“Regulators need to rely on more than luck to fend off risks to the financial system,” Warren, a Democrat from Massachusetts, said in a statement to CNN Business. “We need transparency and strong oversight to ensure that the next hedge fund blowup doesn’t take the economy down with it.”
The collapse of Archegos serves as yet another reminder of the dangers of extreme leverage and raises questions about how this firm was able to amass such risky positions, especially given its founder’s checkered past.
“Archegos’ meltdown had all the makings of a dangerous situation -— [a] largely unregulated hedge fund, opaque derivatives, trading in private dark pools, high leverage and a trader who wriggled out of the SEC’s enforcement,” Warren said in the statement.
In other words, regulators should have seen this coming.
Insider trading red flags
In a statement on Tuesday, a spokesperson for Archegos said this is a “challenging time” for the firm, its partners and employees. “All plans are being discussed as Mr. Hwang and the team determine the best path forward,” the spokesperson said.
Regulators are probing what went wrong in this high-profile meltdown.
In a statement on Monday, a spokesperson for the SEC said the agency has been “monitoring the situation and communicating with market participants since last week.”
Big banks count their losses
Meanwhile, the toll from the Archegos collapse continues to mount.
Japan’s Nomura said Monday that its losses could be as much as $2 billion, attributing the hit to “transactions with a US client.” Asked for further detail, the company declined to comment to CNN Business.
How was Archegos able to keep such a low profile for so long, despite its large presence in major stocks and ties to leading banks?
The family office space is huge, with at least 10,000 single-family offices around the world, firms that manage more than private equity and venture capital combined, according to Ernst & Young.