In this article I will talk about some investors, funds, traders who have brought their companies/banks to collapse due to crazy strategies and risks. Not all strategies were wrong but in some cases it was the excessive risk that brought them to failure. Some investors/traders/managers have also covered the debts to their companies.
JEROME KERVIEL
Kerviel, a trader at Societe Generale, took huge, unauthorized positions in European futures markets, far exceeding his firm’s risk limits. He used deceptive tactics to hide the size of his positions. When his positions were exposed in 2008, Societe Generale reported a loss of $7.2 billion. Kerviel was arrested and convicted, and the case became one of the most famous financial fraud cases.
NICK LEESON
Leeson was a trader at Barings Bank who made huge speculations on Singapore Exchange futures. Like Kerviel, he attempted to hide his losses by stockpiling them in an unauthorized account and continuing to take riskier positions in an attempt to recoup his losses.
In 1995, Leeson’s losses amounted to $1.3 billion, leading to the collapse of the historic Barings Bank. This was one of the most famous cases of bank failure caused by unauthorized trading activities.
BILL HWANG: HIGH LEVERAGE DERIVATIVES
Hwang ran Archegos Capital Management, a family office that used derivatives such as total return swaps to take leveraged positions on technology companies such as ViacomCBS and Discovery. This allowed Archegos to control large chunks of stocks without actually owning them. In 2021, a sharp decline in Hwang’s holdings triggered a ripple effect of liquidations, causing Archegos to lose more than $20 billion in a matter of days and putting the banks that had extended it credit, including Credit Suisse and Nomura, into crisis.
VICTOR NIEDERHOFFER: OVERLEVERAGE AND OPTIONS
Niederhoffer was a trader known for his high-risk approach and use of leverage, particularly selling “put” options on market indices. This strategy worked well during periods of market stability, but was vulnerable to sudden crashes.
In 1997, Niederhoffer’s fund collapsed after a sell-off in Asian markets and global market volatility. A second company he founded also collapsed in 2007, proving that his strategy was too fragile in the face of volatility.
LONG TERM CAPITAL MANAGEMENT (LTCM): HIGH LEVERAGE ON DEBT
Founded by John Meriwether, Robert Merton and Myron Scholes, LTCM used advanced mathematical models to make debt bets and bond arbitrage. The firm exposed itself with extremely high leverage to maximize profits. In 1998, a global liquidity crisis and the Russian ruble crisis put LTCM in difficulty, which lost billions in a few weeks. The Federal Reserve was forced to intervene to prevent the collapse of the financial system.
LTCM used innovative strategies, but it demonstrated the dangers of excessive indebtedness and foolish reliance on mathematical models without considering the uncertainty and volatility of the markets.
If you are a trader always be careful about using leverage and overly risky strategies. You can be lucky 1 time, 2 times, 3 times but if you constantly risk all your capital you will lose everything long term. If instead you are a long term "investor"...be careful where you deposit your money/crypto/stocks. There are many crazy sharks out there...
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