Three years in the past, a multibillion-dollar funding agency referred to as Archegos Capital Administration blew up with little warning, inflicting massive losses for some Wall Avenue banks and resulting in federal felony costs in opposition to the agency’s founder, Invoice Hwang.
On Wednesday, Mr. Hwang, 60, who was charged with 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation, is ready to go on trial in Manhattan federal court docket. If convicted, he may spend the remainder of his life in jail.
Federal prosecutors are searching for to safe a conviction in a serious inventory market manipulation case during which Mr. Hwang, whose authorized identify is Sung Kook Hwang, was one of many massive monetary losers. Archegos had managed cash primarily for Mr. Hwang, his household and a few of his workers, and far of his household’s wealth was worn out when the agency collapsed in March 2021. Additionally on trial with Mr. Hwang is Patrick Halligan, the previous chief monetary officer of Archegos.
Authorities have mentioned Archegos inflated the costs of shares it invested in by utilizing tens of billions of borrowed {dollars} from Wall Avenue banks to maintain shopping for increasingly shares. The surging share costs inspired different buyers to purchase, pushing the costs even greater. At its peak, the technique elevated Mr. Hwang’s internet price to greater than $35 billion, and the general worth of the shares that Archegos owned was greater than $100 billion.
Damian Williams, the U.S. lawyer for the Southern District of New York in Manhattan, referred to as Archegos’s scheme to pump up the value of shares “historic in scope” when his workplace introduced the submitting of costs in opposition to Mr. Hwang and Mr. Halligan in April 2022.
Barry Berke, a lawyer for Mr. Hwang, declined to remark. However at a court docket listening to a couple of months in the past, Mr. Berke mentioned his shopper “by no means offered a nickel of his shares.”
Mary Mulligan, a lawyer for Mr. Halligan, mentioned, “It is a case that ought to not have been introduced.”
Archegos was little recognized earlier than its collapse and was not topic to a lot regulatory oversight as a result of it didn’t handle any cash for out of doors buyers. But it operated like an enormous hedge fund given the extent of threat it had taken on and its outsize borrowings from banks — primarily by way of using refined spinoff contracts.
The agency thrived every time the costs of the shares it purchased saved rising. However Archegos, which Mr. Hwang named after the Greek phrase for chief or prince, seemingly couldn’t deal with a sudden downward flip available in the market. It collapsed when a number of the shares it had invested in declined in worth, prompting Wall Avenue banks to grab securities and demand that the agency put up more cash as collateral.
The affect of Archegos’s failure on the inventory market was restricted, however a number of banks suffered losses. Credit score Suisse, which UBS has since taken over, misplaced $5.5 billion. UBS itself misplaced about $861 million from lending to Archegos. Final summer season, UBS agreed to pay almost $400 million to regulators in the USA and Britain due to Credit score Suisse’s threat failures within the Archegos affair. Nomura and Morgan Stanley had been among the many banks that additionally misplaced cash.
If convicted on all counts, Mr. Hwang may, in concept, be sentenced to 220 years in jail — although a sentence of 20 years is extra life like. By comparability, Samuel Bankman-Fried, the crypto entrepreneur who was sentenced in March to 25 years in a federal jail for defrauding clients out of $8 billion, confronted a most sentence of 110 years.
The trial begins with jury choice on Wednesday. Prosecutors intend to name as witnesses two former Archegos workers who pleaded responsible and agreed to cooperate with the investigation.
The federal authorities mentioned a crucial element of the scheme concerned officers at Archegos who misled the banks concerning the agency’s total footprint available in the market. The authorities additionally contended that Mr. Hwang had engaged in a “pump and brag scheme” — a method designed to considerably enhance the agency’s inventory holdings and make Mr. Hwang look like an “extraordinarily rich particular person.”
However prosecutors have but to elucidate simply how Mr. Hwang deliberate to revenue by driving up the costs of the shares Archegos owned. Even the federal decide who will preside over the trial mentioned he was flummoxed by Mr. Hwang’s technique of merely shopping for increasingly shares.
“What did he need? What did he need to obtain? Being an enormous shot. I suppose that’s doable, but it surely doesn’t appear to me that was his goal,” the decide, Alvin Hellerstein, mentioned at a listening to final yr. “I can’t work out his goal.”
Prosecutors have mentioned testimony about potential exit methods for Mr. Hwang will probably be produced on the trial.
That is the second time that Mr. Hwang, a former hedge fund supervisor, has been accused of violating federal securities legal guidelines.
In 2012, he reached a civil settlement with the Securities and Alternate Fee in an insider buying and selling investigation that concerned his previous hedge fund — Tiger Asia Administration — and was fined $44 million. Mr. Hwang was not criminally charged, however Tiger Asia pleaded responsible to federal insider-trading costs in a associated motion introduced by federal prosecutors in New Jersey.
In settling with securities regulators, Mr. Hwang was barred from managing public cash for not less than 5 years. Regulators formally lifted the ban in 2020. However as an alternative of managing cash for out of doors buyers, Mr. Hwang centered on managing cash for himself and his household.
