cash or collateral. This is usually in response to a decline in the value of the assets held in the account.
If clients fail to meet this demand, the broker will take steps to minimize their potential exposure to losses – including selling shares and other assets owned by the client.
The hedge fund collapse and subsequent sell-off were blamed on a sharp drop in the share price of US media giant ViacomCBS last week, as well as a number of other US media companies and Chinese companies in which Archegos held stakes. Credit Suisse warned it would suffer “significant” losses as a result, while Nomura estimated it would likely take a hit of $ 2 billion.
Karen Kessler, spokesperson for Archegos, said: “These are difficult times for the Archegos Capital Management family office, our partners and our employees. All plans are being discussed as Mr. Hwang and the team determine the best way forward. “
The SEC did not immediately respond to the request for comment.
FCA said: “We and other supervisory authorities are aware of the situation, which we continue to monitor.”