Criminal charges for market manipulation, inflating the value of assets, racketeering, securities fraud along with civil charges by SEC and CFTC were filed against Bill Hwang on the Archegos blowup. Credit Suisse, Nomura Holdings and Morgan Stanley incurred deep losses, while Goldman Sachs, Wells Fargo and Deutsche Bank escaped relatively unscathed.
Risk Management practices at major banks were exposed with gaping holes and regulators at Wall Street are accused of being asleep at the wheel. A $1.5 Billion Portfolio was leveraged to $160 Billion at one point. Prosecutors have alleged coordinated trades and use of derivative securities (that required no public reporting) to prop up values of certain equities.
This is one of numerous cases where the use of derivatives, leverage, greed and manipulation combine to generate crippling losses. Professional skepticism usually goes out the door when the price of any asset goes up with the assumption that all gains are good. Often that is the point where regulators should really be more alert and try to prick the bubble before it goes out of control. Counter cyclical policies often help to regulate the markets better. When the federal reserve was obsessed with raising inflation to 2%, they keep their foot on the pedal way after that target was achieved until they panicked when it hit 8.5% recently. Their dual mandates of full employment and price stability changed to full employment only and price stability went out the window. Loose financial conditions could be blamed on the excessive generation of credit and the quest for return trumps common sense when bank deposits earn 0% interest. This is when folks bet even larger amounts of money to game the system. Risk Management and Corporate Governance are essential to ensure all players in the market remain protected.