The year the family office where he served as chief financial officer lost some $20 billion in two days, Patrick Halligan secured a lucrative new job in philanthropy.
He had been listed as the treasurer of the Grace and Mercy Foundation off and on for more than a decade, a five-hour-a-week role with no paycheck. But in 2021, the position was newly listed as full time, with a $465,106 compensation package, which rose to $615,670 the following year.
Who was his generous employer? Sung Kook “Bill” Hwang, the foundation’s founder and primary donor, as well as the founder and CEO of Archegos Capital, the family office where the pair had worked hand in hand — and which collapsed amid accusations of malfeasance, leaving Wall Street banks with some $10 billion in losses.
Earlier this month, Hwang and Halligan were convicted by a jury in a federal court in Manhattan, with the latter found guilty of conspiracy, securities fraud and wire fraud. Whether Halligan’s paid employment with the Grace and Mercy Foundation continues is unclear. The foundation did not respond to requests for comment by press time.
Yet Halligan was not the only Archegos employee to land a well-remunerated new position with the foundation the same year that the family office’s massively leveraged derivative bets incurred billions in losses and led to charges of fraud.
In 2021, the year the family office exploded, the foundation more than doubled the size of its staff, based on its IRS filings, with all top employees receiving salaries exceeding even those of CEOs at peer philanthropies, based on a Council on Foundations survey.
The following year, Grace and Mercy’s total bill for salaries and benefits accounted for a larger share of its endowment than any other foundation in the nation with $500 million or more in assets, and the proportion of that bill spent on investment personnel was more than twice that of the nearest peer, according to a FoundationIQ analysis. In all, the foundation’s total expenses ($33 million) actually exceeded its grantmaking ($31 million) in 2022.
Today, LinkedIn shows that at least eight former employees of the family office still work for the foundation. Among them are two former top Archegos executives, Andy Mills and Diana Pae, the latter of whom had a 2022 foundation pay package that put her among the highest-paid foundation leaders in the country.
According to a 2022 lawsuit by a former employee seeking tens of millions of dollars in damages, Hwang and other Archegos executives “explicitly” referred to the foundation as a “safe haven” — or “escape pod” — for themselves if the firm failed, and offered foundation jobs to employees as a means of “inducing them to lie or remain silent” about what was happening at Archegos. The case is still being litigated.
Multiple experts I spoke to said Halligan’s employment by Hwang’s foundation was concerning, along with the hiring of several other former Archegos staffers, particularly given the philanthropy’s high salaries.
“When you have to comp your employees generously from the nonprofit, that’s not a good sign,” said David Shapiro, financial fraud expert and lecturer at the John Jay College of Criminal Justice. “That’s a yellow flag, at least.”
The Grace and Mercy Foundation is an outlier in the foundation world, and not in a good way. A variety of historians and legal experts I consulted struggled to come up with similar cases. But it serves as an extreme example of just how much leeway there is for the super rich to bend the rules governing ostensibly charitable foundations to suit their needs, if they choose.
Another Tiger Cub philanthropy
Hwang and his wife, Becky, launched the Grace and Mercy Foundation in late 2006, with Halligan as treasurer. In its early days, the foundation’s mailing address was the Park Avenue office of Hwang’s first hedge fund, Tiger Asia Management.
That name reflected Hwang’s origins as an acolyte of the late hedge fund pioneer — and noted philanthropist — Julian Robertson. Robertson’s hedge fund, Tiger Management, spawned generations of investors known as Tiger Cubs, many with their own philanthropies.
Grace and Mercy shared an address with the fund until 2012, when Tiger Asia shuttered amid Hwang’s first tangle with Wall Street regulators. That year, the investor pleaded guilty to wire fraud related to illegal trading of Chinese bank stocks and separately paid $44 million to settle U.S. insider trading charges, according to Reuters. Hwang then converted Tiger Asia into a family office, Archegos, and ultimately moved both it and the foundation into offices on Seventh Avenue, the address still listed by the foundation in its most recent filing.
Long a relatively small operation, the foundation went through a major growth spurt in 2016 and 2017, its endowment growing six-fold as Hwang contributed $456 million over those two years. Operations expanded accordingly. Grantmaking and staff both more than doubled between 2016 and 2020, with the former reaching $22 million and the number of staff making over $50,000 a year hitting 24, according to its IRS filings. Money went to a wide range of Christian organizations, including several major grants to the Fuller Foundation and Fuller Theological Seminary in Pasadena, California.
Then came 2021 and Archegos’ implosion.
Family office collapse, foundation hiring spree
In 2021, with Archegos in free fall, the Grace and Mercy Foundation’s operation ballooned in size. The foundation’s tax filing that year indicates that the number of staff and trustees who received more than $50,000 from the foundation rose from 24 the year before to 60 individuals.
Yet its grantmaking increased only 13%, to $25 million, and its endowment dropped dramatically, falling 33% from the previous year to $662 million, and would fall still further the next year.
The foundation did launch two “direct charitable activities” that year — the Just Show Up book club and the Public Reading of Scripture program — whose expenses totaled $10 million. Private foundations typically include a brief description of those activities, along with a detailed explanation in an attachment, often doing so to help explain high expenses-to-grants ratios, said Ben McDearmon, director of legal resources at the Council of Foundations, via email. Grace and Mercy neither listed any such data nor attached additional documentation that year, nor the following year when the programs’ cost rose to $16 million.
A former Archegos employee joins $1 million club
Among those who joined the foundation after Archegos’ collapse was Diana Pae, the former co-president of the family office. She came on board in 2021 as Grace and Mercy’s chief operating officer, and the next year became a member of an elite group of philanthropy professionals: those with a salary of $1 million or more.
Most foundation staff with that level of compensation are either investment officers managing multibillion-dollar endowmentsag or well-known foundation leaders, like Ford Foundation’s Darren Walker or Andrew W. Mellon Foundation’s Elizabeth Alexander. Virtually all of them work for the nation’s richest and most renowned foundations.
Pae, in what was apparently her first full year of employment at the foundation, received a salary of $1,029,250. The foundation’s endowment that year? $528 million. Its total grantmaking? $31 million.
Her pay was nearly four times more than the median CEO salary at foundations with similar assets, and it was 50% greater than the maximum recorded salary for such leaders, based on the Council on Foundation’s 2023 Grantmaker Salary and Benefits Report, which did not include chief operating officers. LinkedIn indicates Pae is still with the foundation.
CEO-level salaries (or higher) for all top employees
Pae was not the only foundation employee with an enormous pay package.
The foundation’s co-presidents, Sumi Kim and Christopher McPadden, were paid salaries of $699,615 and $635,213, respectively, each more than twice the median pay for CEOs of similar-sized institutions, and significantly above typical salaries for the region, based on COF data. McPadden previously served as a senior advisor to Archegos, while Kim’s husband was a long-time Archegos consultant, according to a lawsuit against the office.
In fact, every officer or employee whose compensation was listed in the foundation’s 2020 990-PF made more than the median salary for a CEO — i.e., typically a foundation’s highest or second-highest paid position — for other institutions in the region or with $500 million to just under $750 million in assets.
Take Andy Mills, former executive chairman and co-CEO of Archegos, who for years was listed as spending one hour a week as an unpaid vice chairperson at the foundation. In 2022, tax forms showed he was working 25 hours a week in a very similar position — co-chairman and director — but receiving a $381,000 salary, or more than the median CEO pay at a similar institution. LinkedIn indicates he is still serving as co-chairman of the foundation.
The No. 1-ranked foundation in compensation, based on assets
Grace and Mercy stands out from its peers not only for its unusually high individual compensation, but for its total spending on all “people” costs — salaries, wages, benefits, pension plans and trustee compensation.
As a percentage of assets, Grace and Mercy spent more in 2022 on such expenses than any other foundation with more than $500 million in assets, the equivalent of 3.2% of its assets, according to an analysis by John Seitz of FoundationIQ. The next-highest rate was 2.5%.
In total, the foundation spent $19.9 million on people costs in 2022, up more than three-fold from the year before Archegos collapsed, and more than six times what it spent in 2018.
Grace and Mercy’s people costs outstripped those of foundations with millions more in grants and billions more in assets. It spent nearly as much in 2022 as the $3.2 billion James Irvine Foundation, which granted $189 million that year, or nearly six times more than Grace and Mercy. The Mother Cabrini Health Foundation, whose Manhattan headquarters is located a few avenues west of Grace and Mercy, spent less on people costs that year — and distributed five times more in grants.
Grace and Mercy’s compensation for its investment staff was even more unusual. As a percentage of assets, the foundation again spent more on investment staff than any other philanthropy with more than $500 million, paying out 1.16% of its assets, based on Seitz’s analysis. That was more than twice the spending rate of the runner-up, which paid out only 0.48% of assets.
Put another way, the foundation, which in 2022 had a $522 million endowment, spent more on its investment team than much-larger philanthropies like Margaret A. Cargill Foundation ($3.3 billion), Charles Stewart Mott Foundation ($3.7 billion) and Conrad N. Hilton Foundation ($6.6 billion), Seitz found.
“Escape pod”
Archegos and the foundation were “functionally indistinguishable,” alleges a 2022 lawsuit by Brendan Sullivan, a former managing director at the family office.
The suit claims that Hwang regularly moved money and shares between accounts of the family office and foundation, and used Archegos staff and resources to operate Grace and Mercy. That included joint retreats, using a merged online calendar, and the same 401K and profit-sharing programs.
Hwang also “repeatedly and explicitly” described the foundation as an “escape pod” in the event the family office failed. “This option was the topic of not infrequent statements by Hwang attempting to assuage concerns among employees and induce loyalty to Hwang, and for some — especially Pae, Mills, and [former co-president Brian] Jones — active participation in his schemes,” reads the suit.
For instance, in December 2018, Archegos’ portfolio fell 35%. That month, Hwang told Archegos staff that if the office ran out of funds, he would continue to invest using the foundation’s funds and hire “loyal” employees and “good followers” to join him there.
Sullivan is seeking $30.5 million to $50 million from the firm’s deferred compensation plan, which he alleges Hwang and other leaders misappropriated.
While Hwang and Halligan have already been convicted in the case brought by the Department of Justice, Archegos and Halligan also face fraud charges from the Commodity Futures Trading Commission, while the SEC has filed charges that Hwang, Halligan and others engaged in a “massive market manipulation scheme.”
Is this a case of self-dealing?
Foundations can face tax penalties for “self-dealing” when they engage in any financial transaction, including a salary, with what are informally known as insiders. Called “disqualified persons” by the IRS, insiders include any directors, officers or trustees of a foundation, major contributors and family members of those individuals.
Yet many foundations do pay such persons based on a well-established exception. Services provided must be “necessary” for the foundation and “personal,” a category the IRS has left hazy but is known to include areas like investment management, legal services and work as an officer, director or executive director. Finally, the compensation cannot be “excessive.”
That’s where experts say that the Grace and Mercy Foundation — which, on its 2021 and 2022 tax forms, ticked a box acknowledging paying compensation to a “disqualified person” — may be on thin ice.
“They had two treasurers listed, who were both paid very well… and they had co-presidents — which is not unheard of, but also not especially common from what I’ve seen — who are both also very well compensated,” said McDearmon, of the Council on Foundations.
“That would be the thing that raises a red flag for me,” he said. “Did they take steps to ensure they could justify the amounts paid to these disqualified persons as not excessive?”
If salaries were paid by a foundation to silence potential witnesses, such a move would not only incur self-dealing tax penalties, but may also violate criminal law, said Philip Hackney, a University of Pittsburgh law professor who is focused on the nonprofit sector and formerly worked for the IRS.
“If they were to have made such a payment, and if it was to keep them quiet, that would be a violation of a range of those excise taxes,” he said, adding that such a foundation may have an obligation to reclaim those dollars. “It certainly raises troubling issues.”
The IRS, whose practice is not to disclose its actions unless criminal action is taken, has not announced any measures against the foundation.
Doug White, a philanthropic advisor, said he would have recommended Hwang step aside after the charges were filed in 2021. “He probably should have recused himself of being the head of the Grace and Mercy Foundation” after being charged, White said. “And now that he’s been convicted, he should probably resign.”
The upshot for philanthropy watchers? Yes, the Grace and Mercy Foundation is an exceptional case. But it’s also an extreme example of dynamics that show up at all levels of the philanthrosphere — inflated compensation, questionable payments to insiders, and the use of charitable vehicles as pawns in the game of wealth. Such maneuvers are often legal, and there’s no definitive evidence that Grace and Mercy broke any laws. Yet in the eyes of the public, such cases further erode trust in the charitable sector — and particularly in billionaire donors and those who bend over backward to serve them.
