Bill Hwang is read his rights

One thing to start: The UK Serious Fraud Office deployed investigators to sites connected with Sanjeev Gupta’s GFG Alliance on Wednesday to demand documents as it steps up its probe into the industrialist’s empire.

A Tiger cub risks losing his stripes

In May 2020, a scathing report from short seller Muddy Waters alleged Chinese online tutoring group GSX Techedu was “a near-total fraud”, and claimed around 80 per cent of its users were fake.

While the New York-listed company has denied accusations of a sprawling bot operation, it turns out that something else was inflating its value, US authorities claim: a build-up in exposures from Bill Hwang’s Archegos Capital Management, intended to artificially inflate the share price of GSX. By late March 2021, the now-collapsed family office allegedly controlled 70 per cent of GSX’s float.

It’s just one of many noteworthy details from the case Manhattan federal prosecutors have brought against Hwang, who was arrested by US authorities on Wednesday and charged alongside chief financial officer Patrick Halligan with racketeering, securities fraud, wire fraud and market manipulation.

In addition to the criminal allegations, the US Securities and Exchange Commission hit Archegos and Hwang with civil fraud charges. It marks the latest step in the stunning downfall of Hwang who used borrowed money to execute a series of highly leveraged bets that blew a $10bn hole in the combined balance sheets of eight of the world’s biggest investment banks.

“This scheme was historic in scope,” said Damian Williams, US attorney for the Southern District of New York, adding: “The lies fed the [stock price] inflation and the inflation fed more lies. Round and round it went.”

When asked by a colleague whether the relative resilience in ViacomCBS shares “was ‘a sign of strength’”, according to the regulator’s complaint, on a day when the broader stock market tumbled, Hwang texted: “No. It is a sign of me buying”, followed by an emoji to indicate “tears of joy” or laughing. (DD wonders whether Hwang went with this one 😂, or this one 🤣.)

An attorney for Hwang said on Wednesday that the investor was “entirely innocent of any wrongdoing”. Halligan’s attorney said he was innocent and “will be exonerated”.

Hwang and his fellow Archegos executives “deliberately misled” Wall Street banks on the composition of Archegos’s portfolio in order to increase his biggest positions, prosecutors alleged.

In one instance, Archegos’s head trader William Tomita used large, liquid technology stocks as “‘decoy’ names when discussing Archegos’s portfolio and investment interests with Goldman Sachs to camouflage Archegos’s primary interest in GSX” at Hwang’s direction, according to the indictment.

One final highlight: Hwang used a so-called “bullets” method to create upward pressure on certain stock prices, prosecutors alleged, instructing traders to short or sell a stock in the morning in order to “‘make room’ for later trades when they would be most likely to create the desired impact on the securities price”.

The legal fight mounting against Hwang, one of the so-called Tiger Cub acolytes of Julian Robertson’s Tiger Management, also spells consequences for the broader hedge fund industry. US regulators are proposing stricter trading reforms in swaps markets, a prospect that has already riled up hedge fund Elliott Management.

Hwang, who has made an enemy out of the world’s most powerful banks, may soon face the wrath of hedge funds, too.

Boots may cure Apollo and Ambani’s UK deal woes

US private equity group Apollo Global Management and India’s second-richest man Mukesh Ambani have made plenty of headlines as potential bidders for trophy corporate assets in London, in situations from which they have ultimately walked away with little to show.

Now, instead of fading from an auction process (as Apollo did with Pearson earlier this month) or denying deal interest (as Ambani’s Reliance Industries did with telecom BT Group in November), the two oft-cited corporate buyers may wind up striking one of the year’s big deals.

Apollo and Reliance are planning a joint bid for UK high street pharmacy chain Boots, DD’s Kaye Wiggins and the FT’s Jonathan Eley and Chloe Cornish reveal.

Key in the effort may be sharing the burden in expanding the Boots brand outside of its UK home market.

Reliance, India’s largest listed company by market capitalisation, wants to expand the pharmacy chain’s brand across India, south-east Asia and the Middle East. Apollo, an experienced investor in the retail sector, could oversee Boots’s operations. Both groups would own equity stakes, according to people familiar with the discussions, though the exact proportions are unknown.

Boots’s US parent Walgreens Boots Alliance enlisted Goldman Sachs to help put the business up for sale in December as the group focuses on healthcare in the US. It has set a deadline of May 16 for bids, one of the people said.

The sale process, in which the UK chain could be valued at £5-6bn, has been bogged down by flighty financing markets in the wake of Russia’s invasion of Ukraine. Bain Capital and CVC Capital Partners have already dropped out of the process.

The owners of UK supermarket group Asda, brothers Mohsin and Zuber Issa and private equity group TDR Capital, are also in the running after submitting initial bids.

Walmart sold its Asda business to TDR and the brothers in a deal that has already enabled the buyout group to claim an eye-watering, nearly 20-times return on its money after little over a year, helped by the relatively low purchase price.

WBA will no doubt be aware of the risk of selling cheaply — but it’s not clear how different the outcome for Boots could ultimately be.

Credit Suisse: survival of the fittest?

When Credit Suisse chief Thomas Gottstein promised that the bank would start 2021 with a “clean slate”, he couldn’t have foreseen the mess that would soon follow as a result of the twin implosions of Archegos and Greensill Capital.

Now that the crises have led to $10bn of clients’ assets being frozen and a $5.5bn trading loss — the biggest in the lender’s 166-year history — Axel Lehmann, Credit Suisse’s third chair in just over a year, has taken a power washer to the bank’s upper ranks.

Just two survivors on Credit Suisse’s executive board since Greensill and Archegos blew up last yearhttps://t.co/BPEMQNn0az pic.twitter.com/wWLQvebAzp

— Owen Walker (@OwenWalker0) April 27, 2022

Gottstein and André Helfenstein, the chief of the bank’s Swiss division, are the sole survivors in a sweeping purge of Credit Suisse’s executive board.

But neither of the men should get too comfortable.

The fallout from the twin scandals is far from over, as Norway’s $1.3tn oil fund — a top-15 Credit Suisse shareholder — calls for a special audit at the bank.

The world’s largest sovereign wealth fund also voted against discharging the board and top executives from legal liability for the 2020 fiscal year at its annual meeting last week, a sharp departure from the norm. Shareholders typically vote to discharge board members from legal liability for the previous financial year.

But a controversial decision by the board not to release a report into the bank’s failings around Greensill’s collapse last year, which caused Credit Suisse to freeze $10bn of client funds, has changed things.

The lender’s remaining top ranks, as well as departees including former chairs Urs Rohner and António Horta-Osório, former directors Severin Schwan and Andreas Gottschling, and a host of others could potentially be liable to shareholders if they are found to have made misleading or incorrect statements under Swiss law.

It doesn’t exactly make for a positive work environment. The big question is how much incoming executives are being paid to run the gauntlet.

Job moves

John Foley is retiring as chief executive of UK savings and investment group M&G, which has struggled to find its feet since its demerger from insurer Prudential in 2019.
Meg Angeles-Dayrit, Deutsche Bank’s head of Philippines coverage and origination, is leaving to join Morgan Stanley, per Bloomberg.
Kirkland & Ellis has hired Diane Blizzard, Melissa Gainor and Dan Kahl as partners within its investment funds regulatory practice, based in Washington, DC. Each recently held senior roles at the US Securities and Exchange Commission.
Allen & Overy has promoted 39 new partners globally.

Smart reads

There goes the neighbourhood Real estate firm CIM is on a mission to transform the Los Angeles neighbourhood of West Adams for a hefty profit. And it has been swift to retaliate against locals who get in its way, Bloomberg reports.

Neutral territory As the west enters an economic battle against Russia, Switzerland’s convoluted and opaque banking system hasn’t done much to aid the fight, the FT’s Sam Jones writes.

Breaking up Berkshire Warren Buffett can’t run his sprawling conglomerate forever. When the day comes to find a successor, Francine McKenna writes for the FT, the company will be better off split into pieces.

News round-up

Elon Musk loses bid to escape SEC deal over tweet saying ‘funding secured’ for Tesla (FT)

LME chief to stay put after ditching move to crypto start-up (FT)

US investors take aim at insider share sale plans (FT)

Deutsche Bank profits hit highest level in almost a decade (FT)

Mattel has held talks with buyout firms (Wall Street Journal)

Renault to sell Russian stake to state institute for one rouble, says reports (FT)

Spotify chief distances music streaming group from Netflix (FT)

WPP offloads Russian business as sales rise (FT)

Nordic streamer Viaplay snaps up football rights ahead of UK push (FT)

Lloyds profits fall less than expected as revenue from rising interest rates boosts bank (FT)

Private equity firms set sights on weak IPO stocks in Europe (Bloomberg)