Bill Hwang guilty of illegal trading at Tiger Asia Management

Bill Hwang of hedge fund Tiger Asia Management admits illegally trading millions of shares in US$60m settlement

PUBLISHED : Friday, 14 December, 2012, 12:00am
UPDATED : Friday, 14 December, 2012, 3:00am

Tiger Asia Management, the New York-based hedge fund run by Bill Hwang, admitted illegally using inside information to trade Chinese bank stocks and agreed to criminal and civil settlements of more than US$60 million.

The hedge fund still faces separate proceedings from Hong Kong's Securities and Futures Commission.

Hwang entered the guilty plea for Tiger Asia Wednesday in federal court in Newark, New Jersey, admitting the company used nonpublic information by selling short shares of Bank of China and China Construction Bank. Tiger Asia agreed to forfeit US$16.3 million to resolve the criminal case.

Tiger Asia Management, Hwang, Tiger Asia Partners and former head trader Raymond YH Park also will pay US$44 million to settle a US Securities and Exchange Commission lawsuit filed Wednesday. Tiger Asia used inside information received through private placement offerings to engage in short selling of the two banks, the agency said.

"Hwang today learned the painful lesson that illegal offshore trading is not off limits from US law enforcement," Robert Khuzami, the SEC enforcement director, said in a statement.

US District Judge Stanley Chesler placed Tiger Asia on probation for one year. He said the US$16.3 million represents the total illicit gain in the criminal case for the trades in December 2008 and January 2009.

"Tiger Asia regrets the actions for which it accepts responsibility today and is grateful this matter is now resolved and behind it in the US," Hwang said in a statement on Wednesday. Hwang, 48, lives in Tenafly, New Jersey.

Tiger Asia's attorney Lawrence Lustberg told Chesler that the entire criminal forfeiture was paid.

"It reflects a just resolution of this matter," Lustberg told the judge. All investor capital has been returned, he said.

Paul Fishman, the US attorney in New Jersey, said Tiger Asia had been entrusted with confidential information and violated that trust by "illegally trading millions of shares of the company's stock for huge profits."

In pleading guilty, Hwang admitted that on three occasions, investment bankers approached Park to gauge Tiger Asia's interest in joining a block sale of stock. Each time, Park agreed to be brought "over the wall," meaning Tiger Asia would keep the information confidential and not trade on it, he said.

Hwang admitted that Tiger Asia sold short 87 million shares of Bank of China stock, making US$3.2 million in illicit profit; sold short 93 million shares of China Construction Bank stock, making US$7 million; and sold short another 282 million shares of Bank of China stock, making US$5.7 million.

Tiger Asia Management and Tiger Asia Partners covered their short positions with private placement shares bought at a discount, according to the SEC. Hwang, Tiger Asia Management and Tiger Asia Partners, aided by Park, also engaged in a manipulative trading scheme that generated US$496,000 in phony management fees, the agency said.

As part of the SEC settlement, Hwang, Tiger Asia Management and Tiger Asia Partners agreed to give up US$19 million in illegal gains and interest. Each also agreed to pay US$8.3 million in penalties, totaling US$24.9 million. Park agreed to pay US$39,819 in illicit gain and interest, along with a US$34,897 penalty. All except Tiger Asia Management denied wrongdoing.

In August, the hedge fund said it was returning outside capital to investors amid a three-year probe by Hong Kong regulators. Hong Kong's Securities and Futures Commission alleged the hedge fund traded on inside information from bankers arranging placements of China Construction Bank and Bank of China shares in 2008 and 2009, pocketing HK$38.5 million (US$5 million).

Tiger Asia, which has no employees or physical presence in Hong Kong, denied the allegations in an October 12, 2010, letter to investors. The firm told clients later that month it had received a subpoena from the SEC following the allegations by the Hong Kong regulator.

Hong Kong proceedings are continuing, according to Ernest Kong, a spokesman for the SFC. Alan Linning, a lawyer for Tiger Asia in Hong Kong, didn't immediately respond to a phone call or e-mail seeking comment.

Hong Kong's SFC in February won a ruling against Tiger Asia establishing the regulator's power to independently seek civil remedies for market misconduct. The city's Court of Final Appeal in April agreed to hear Tiger Asia's appeal.

Hwang earned an undergraduate degree in economics from the University of California, Los Angeles, and a master's in business administration from Carnegie Mellon University in Pittsburgh.

In the early 1990s, he was an institutional stock salesman at Hyundai Securities, where he dealt with Julian Robertson's Tiger Management.

Robertson, a pioneer and mentor in the hedge fund industry, hired him in 1995 after Hwang won an annual prize awarded to the person outside of Tiger who had contributed most to the fund's success.

Robertson built Tiger Management into one of the world's largest hedge funds, generating average annual returns of 32 per cent and lifting his assets under management to US$22 billion by mid-1998.

After customer defections and losses cut Tiger's assets to US$6 billion two years later, Robertson decided to return money to clients and employ Tiger Management to invest his own fortune in hedge-fund managers, taking a share of profits in exchange.