The S.E.C. has issued a subpoena to Archegos, the $10 billion firm that collapsed spectacularly.

Lawyers with the Securities and Exchange Commission have served a subpoena on Archegos Capital Management, the $10 billion family investment office that suddenly collapsed in March, roiling the stock market as its losses reverberated through the banking industry.

The subpoena was served to the firm in the past few weeks, according to a person familiar with the matter who was not authorized to speak publicly.

The issuance of a subpoena is not particularly surprising. Lawyers from the S.E.C., the Manhattan U.S. attorney’s office and the Commodity Futures Trading Commission have been looking into the collapse of Archegos since its heavy bets on a small number of stocks rapidly unraveled seven months ago. Even so, the subpoena marks the transition to a formal investigation.

A spokesman for the S.E.C. declined to comment on the investigation, which was first reported by Bloomberg. A spokesman for Archegos declined to comment.

Investigators are focusing mainly on whether Archegos’s founder, Bill Hwang, misled the banks through which he invested in sophisticated derivatives about the risk he was taking on at his firm, according to the person familiar with the matter. The S.E.C. is also believed to be looking into whether Archegos violated any regulating rules that would have required the firm to disclose some of its hefty stock positions, the person said.

In appearances before Congress, Gary Gensler, the S.E.C.’s chair, has said that the Archegos trading debacle revealed gaps in the regulatory requirements for investment firms and lightly-regulated family offices when it comes to disclosing big positions in derivatives.

The collapse of Archegos was particularly painful for Credit Suisse, which lost $5.5 billion, sparking a major management shake-up. A report by a law firm hired by the bank’s board found “fundamental failure of management and controls” at the bank.

Source: Nytimes

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  1. May 17, 2022

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