Bill Hwang, the founder of Archegos Capital Management, is set to stand trial on Monday for alleged securities fraud and market manipulation, according to prosecutors. This comes in the aftermath of the hedge fund’s dramatic collapse in 2021, which led to significant losses for major banks.
Archegos, a family-owned hedge fund overseen by Hwang, made substantial investments in a small number of stocks using borrowed funds from banks. When some of these investments soured, the fund was unable to meet margin calls, exacerbating its financial woes.
The fallout from Archegos’ collapse reverberated throughout financial markets, resulting in approximately $10 billion in losses for Credit Suisse, Nomura, Morgan Stanley, and other prominent financial institutions.
Bill Hwang and Patrick Halligan, the chief financial officer of Archegos, were arrested by the FBI in April 2022, with Deputy Attorney General Lisa Monaco stating that their alleged crimes posed a threat to innocent investors and financial institutions worldwide.
Both individuals deny the charges against them, and their trial is scheduled to commence at 1300 GMT in a Manhattan Federal court, as per prosecutors’ listing.
An indictment spanning 59 pages alleges that Hwang and Halligan utilized Archegos “as an instrument of market manipulation and fraud, with far-reaching consequences for other participants in the United States securities markets.”
According to the indictment, Bill Hwang and other alleged conspirators, including head trader William Tomita, aimed to defraud investors by misleading them into believing that shares in the fund’s portfolio were increasing in value. In reality, the indictment alleges, these purported stock price hikes were “the artificial product of Hwang’s manipulative trading and deceptive conduct that caused others to trade.”
Additionally, the indictment claims that they repeatedly made “false and misleading statements” to persuade others to trade with the firm and extend credit to it.
The fund utilized derivatives to acquire substantial positions in prominent Chinese companies like Baidu Inc, Tencent Music Entertainment Group, and Vipshop Holding, as well as major US firms including ViacomCBS and Discovery.
Initially, this strategy proved successful, with the fund tripling in size within a year. Hwang’s personal wealth also skyrocketed from $1.5 billion to $35 billion, transforming him and the firm into “significant economic forces in the United States securities markets,” according to the filing.
The effort to artificially boost share prices led to rapid expansion for the firm, with its value surging from approximately $1.5 billion with $10 billion in exposure in March 2020 to over $36 billion with $160 billion in exposure at its peak in March 2021, according to the US financial markets regulator, the Securities and Exchange Commission (SEC).
Hwang, who studied in the United States, initially worked for Tiger Management before founding his own firm, Tiger Asia Management. In 2012, he paid $44 million to settle with the SEC over an insider trading case and subsequently closed down the firm.
