Hwang’s Acolyte Tao Li Is Mystery Fund Manager in Archegos Case
Hwang’s Acolyte Tao Li Is Mystery Fund Manager in Archegos Case
(Bloomberg) -- As Bill Hwang’s Archegos Capital Management sought to supersize a favorite stock bet beyond what banks were willing to carry out, he turned to a hedge fund run by an old friend, according to U.S. prosecutors.
That mystery fund manager, identified only as “Adviser-1” in Hwang’s indictment unsealed Wednesday, is Tao Li, the head of Teng Yue Partners, a New York-based firm that oversaw $4 billion as of last year, according to people with knowledge of the investigation. Li and Teng Yue haven’t been accused of wrongdoing by U.S. authorities.
The indictment splays open what was happening behind the scenes in an international market drama that unfolded early last year, when shares of GSX Techedu Inc. rocketed, even as it was under attack by short sellers accusing the Chinese company of malfeasance. The fresh court documents back up an earlier Bloomberg report that Hwang and his former employee, Li, discussed investments and that they both contributed to that surge.
Hwang and Adviser-1 coordinated trades, prosecutors wrote in Hwang’s indictment. And sometimes Hwang allegedly enlisted his old colleague’s help to sidestep bank policies threatening to end Archegos’ buying spree in GSX shares.
Teng Yue didn’t respond to messages seeking comment. Hwang was arrested Wednesday and pleaded not guilty to fraud and other charges for allegedly manipulating markets and deceiving banks that lost billions of dollars when his family office collapsed last year. He is “entirely innocent,” said his attorney, Lawrence Lustberg.
One of the problems Hwang faced as he was bidding up stock prices, according to prosecutors, was that banks handling his trades were reaching the limit of how many shares they were willing to acquire on behalf of all customers in certain companies.
To maximize his market influence, Hwang would “coordinate certain trades with a close friend and former colleague (“Adviser-1”), who founded a certain hedge fund (“Fund-1”) and controlled Fund-1 during the relevant time period,” according to Hwang’s charging document. But Hwang knew Fund-1 also held positions in the same companies he wanted to bet on.
When Hwang confronted a cap on the amount of GSX exposure that one counterparty bank was willing to hold, he allegedly had Adviser-1 move his GSX position to another bank, freeing up capacity for Hwang to increase his own bet, according to his indictment.
“Archegos then attempted to, and at times did, purchase a similarly sized GSX position at that same counterparty,” prosecutors wrote.
A spokesperson for the Justice Department declined to identify Adviser-1, and there was no immediate response to messages left at the Securities and Exchange Commission.
Bloomberg previously reported that by January of last year Li had taken an intense interest in GSX, amassing a position that was unusually big even among Teng Yue’s concentrated bets. At one point that month, as the stock rocketed, GSX accounted for about 40% of the fund’s portfolio, according to people familiar with the holdings. GSX later changed its name to Gaotu Techedu Inc.
Short seller Carson Block, famous for his bearish bets against Chinese companies, said in May last year that he hoped the U.S. Securities and Exchange Commission would look into what drove big bets on the shares, which he had shorted. He questioned whether Archegos and others were trying to squeeze such positions.
“Just can’t see that these guys went long GSX on such large size because they believed the fundamentals were so good,” he said.
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