Archegos and the Risks of Limited Transparency in Family Offices
Insights from The New York Times article, Archegos Left a Sparse Paper Trail for a $10 Billion Firm, April 2021, by Bill Hwang; read the full article on NYT online here.
The collapse of Archegos Capital Management has raised important questions about regulatory oversight and transparency in family offices. As a $10 billion firm managing the fortune of former hedge fund manager Bill Hwang, Archegos never publicly disclosed its stock holdings—an anomaly among firms of its size.
Thomas Handler, a leading legal expert on family offices and a partner at Handler Law, was quoted in a recent article highlighting just how rare this situation was. According to Handler, most family offices, even those with significantly fewer assets than Archegos, routinely file 13F disclosures to remain compliant with Securities and Exchange Commission (SEC) regulations. “It is time-consuming,” Handler noted, “but they do it because no one wants to run afoul of the SEC.”
Archegos, set up by Bill Hwang, had its meltdown triggered after some of its portfolio stocks witnessed a significant price fall.PHOTOS: BLOOMBERG, REUTERS
How Did Archegos Avoid Reporting?
The firm used a combination of regulatory exemptions and investment strategies to avoid making 13F disclosures, which are typically required for firms managing over $100 million in publicly traded securities. Strategies may have included:
- Operating strictly as a family office, meaning it only managed money for Hwang and his spouse, not other family members or external entities.
- Using derivative swaps to gain exposure to stocks without actually owning them, allowing Archegos to accumulate massive positions without triggering public filings.
- Selling off securities before quarter-end to keep reported holdings under the filing threshold.
While these maneuvers may have been legally permissible, they highlight gaps in the SEC’s reporting framework—gaps that some experts argue should be closed to prevent systemic risks like those posed by Archegos.
Regulatory Implications
In the aftermath of the firm’s collapse, which resulted in billions of dollars in losses for global banks, regulatory bodies, lawmakers, and advocacy groups have called for stricter disclosure requirements. The SEC is now reviewing 13F filing rules, and there is growing momentum for greater transparency around family offices that control trillions in assets.
Navigating Compliance for Family Offices
As scrutiny of family offices increases, legal guidance is more critical than ever. At Handler Law, we advise family offices, private wealth managers, and institutional investors on structuring compliant and resilient investment strategies. The Archegos case serves as a cautionary tale, emphasizing why proactive legal and regulatory planning is essential.
For a deeper dive into the Archegos collapse and the regulatory concerns it raises, read the full article here.