Archegos founder Bill Hwang arrested on US fraud charges 2022-04-27 15:18:47


US authorities have arrested Bill Huang, founder of the collapsed family office Archegos Capital Management, and charged him with racketeering, fraud and market manipulation.

The indictment was revealed on Wednesday and accused Hwang, 58, and former CFO Patrick Halligan, 45, of using Archegos as a “tool for market manipulation and fraud” with “far-reaching consequences for other participants in US stock markets.”

The case, filed by federal prosecutors in Manhattan, marks the first criminal charges against Hwang, an alleged veteran of the Julian Robertson Tiger Management Fund whose little-known investment vehicle rocked some of Wall Street’s largest financial institutions when it exploded. a year ago.

“The turnover has been amazing,” said Damien Williams, the US attorney general for the Southern District of New York.

While Archegos was a relatively obscure family office, it has managed to attract many large lenders. Archegos’ capital swelled from $1.5 billion in March 2020 to $35 billion a year later, with the group’s positions ballooning to as much as $160 billion.

Cause the collapse of Archegos billions of dollars Of the losses incurred by investment banks including Credit Suisse, UBS, Nomura and Morgan Stanley after they defaulted on margin calls, more than $100 billion were erased from the valuations of nearly a dozen companies as Archegos positions were cancelled.

The group used money borrowed from banks such as Morgan Stanley and Credit Suisse to amass multi-billion dollar positions in US-listed companies such as ViacomCBS – now known as Paramount – and online retailers Shopify and Farfetch. Using derivatives, where the bank bought or sold shares on behalf of Archegos, the company left no visible trace of its activity to the investing public.

“This scheme was historically in scope,” Williams said. Lies feed [stock price] Inflation and inflation fueled more lies. He went round and round. But the music stopped last year, the bubble burst, prices went down, and when they did billions of dollars almost evaporated overnight.”

Archegos has amassed huge positions in large-cap companies

Hwang and Halligan pleaded their innocence during a hearing in Manhattan federal court.

Wearing an elegant green polo-neck sweater, Hwang agreed to sign a $100 million bond, which will be secured with $5 million in cash and interest on two properties including his home.

The former hedge fund manager has agreed to travel restrictions limiting his movements to New Jersey, Connecticut and parts of New York. A government lawyer told the court that he said he had lost his passport, and promised not to apply for a new one.

Hwang’s lawyer said on Wednesday that the investor was “completely innocent of any wrongdoing” and that the allegations were “exaggerated.”

“We are deeply disappointed that the US Attorney’s Office has deemed it appropriate to indict a case that has absolutely no factual or legal basis; a trial of this kind, on open market transactions, is unprecedented,” said Lawrence Lustberg, Hwang’s attorney. It threatens all investors.

Halligan’s attorney said he is innocent and “will be acquitted.”

Scott Baker, who was Archegos’ director of risk management, and William Tomita, principal dealer in the family office, were also accused of their roles in the alleged plot. The Department of Justice said they have pleaded guilty and are cooperating with the US government.

The Securities and Exchange Commission filed a parallel civil lawsuit against Archegos and Hwang on Wednesday morning. It said that in March 2021, Archegos derivatives and equity positions in ViacomCBS accounted for more than half of the company’s freely tradable shares.

The Securities and Exchange Commission said that in June 2020, when a colleague asked him if the relative resilience in ViacomCBS shares was a “sign of strength” on the day the broader stock market plummeted, Hwang texted: “No. It’s a sign of my buying.” . He noted that he added emojis of tears of joy or laughter.

The CFTC also filed civil fraud charges against Archegos and Halligan.

Prosecutors allege that Hwang and Halligan operate two interconnected criminal schemes. They accused Archegos of hiding their trading and positions so that their peers and other market traders believed that “the prices of those shares were the product of natural forces of supply and demand when, in fact, they were an artificial product of Hwang’s manipulative trading.”

The indictment also alleges that the defendants misrepresented the group’s investment plans and holdings as Archegos withdrew billions of dollars in credit from major Wall Street lenders to support its trading.

While those banks knew Archegos was betting on a relatively small number of trades, prosecutors said, they had been misled about the size of those trades, and the family office confirmed Archegos could exit their trades in just two weeks.

But this was not true. Last year, the group’s position in ViacomCBS exceeded $20 billion, and its trading in the media company accounted for more than 10 percent of the stock’s daily activity. Prosecutors noted that it would have taken Archegos more than three months to sell ViacomCBS shares without moving the price significantly.

Hwang also occasionally coordinated deals with an unnamed former colleague who runs a hedge fund, according to prosecutors. When Archegos sought in 2021 to increase its position in GSX Techedu, it came to terms with a major broker who refused to buy a larger stake in the US-listed Chinese education company. This limitation has limited its ability to enter into new swap contracts on GSX with any of its clients.

Huang knew that the former colleague, described as a “close friend,” held a similar position at GSX Techedu at the same bank, according to the indictment. Prosecutors allege he “caused” that person to transfer his position to another bank, giving Archegos the ability to increase his position in GSX.

Archegos’ fall has happened Urging new rules of regulators at the Securities and Exchange Commission, who are pushing for renewed disclosures to major investors.

Additional reporting by Mark Vandevelde in New York