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There are lots of ways an investment operation can go belly-up, but one of the simplest and purest must surely be valuing just about anything over returns. And, according to one disgruntled former employee of Archegos Capital Management, that particular operation’s since-indicted founder, Bill Hwang, valued a great many things over returns.

At Bill Hwang’s Archegos Capital Management, staffers publicly professed their allegiance to “God, Hwang and Archegos….”[Former managing director Brendan] Sullivan recounts that loyalty to Hwang, not performance, was paramount at the company…. During annual performance reviews, Hwang would “evangelize his religious beliefs” and request that employees attend scripture readings funded by his charitable Christian foundation, Sullivan contends….

Hwang and his deputies would also lash out at employees who raised questions about the investment strategy…. When an employee emailed Hwang to raise questions about a particular investment strategy, Hwang “would often copy the firm in a reply that disparaged and demeaned the employee and the employee’s thoughts,” according to the suit.

Just like Jesus. And speaking of things the two great men had in common:

Hwang, he says, did whatever it took to make money, with the goal of becoming the “richest person in the world.”

As we now know, he made some rather spectacular moves in that direction before apparently losing divine favor. And, according to Sullivan, loyalty involved more than professions of faith and fealty, and the silencing of doubt. It also allegedly required a sort of tithe to “The Plan,” which is not—as you might expect of a firm which allegedly delved deeply into applicants’ “religious upbringing” during job interviews—a book of spiritual wisdom or some sort of prosperity gospel theology, but a purportedly "voluntary" deferred compensation scheme.

Employees were forced to contribute at least 25 percent of their annual bonus to the plan, and declare how much they would defer before they knew the details of the bonus. “The message was crystal clear,” the suit argues. “No contribution. No bonus.”

Hwang’s “psychological inability to share credit or fairly compensate his people led him to create the plan so he could award bonuses while not actually losing control,” the suit alleges. And adds the “investment plan was a de facto interest free loan” to Hwang.

On March 26th, as Archegos imploded, Hwang and his team held a firm-wide call, in which they made it clear that employees should not ask to collect their deferred comp, according to the lawsuit. Sullivan contends that the deferred compensation fund had about $500 million in employee contributions at the end of February, but by that call it was zero. It “no longer exists,” Archegos executive Andy Mills said on the call, adding, “don’t play games and try to quit.”

And, Sullivan says they learned, there wasn’t just “The Plan.” There was also Plan B, which panned out about as well as, well, The Plan.

Hwang and Mills promised they would “take care” of the employees and that there were pools of money available from Hwang’s personal funds and money held by his charity, the Grace and Mercy Foundation, according to the suit….

“Hwang repeated these statements at the firm’s retreats -- which were shared with the Foundation -- in 2018 and 2019, when he again told employees that the Foundation was his ‘fallback plan’ and if anything ever happened to Archegos, he would be fine and would continue investing through the Foundation,” the suit asserts./In December 2018, when Archegos’ portfolio had dropped by 35% in value, Hwang told employees that “he was not worried about the portfolio decline, because if Archegos ever ran out of funds, he would always have the Foundation and would just continue to operate there, and that select ‘loyal’ employees and ‘good followers’ would always be able to join him,” according to the suit.

Now it really would be a show of faith and loyalty if they still wished to do.

A former employee of Archegos, the collapsed hedge fund, sues for millions in lost pay. [NYT]
‘God, Hwang and Archegos’: Insider Details of Collapsed Firm Revealed in Lawsuit [Bloomberg]
Financier Bill Hwang pushed Christianity on employees as empire collapsed: suit [N.Y. Post]

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