Let's Play a Game - Part 1: What Happened to Archegos?
- GregisKitty
- Jan 25
- 3 min read
Updated: Feb 8
There's a lot of things that have been happening in the financial market recently that are worth INVESTIGATING (@DOGE).
We can't explain all of it, but we can point out what's funky. But before we do that - there are a few terms worth covering and a story about a hedge fund we want to cover.
Swaps are deals where two people agree to swap money based on how a stock does. If you think a stock will go down, you can swap with someone who thinks it will go up.
Naked Short Selling with Swaps:
Normally, short selling means borrowing a stock to sell it, hoping to buy it back cheaper later. Naked short selling is doing this without borrowing the stock.
With swaps, you can bet against a stock without actually ever borrowing the stock itself. You might agree to pay someone if the stock goes up, while they pay you if it goes down. This way, your bet against the stock (your "short" position) isn't directly visible, as it's hidden in the swap deal.
Using Swaps to Hide Naked Shorting
Naked Shorting via Swaps: Firm A - let's call it Archegos - enters into swap agreements with various counterparties (like banks such as Credit Suisse) where Archegos agrees to pay if the stock price goes up and receive payments if it goes down. This creates a synthetic short position without Firm A having to report traditional short sales or borrow the stock.
They can then use the saved cash from not buying the stock to manipulating the stock price down
Amplifying Downward Pressure: With the cash or the financial flexibility gained from not having to buy or borrow the stock directly (since they're using swaps), Firm A can employ several tactics:
Direct Selling: Firm A might still sell some shares they do own or have borrowed, increasing the visible supply of the stock and potentially pushing the price down.
Spreading Negative Sentiment: They could fund or encourage negative media headlines, research or reports on the company.
This is a very real thing. Elon Musk fought this with Tesla - the tactic is called short and then distort.
Musk has called out short sellers for the "Short & Distort tactics" many times. Coordination: If Firm A has relationships with other entities, they might coordinate actions where these entities also engage in activities that would push the price down, creating a more significant impact.
Now, let us give you a very real life example of why this game is so dangerous. With shorting, you're betting a stock will go down. But as we know, a STONK can always go up.....
In 2021, Archegos - which was supposed to be managing $20 Billion reported only having $9-10BN with $120BN in exposure. Who's highly *regarded* now? They were 6x levered...
From a Special Credit Suisse Board Inquiry after the collapse of Archegos:
Above you can download the CSG Special Committee Board Report on Archegos.
Archegos used custom basket swaps to hide short positions against GameStop. These swaps went from "ETF Swaps" to "Custom Swaps" - likely trying to force GameStop down as it moved up during the 2021 Squeeze.
We also know for certain some of the custom swaps included GameStop b/c Credit Suisse said so in their inquiry.
In the end, Archegos collapsed and Credit Suisse was forced to take a $4.7Bn loss.
Note: Along the way of researching - we stumbled up Ian Carroll - the best researcher we've come across - and his videos on GameStop. Those videos helped us point us where to look and they're DEFINITELY worth watching!
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