The $36 billion fund collapsed because Bill Hwang lied to become Wall Street legend

New York Post

Sung Kook “Bill” Hwang tried to trick all of Wall Street, a federal prosecutor told a Manhattan federal jury, as the trial on charges stemming from the 2021 collapse of Hwang’s $36 billion fund Archegos Capital Management began on Monday.
Prosecutors have alleged that Hwang and Archegos lied to Wall Street banks to secure billions of dollars of funding that they then used to inflate stock prices.
Archegos’ collapse caused more than $100 billion in shareholder losses at companies in its portfolio, harming investors who sold shares after their scheme collapsed, prosecutors also allege.
Assistant US Attorney Alexandra Rothman told the jury of 12 people that Hwang sought to become a Wall Street legend by pumping the value of his holdings through manipulative trading, turning Archegos into a criminal enterprise.
The case has been closely watched on Wall Street as a test of prosecutors’ ambitious market manipulation theory.
The banks Archegos traded with knew the risks and kept trading with the firm anyway to chase profits, Mulligan said.
Prosecutors accuse Hwang of using financial contracts known as total return swaps to secretly amass outsize stakes in multiple companies without actually holding their stock.
At its peak, they say, Archegos had $36 billion in assets and $160 billion of exposure to equities.

NEGATIVE

As the trial on allegations arising from the 2021 collapse of Sung Kook “Bill” Hwang’s $36 billion fund Archegos Capital Management got underway on Monday, a federal prosecutor told a Manhattan federal jury that Hwang attempted to con every member of Wall Street.

Hwang and Archegos are accused by the prosecution of lying to Wall Street banks in order to obtain funding totaling billions of dollars, which they then utilized to artificially boost stock prices.

They contend that the scheme was made possible by Patrick Halligan, the former chief financial officer of Archegos and current defendant who is also on trial.

Prosecutors also claim that following the collapse of Archegos’ scheme, investors who sold their shares suffered losses totaling over $100 billion at the companies in its portfolio.

Halligan and Hwang have entered a not guilty plea.

Hwang attempted to become a Wall Street legend by inflating the value of his holdings through manipulative trading, turning Archegos into a criminal enterprise, Assistant US Attorney Alexandra Rothman told the twelve-member jury.

She claimed that despite being a billionaire, Bill Hwang risked almost everything because he desired more wealth, fame, and influence.

“He was a great investor, to those in the know.”. Everything was his. But Rothman continued, “It wasn’t enough.

On Wall Street, prosecutors’ bold theory of market manipulation has been closely observed in this case.

It should provide insight into how banks interact with profitable but high-risk customers.

Jurors were informed by Hwang’s lawyer, Barry Berke, that his client bet his own money on businesses he firmly believed in, trading as though he was willing to lose it all.

“He did it because he had the courage to stand by his beliefs,” stated Berke.

As a bean counter who believed the company’s financial situation was sound, Halligan’s lawyer Mary Mulligan said her client was not a risk-taker.

Mulligan claimed that despite knowing the risks involved, the banks Archegos transacted with continued to pursue profits.

The focus of testimony during the trial, which could go up to eight weeks, will be on Hwang’s family investment office Archegos’ collapse, which the prosecution claims cost shareholders of the companies in its portfolio more than $100 billion.

US Attorney Damian Williams has brought several cases alleging misconduct on the part of influential investors during the volatile market conditions that accompanied the COVID-19 pandemic.

Charges against Hwang include the use of financial agreements called total return swaps by the prosecution to covertly acquire large shares in several businesses without really owning any of the stocks.

Prosecutors claim that because his holdings were so substantial, they overshadowed those of the biggest investors in the companies and raised stock prices. Archegos reportedly possessed $36 billion in assets and $160 billion in equity exposure at its height.

Archegos was unable to satisfy margin calls in March 2021 due to declining stock prices. This ultimately resulted in some banks liquidating the stocks that were backing his swaps, which cost Archegos and other banks—such as Morgan Stanley, Credit Suisse, which is now a part of UBS, and Nomura Holdings—billions of dollars in losses.

Racketeering conspiracy is the charge against Hwang and Halligan. Hwang and Halligan are accused of two more counts of fraud and ten more counts of fraud and market manipulation, respectively. A maximum sentence of twenty years is imposed for each count.

The case brought by prosecutors is the “most aggressive open market manipulation case ever,” according to Hwang’s attorneys. It could be difficult for the government to win, multiple lawyers told Reuters.

Chief Risk Officer Scott Becker and head trader William Tomita of Archegos have entered guilty pleas to the relevant charges and are scheduled to testify during the trial. Additionally, a few bank executives might take the witness stand.

scroll to top