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Bill Hwang, a former hedge fund manager who’d pleaded guilty to insider trading, was deemed such a risk by Goldman Sachs Group Inc. that as recently as late 2018 the firm refused to do business with him.

Those misgivings didn’t last.

Wall Street’s premier investment bank, lured by the tens of millions of dollars a year in commissions that a whale like Hwang paid to rival dealers, removed his name from its blacklist and allowed him to become a major client. Just as Morgan Stanley, Credit Suisse Group AG and others did, Goldman fueled a pipeline of billions of dollars in credit for Hwang to make highly leveraged bets on stocks such as Chinese tech giant Baidu Inc. and media conglomerate ViacomCBS Inc.

Now Hwang is at the center of one of the greatest margin calls of all time, his giant portfolio in a messy and painful liquidation, and Goldman’s reversal has thrust it right into the mayhem.

According to two people with direct knowledge of the matter, Hwang’s Archegos Capital Management was forced by its lenders to dump more than $20 billion of stocks on March 26Friday in a series of market-roiling trades so large and hurried that investors described them as unprecedented.

Goldman even emailed clients late Friday to inform them that it had in fact been one of the banks selling. The email, a copy of which was seen by Bloomberg, detailed a total of $10.5 billion in trades. The message didn’t name Hwang or Archegos.

Representatives for Goldman, Morgan Stanley and Credit Suisse declined to comment. Efforts to reach Hwang and his associates at Archegos were unsuccessful.

Large Leverage

A so-called Tiger Cub who worked for Julian Robertson at Tiger Management, Hwang set up Archegos as a family office after shutting down his own hedge fund. Traders familiar with his orders describe Hwang running a long-short strategy with exceptionally large leverage, meaning that for every dollar of his own, he’d pile on several times as much in borrowed money.

For years, as they watched Archegos send business elsewhere, senior staff in Goldman’s equities division tried to cultivate Hwang as a client. Yet every attempt to open an account for him was blocked by Goldman’s compliance department, according to people familiar involved in those discussions. The reason: Hwang’s checkered past.

In 2012, he pleaded guilty on behalf of his firm, Tiger Asia Management, to U.S. charges of wire fraud. According to the Justice Department, Tiger Asia traded on material non-public information, reaping $16 million of illicit profits in 2008 and 2009.

Back in 2018, Goldman was wrestling with the reputation damage from the 1MDB scandal in Malaysia as well as still trying to restore its name after the financial crisis.

Force of its Own

At some point in the past two-and-a-half years, the firm changed its mind about Hwang. What exactly prompted the shift still isn’t clear. One possibility: The firm decided that, after a decade since his illegal trades, Hwang had spent enough time in the penalty box. Archegos had also become a force of its own, a family office that was bigger than many hedge funds.

Eventually, Goldman joined the ranks of Hwang’s top financiers, according to the people with direct knowledge of that relationship, enabling him to place many of the risky wagers that unraveled at breathtaking speed last week.

Goldman wasn’t alone. As those bets went haywire, Hwang’s prime brokers demanded more collateral to back his margin loans. By March 26 morning, some banks had started exercising the right to declare him in default and liquidate his positions to recover their capital, according to people familiar with that situation. Others swiftly followed.

That triggered a mad dash to sell shares in huge blocks as one bank after another scrambled to avoid losses on stocks that soon would be plummeting in value. As Monday’s open approaches, Wall Street is still trying to piece together a full accounting of the trades.