Switzerland FINMA on Credit Suisse Archegos Family Office: Seriously Violated Financial Market Law & Incurred $5 Billion Losses on $24 Billion Exposure in March 2021, 4 Times the Exposure of Next Largest Hedge Fund Client, No Board Member Aware of the Size of Client with Limits Exceeded Repeatedly, Opens Enforcement Proceeding Against an Ex-Credit Suisse Manager
28th July 2023 | Hong Kong
Switzerland FINMA (Swiss Financial Market Supervisory Authority) has issued a statement on Credit Suisse’s client Archegos Family Office, highlighting Credit Suisse for seriously violating financial market law, incurring $5 billion losses on $24 billion exposure in March 2021, Archegos is 4 times the size & exposure of next largest hedge fund client of Credit Suisse, no board member aware of the size of client (Achegos) with limits exceeded repeatedly, and with FINMA opening enforcement proceeding against a former Credit Suisse manager. UBS (now the legal owner of Credit Suisse, June legal merger), had also been issued a corrective action. The United States Fed (Federal Reserve Board) has fined UBS $268.5 million and UK Prudential Regulation Authority (PRA) has fined UBS $119 million (GBP 89 million), for a total of $387.5 million for misconduct by Credit Suisse unsafe & unsound credit risks management practices with $120 billion Archegos family office. See below for more info. Read More: Credit Suisse Report on Archegos Family Office | Greensill Fund Managers Fired
” Switzerland FINMA on Credit Suisse Archegos Family Office: Seriously Violated Financial Market Law & Incurred $5 Billion Losses on $24 Billion Exposure in March 2021, 4 Times the Exposure of Next Largest Hedge Fund Client, No Board Member Aware of the Size of Client with Limits Exceeded Repeatedly, Opens Enforcement Proceeding Against an Ex-Credit Suisse Manager “
Archegos Family Office:
- UBS Faces Potential Fine of $327 Million from United States & UK Regulators for Credit Suisse Mishandling of Bill Hwang $120 Billion Archegos Family Office, UBS Requested US, UK & Switzerland Regulators to Publish Findings & Penalties in July 2023
- $120 Billion Archegos Family Office Insurer Argonaut Files Lawsuit to Avoid Potential Costs Incurred by Archegos, Separate Lawsuit Filed in 2022 by Former Archegos Managing Director Brendan Sullivan Against Archegos for $50 Million Loss of Compensation
- Goldman Sachs Increased Provisional Loss by $2.3 Billion for 2023 from Legal Proceedings Including Malaysia 1MDB, Archegos & Gender Bias
- United States SEC Enforcement Result 2022: Record $6.4 Billion Penalties & 760 Enforcement Actions, JP Morgan, Morgan Stanley, UBS, Credit Suisse, Barclays, Allianz, EY, Deloitte, Bill Hwang Archegos, Boeing CEO Mislead Public on 737 MAX Planes
- $120 Billion Family Office Archegos Bill Hwang Submits Court Filing to End United States SEC Lawsuit Citing Trades are Legal & Traded Like an Enthusiastic Investor, Criminal Trial Scheduled for 10th Oct 2023
- Credit Suisse Share Price Down 53.6% YTD with Market Capitalisation of $11.9 Billion, In Restructuring after $120 Billion Archegos Family Office, $10 Billion Greensill Funds & Senior Executives Departures
- Credit Suisse Reached $32.5 Million Settlement Lawsuit for Misleading Shareholders on Strong Risk Management, Including Collapsed $120 Billion Archegos Family Office & $10 Billion Greensill Funds
- United States Prosecutors Filing: Archegos Family Office Misled Banks on Liquidity & Portfolio Concentration 6 Months Before Collapsed in March 2021, $1.5 Billion Assets to $160 Billion Exposure
- Federal Reserve: Weak Practices in Banks with Exposure to $120 Billion Archegos Family Office
- Goldman Sachs & Morgan Stanley Sued for Archegos Family Office Insider Trading
- Credit Suisse Report: Archegos Family Office Had $120 Billion Total Exposure
- $20 Billion Archegos Leveraged on GSX Techedu – Founder Loses $14 Billion, Name Change to Gaotu on NYSE
- Credit Suisse, UBS, Nomura, MUFJ and Morgan Stanley Losses for Archegos Family Office Nears $10 Billion
- UBS Reports $861 Million Losses from Archegos Family Office, $4.2 Trillion AUM and $1.82 Billion Profit for Q1 2021
- Credit Suisse Raises $1.92 Billion in Capital, $5.5 billion Losses from Archegos Family Office
- Credit Suisse and Nomura in $6 Billion Hit by Bill Hwang Archegos Family Office
Switzerland FINMA on Credit Suisse Archegos Family Office
- Archegos: FINMA concludes proceedings against Credit Suisse
24th July 2023 – In the course of its enforcement proceedings, the Swiss Financial Market Supervisory Authority FINMA found that Credit Suisse had seriously and systematically violated financial market law in the context of its business relationship with the Archegos family office. FINMA is ordering corrective measures from its legal successor, UBS. In addition, FINMA has opened enforcement proceedings against a former Credit Suisse manager. At the same time as FINMA, the authorities in the USA and the UK are also announcing their findings in this matter.
In March 2021, several investment banks incurred large losses due to the collapse of the Archegos hedge fund. Credit Suisse suffered the biggest loss of over USD 5 billion. FINMA took various immediate risk-reducing measures in April 2021 and opened enforcement proceedings).
Risks in the hedge fund business – Among other things, the Archegos family office took synthetic (i.e. without owning the corresponding stock) stock positions (“long” or “short” depending on price expectations) with investment banks such as Credit Suisse. These are instruments that replicate the performance of an underlying asset, for example, a share (total return swaps). The Credit Suisse investment bank undertook, for example, to pay Archegos any increase in the value of the synthetically held positions. Conversely, Archegos had to bear losses or provide collateral when their positions suffered a decline in value. This type of business is typically conducted by hedge funds. In order not to incur losses on such transactions itself, Credit Suisse hedged against market risks. Among other things, it thus bought or sold actual shares on the capital markets in its own name, in parallel to the synthetic positions taken by Archegos. Profits and losses should thus have been balanced automatically. The aim of investment banks such as Credit Suisse is to generate income in any case, regardless of the success of the hedge fund’s bet and the price development, thanks to the fees incurred.
Large positions led to losses in fire sale – Archegos built up very large positions in a few equity securities. When the price of some of these securities dropped, Archegos no longer had the necessary funds to compensate for these losses in value. In this constellation, Credit Suisse itself had to sell the shares that it had previously acquired in its own name as a hedge. In doing so, it suffered massive losses due to share prices having fallen sharply in the meantime. Due to the internal organisation of Credit Suisse, these losses were incurred by the London entity, even though most of the events had taken place in New York.
Various organisational deficiencies – During the proceedings, FINMA identified the following deficiencies at Credit Suisse: Too big a position and risks: Credit Suisse’s own position due to the relationship with Archegos was extremely high for months. It had a value of USD 24 billion in March 2021. This corresponded to four times the position of the next largest hedge fund client and more than half the equity of Credit Suisse Group AG. The bank was not able to adequately manage the risks associated with this position.
No involvement of responsible members of the executive board: Despite the huge size of this client position and the associated risks, the members of the bank’s executive board were not informed of the facts. There was no requirement that responsible executive board members address significant and risky business relationships on their own initiative as standard.
Insufficient response to limit overruns: Credit Suisse’s risk monitoring regularly indicated that applicable limits had been exceeded in the relationship with Archegos and that the bank was therefore exposed to high risk of loss. However, the responsible employees acted in favour of the client. Overruns were insufficiently objected to. On the one hand, the bank made far too low additional demands on Archegos. On the other hand, exceeded limits were simply increased repeatedly. Thus, the overruns were reduced, but the actual risks of loss increased.
Concentrated risks instead of hedging: Archegos took large positions with only a few issuers. Credit Suisse built up parallel stocks in these securities as a hedge, which in some cases led to significant market shares in these securities. Overall, the bank incurred enormous and concentrated risks of loss, which materialised in the subsequent fire sale. The bank took completely insufficient account of the fact that the collateral could not fulfil its purpose in an emergency because it was not diversified.
Payout on the verge of collapse: Two weeks before the collapse of Archegos, its positions still had a high value. Archegos therefore demanded that Credit Suisse pay out USD 2.4 billion. The bank paid this amount based on the contract with Archegos. It is true that certain employees assumed that the bank had been contractually obliged to make these payments. However, there are no indications that the bank actually examined the possibility internally of not having to make these payments or considered suspending them until additional collateral was provided or offsetting them against such collateral in order to minimise its own risks.
Organisation and risk management insufficient – As a result, there were serious deficiencies at Credit Suisse during the period under review with regard to the requirements of appropriate administrative organisation within the meaning of the Banking Act. In particular, the bank was unable to adequately identify, limit and monitor the significant risks associated with Archegos. The bank has thus seriously and systematically violated the organisational requirements under banking law.
Limits for own positions and adjustments to the compensation system – FINMA is ordering corrective measures directed at Credit Suisse AG, which continues to exist, and UBS Group AG, as the legal successor to the Credit Suisse Group AG, as a result of the merger of Credit Suisse and UBS. FINMA requires UBS to apply its restrictions on its own positions relating to individual clients throughout the financial group. The compensation system of the entire financial group must provide for bonus allocation criteria that take into account risk appetite. Therefore, for employees with particular risk exposure, a control function must assess and record the risks taken before the bonus is determined. UBS already has corresponding rules in place, which FINMA is now ordering to be legally binding.
Proceedings against an individual – FINMA has also opened enforcement proceedings against a former Credit Suisse manager. FINMA is not commenting on the identity of this person or details of the proceedings.
Good coordination with foreign authorities – FINMA acknowledges the good cooperation in the enforcement proceedings with the Federal Reserve Board (USA) and the Prudential Regulation Authority (UK). The US and UK authorities are also publishing the results of their investigations in this case. They imposed fines of USD 268.5 million and GBP 87 million respectively.
United States Fed Fines UBS $268.5 Million & UK PRA Fines UBS $119 Million for Misconduct by Credit Suisse for Credit Risks Management Practices with $120 Billion Archegos Family Office, Credit Suisse Incurred Losses of $5.5 Billion & Acquired by UBS in 2023 March for $3.3 Billion
24th July 2023 – The United States Fed (Federal Reserve Board) has fined UBS $268.5 million and UK Prudential Regulation Authority (PRA) has fined UBS $119 million (GBP 89 million), for a total of $387.5 million for misconduct by Credit Suisse unsafe & unsound credit risks management practices with $120 billion Archegos family office. Credit Suisse incurred losses of $5.5 billion from Archegos family office, and was subsequently acquired by UBS in 2023 March for $3.3 billion (completed on 12/6/23). The United States Federal Reserve Board (Fed) and Swiss Financial Market Supervisory Authority (FINMA) have also imposed remedial requirements relating to credit, liquidity and non-financial risk management, as well as oversight of remedial efforts. Credit Suisse: “UBS will implement its operational and risk management discipline and its culture across the combined organization. It has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse. UBS intends to resolve Credit Suisse’s outstanding litigation and regulatory matters in the best interest of its stakeholders, including investors, clients and employees.” In 2021, Credit Suisse which suffered a loss of $5.5 billion from Archegos family office, released a full investigative report, detailing the relationship, built-up to losses and revenue from Archegos Family Office. Archegos Family Office, Korean-American Bill Hwang family office which operates like a hedge fund, had total exposure of $120 billion in March 2021, causing $10 billion of trading losses to the world’s largest banks including Credit Suisse, UBS, Nomura, MUFJ and Morgan Stanley.
United States Fed Fines UBS $268.5 Million & UK PRA Fines UBS $119 Million for Misconduct by Credit Suisse for Credit Risks Management Practices with $120 Billion Archegos Family Office
- Federal Reserve Board announces a consent order and a $268.5 million fine with UBS Group AG, of Zurich, Switzerland, for misconduct by Credit Suisse, which UBS subsequently acquired in June 2023
United States Federal Reserve Board 24th July 2023 – The Federal Reserve Board on Monday announced a consent order and a $268.5 million fine with UBS Group AG, of Zurich, Switzerland, for misconduct by Credit Suisse, which UBS subsequently acquired in June 2023. The misconduct involved Credit Suisse’s unsafe and unsound counterparty credit risk management practices with its former counterparty, Archegos Capital Management LP.
In 2021, Credit Suisse suffered approximately $5.5 billion in losses because of the default of Archegos, an investment fund. During Credit Suisse’s relationship with Archegos, Credit Suisse failed to adequately manage the risk posed by Archegos despite repeated warnings. The Board is requiring Credit Suisse to improve counterparty credit risk management practices and to address additional longstanding deficiencies in other risk management programs at Credit Suisse’s U.S. operations.
The Board’s action is being taken in conjunction with actions by the Swiss Financial Market Supervisory Authority and the Bank of England’s Prudential Regulation Authority. The penalties announced by the Board and the Prudential Regulation Authority total approximately $387 million.
UBS Faces Potential Fine of $327 Million from United States & UK Regulators for Credit Suisse Mishandling of Bill Hwang $120 Billion Archegos Family Office, UBS Requested US, UK & Switzerland Regulators to Publish Findings & Penalties in July 2023
21st June 2023 – UBS is facing a potential fine of up to $327 million from United States & UK regulators for Credit Suisse mishandling of Bill Hwang’s $120 Billion Archegos family office, with UBS requesting US, UK & Switzerland regulators to publish findings & penalties in July 2023. The United States regulator is the Federal Reserve, United Kingdom regulatory is the Prudential Regulation Authority and Switzerland regulator is the Swiss Financial Market Supervisory Authority. The UK Prudential Regulation Authority can impose a fine of up to $127 million (GBP 100 million), and the Federal Reserve can impose a fine of up to $300 million. Swiss Financial Market Supervisory Authority does not have the authority to impose a fine on financial institutions. In 2022 September, Credit Suisse had reached a $32.5 million settlement shareholders’s lawsuit for misleading shareholders (United States District Court in Manhattan) on strong risk management, including exposure to collapsed $120 billion Archegos family office & $10 billion Greensill Funds. More info below.
Credit Suisse Reached $32.5 Million Settlement Lawsuit for Misleading Shareholders on Strong Risk Management, Including Collapsed $120 Billion Archegos Family Office & $10 Billion Greensill Funds
22nd September 2022 – Credit Suisse has reached a $32.5 million settlement shareholders’s lawsuit for misleading shareholders (United States District Court in Manhattan) on strong risk management, including exposure to collapsed $120 billion Archegos family office & $10 billion Greensill Funds. In December 2021, Credit Suisse fired 2 investment managers (Portfolio Manager & Head of Fixed Income) who were involved in the failed $10 billion Greenhill Fund. Credit Suisse was hit by the troubled Greensill $10 billion supply-chain financing fund, which was introduced as a safe investment product to many of its institutional clients including pension funds and sovereign wealth funds. In 2021, Credit Suisse which suffered a loss of $5.5 billion from Archegos Family Office, had released a full investigative report, detailing the relationship, built-up to losses and revenue from Archegos Family Office. Archegos Family Office, Korean-American Bill Hwang family office which operates like a hedge fund, had total exposure of $120 billion in March 2021, causing $10 billion of trading losses to the world’s largest banks including Credit Suisse, UBS, Nomura, MUFJ and Morgan Stanley. Read More: Credit Suisse Report on Archegos Family Office | Greensill Fund Managers Fired | See below for United States Charge Against Archegos Family Office
August 2022: United States Prosecutors Submitted 12 Pages Filing on Archegos Family Office
In August 2022, the United States prosecutors submitted a 12 pages filing on Archegos Family Office (Archegos Capital Management LP), the prosecutors has accused Archegos of misleading banks on Archegos liquidity and portfolio concentration 6 months before its collapse in March 2021, with total exposure growing to around $160 billion with only $1.5 billion in net asset. The next hearing is on Sept. 8 2022. The case is U.S. v. Hwang et al, U.S. District Court, Southern District of New York, No. 22-cr-00240. Earlier in April 2022, the United States Securities and Exchange Commission (SEC) has charged Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, Chief Financial Officer (Patrick Halligan), Chief Risk Officer (Scott Becker) and Head Trader (William Tomita) for orchestrating a market manipulation fraudulent scheme from $1.5 billion asset value (March 2020) to $160 billion exposure (March 2021) that resulted in billions of dollars in losses. United States SEC: “From at least March 2020 to March 2021, Hwang purchased on margin billions of dollars of total return swaps. These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front. As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices. As a result of Hwang’s trading, Archegos allegedly underwent a period of rapid growth, increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.” Read Archegoes History
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