Employees of Archegos Capital Management face losses of about half a billion dollars after the value of a deferred pay plan set up by the firm crashed along with its other investments.

The family office run by Bill Hwang is yet to release money it owes to former employees, who saw the value of their deferred bonuses soar to about $500m before Archegos collapsed in March, according to two sources close to the firm.

Archegos sent shockwaves through global financial markets when it was forced to unwind several highly leveraged trades made using derivatives known as total return swaps. The episode left the banks with which it traded, including Credit Suisse, Morgan Stanley and Nomura, nursing losses of more than $10bn

Now, money owed to former employees is also on the line.

Under the deferred pay plan, Archegos carried over a significant portion of its employees’ annual bonuses with a promise to pay out once an individual left the firm.

While the original amount employees put into the mandatory plan was “under $50m”, according to a third person familiar with the firm, its value fluctuated in line with Archegos’s main investment fund.

“The company will increase or decrease the amount of the deferred payment by the percentage that the fund’s invested capital has increased or decreased in value,” said a document seen by the Financial Times that sets out the plan’s terms for an employee.

The document showed that 25 per cent of the plan participant’s end-of-year bonus was held back by Archegos, to be paid out when the employee departed. It states that the payout would not fall below its original value.

Yet some former employees have not received any of their deferred pay, including the original sums. One person close to the firm told the Financial Times that “the money is gone” with “no pot of gold to pay them from”. Another said that Archegos employees “are in a difficult position” and “warrant sympathy”.

A representative for Archegos declined to comment.

Former employees of Hwang’s family office would have to queue with other creditors if the firm enters insolvency, a person close to Archegos said. Archegos has hired restructuring advisers to assess potential legal claims from banks, which are attempting to recoup some of the money they lost on its soured bets and plan for a possible wind-down of the business. 

David Pauker, a financial adviser who has worked on large bankruptcies including Lehman Brothers, has been recruited as Archegos’s chief restructuring officer, according to his profile on the social network LinkedIn. Pauker declined to comment.

The US Department of Justice earlier this year opened an investigation into Archegos and requested information from banks that were its main trading counterparties. Prime brokers had agreed to do business with Hwang despite his past brushes with regulators. 

Hwang, who worked at Julian Robertson’s Tiger Global before striking out on his own, had previously reached a large settlement with US regulators to resolve insider-trading charges and was under a trading ban in Hong Kong.

Hwang’s leveraged bets, and the potential for lucrative fees for handling his trades, ultimately attracted some of the largest players on Wall Street to Archegos. The group took concentrated positions in derivatives tied to companies including ViacomCBS and Discovery, driving up the share prices of both media groups in the first few months of 2021. 

But a share sale by ViacomCBS in March was among the contributing factors that sent the stock into a tailspin and sent many of Archegos’s prime brokers into a panic. In a feverish few hours they sold down billions of dollars worth of shares in the companies they had purchased as part of their leg of the total return swap, with some taking the action without Archegos’s consent.

As the stocks slid, so did the value of the firm’s own funds. 

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