FirstFT: Hwang arrest poses fresh questions for Wall Street

Sophisticated trading desks and compliance departments on Wall Street are facing renewed scrutiny following the arrest of Bill Hwang on federal racketeering, fraud and market manipulation charges.

Hwang, 58, and former chief financial officer Patrick Halligan, 45, were yesterday accused of using Archegos Capital Management as an “instrument of market manipulation and fraud” with “far-reaching consequences for other participants in the United States securities markets”.

The case, brought by federal prosecutors in Manhattan, marks the first criminal charges against Hwang, whose little-known investment vehicle rattled some of Wall Street’s biggest financial institutions when it imploded a year ago.

Hwang pleaded not guilty during an arraignment in a Manhattan federal court, while his attorney said the indictment “has absolutely no factual or legal basis”.

The banks apparently took Hwang’s words at face value as they entered into leveraged derivatives trades with his family office. These deals enabled him to hide the size of his enormous positions in half a dozen US stocks from the broader market and the banks themselves before the scheme collapsed in March 2021.

“The scale of the trading was stunning,” said Damian Williams, US attorney for the southern district of New York.

Capital at Archegos, a relatively obscure family office, swelled from $1.5bn in March 2020 to $35bn a year later, according to the indictment. At one point the group’s positions totalled $160bn.

What do you think? Do you have experience of Hwang’s operation? I would love to hear from you. Email me at firstft@ft.com and thanks to all our readers who voted in yesterday’s poll. The majority of you thought Twitter would be worse off under Elon Musk’s ownership. Here’s the rest of today’s news — Gordon.

The latest from the war in Ukraine

• Nato: Jens Stoltenberg, secretary-general of Nato, said he was confident the transatlantic security alliance would be able to provide security “arrangements” to protect Finland and Sweden if they were to join.

• Ukraine occupation: Authorities in the Russian-held Kherson region of Ukraine said the area would adopt the rouble in place of the hryvnia.

• Energy: Some of Europe’s largest energy companies in Germany, Austria, Hungary and Slovakia are making arrangements to comply with the Kremlin’s new payment system for Russian gas.

• Mercenaries: More than 1,000 Syrian and Russian mercenaries from the Kremlin-backed private military Wagner Group have been moved from Libya to the frontline in Ukraine, western and Libyan officials said.

• Opinion: The Marshall Plan is no longer niche history. Ukraine experts are examining the 1948 postwar reconstruction programme to chart a road map beyond the conflict, writes Gillian Tett.

Five more stories in the news

1. Facebook parent Meta’s shares rally Shares in Facebook parent Meta are set to soar when trading begins in New York today after first-quarter profits at the social media platform held up better than expected.

2. Bank of Japan vows to keep bond yields at zero The yen fell to a new multi-decade low after the Japanese central bank defied a global shift towards higher interest rates and vowed to keep bond yields at zero. The yen fell 1.7 per cent to ¥130.62 against the dollar, its lowest level since the early 1970s in real terms.

3. McKinsey rebuts conflict claims over work for health regulator and opioid makers Bob Sternfels, McKinsey’s managing partner, pushed back against allegations that the consultancy breached conflict of interest rules by advising opioids producers on how to “turbocharge” sales in front of a congressional committee yesterday.

4. White House in last push to save some of Build Back Better bill The Biden administration is making a last-ditch effort to salvage parts of the president’s once-sweeping economic agenda, junking spending commitments and focusing on deficit reduction in an attempt to win over centrist Democratic senators.

5. Twitter reassures advertisers over Musk’s free speech plans The social media platform is rushing to ease concerns over its future as a safe place for brands after Elon Musk takes over, according to an email seen by the Financial Times. Campaign groups have warned the Tesla chief’s focus on freedom of speech could increase toxicity and abuse on the platform.

• Read on: How did Wall Street’s risk management committees get comfortable with the Twitter deal so quickly? The answer lies in easy, or no, due diligence.

The day ahead

Company earnings Apple, Twitter and Amazon lead a long list of companies reporting first-quarter results today. Among the others reporting are McDonald’s, Merck, Comcast, Southwest and Eli Lilly.

Annual shareholder meetings Moderna’s annual meeting will include a resolution on transferring the vaccine maker’s intellectual property to the developing world, which two top-10 investors have opposed. Ballots on shunning fossil fuels are also scheduled at Morgan Stanley and Goldman Sachs; read more on the votes in our Moral Money newsletter. Sign up here.

Economic data The US economy is projected to have grown at an annualised rate of 1 per cent in the first quarter, its weakest level since 2020’s coronavirus-induced recession. New applications for unemployment aid are forecast to have edged down to 180,000 in the week ended April 23.

The Brazil Summit returns in person on May 9 to bring together senior government officials, top economists, financiers and business leaders to discuss the opportunities and challenges facing businesses operating in South America’s largest economy. Register today.

What else we’re reading

On the hunt for oligarchs When the blow is delivered, it comes quick, polished and polite. Who are the corporate investigators who serve Russia’s richest? Lou Stoppard investigates in this long read for the Weekend magazine.

Why the UK joined the race to woo the crypto industry In 2019, the impression that Britain was not receptive to cryptocurrencies was reinforced by a ban on retail trading of crypto derivatives. But the Johnson government is now warming to the digital asset world.

Does Spotify face the same fate as Netflix? Over the past week, Wall Street and Hollywood have been consumed by Netflix’s share-price crash. None were hurt more than Spotify, which has tumbled nearly 25 per cent as the entire business model comes under scrutiny.

We need savings options to ward off a retirement funding crisis The US retirement system is in the grip of a serious funding challenge. The reality is that a dignified middle-class lifestyle in retirement is no longer secure, writes Robert Merton, winner of the 1997 Nobel Prize in Economics.

The Americas’ fastest growing companies California-based Axonics, which specialises in products for patients with bladder and bowel dysfunction, leads the FT’s third annual ranking of the region’s businesses.

House & Home

As pandemic restrictions ease, a frenzied scramble for rented property is leading to spiralling prices, bidding wars — and despair.