Three years ago, a multibillion-dollar investment firm called Archegos Capital Management exploded without warning, inflicting huge losses on some Wall Street banks and threatening federal charges against its founder, Bill Hwang. This led to criminal charges.
On Wednesday, Mr. Huang, 60, is scheduled to go on trial in federal court in Manhattan, where he is charged with 11 counts of securities fraud, wire fraud, conspiracy, extortion and market manipulation. If he is convicted, he could spend the rest of his life in prison.
Federal prosecutors are seeking to secure a conviction in a massive stock market manipulation case in which Mr. Hwang, whose real name is Song Kook Hwang, was one of the biggest financial losers. Archegos primarily managed funds for Mr. Hwang, his family and some employees, but much of his family's wealth disappeared when the company went bankrupt in March 2021. So is Patrick Harrigan, the former finance director who is on trial with Mr. Hwang. Archegos executives.
Authorities say Archegos inflated the prices of the stocks it invested in by borrowing tens of billions of dollars from Wall Street banks and buying up more shares. The sharp rise in the stock price prompted other investors to buy, causing the price to rise further. At the peak of this strategy, Mr. Hwang's net worth increased to more than $35 billion, and his total stake in Archegos was more than $100 billion.
Damien Williams, the U.S. attorney for the Southern District of New York in Manhattan, said when his firm announced the charges against Hwang and Harrigan in April 2022, it called Archegos' plan to inflate its stock price “on a historic scale.” ” he called. .
Mr. Hwang's lawyer, Barry Burke, declined to comment. But in a court hearing a few months ago, Burke said his client “never sold a penny of his stock.”
“This is a lawsuit that should never have been filed,” said Mary Mulligan, Harrigan's attorney.
Archegos was little known before its collapse and faced little regulatory scrutiny because it did not manage any funds for outside investors. But given the level of risk it assumed and the large amounts of debt it borrowed from banks, primarily through the use of sophisticated derivative contracts, it operated like a major hedge fund.
The company prospered as the prices of the stocks it purchased continued to rise. But Archegos, which Hwang named after the Greek word for leader or prince, appeared unable to cope with the market's sudden decline. The company went bankrupt after the value of some of its stocks declined, and Wall Street banks seized the securities and required the company to post additional funds as collateral.
The Archegos collapse had a limited impact on the stock market, but several banks suffered losses. Credit Suisse, which was later acquired by UBS, lost $5.5 billion. UBS itself lost about $861 million in loans to Archegos. Last summer, UBS agreed to pay nearly $400 million to U.S. and British regulators for Credit Suisse's risk management failures in the Archegos scandal. Nomura and Morgan Stanley were among the banks that suffered losses.
If convicted on all charges, Hwang could theoretically be sentenced to 220 years in prison, although a 20-year sentence is more realistic. By comparison, cryptocurrency entrepreneur Samuel Bankman Fried, who was sentenced in March to 25 years in federal prison for defrauding customers of $8 billion, faces up to 110 years in prison. There is a possibility that
The trial begins with jury selection on Wednesday. Prosecutors plan to call as witnesses two former Archegos employees who have pleaded guilty and agreed to cooperate with the investigation.
Federal authorities said key parts of the scheme involved Archegos officials who misled banks about the company's overall presence in the market. Authorities also allege that Hwang was involved in a “hype scheme,” a strategy aimed at significantly increasing the company's stock holdings and making Hwang appear to be a “very wealthy person.” did.
But prosecutors have not yet explained how Hwang planned to profit from inflating the price of Archegos' shares. Even the federal judge presiding over the case said he was baffled by Mr. Hwang's strategy of simply buying more and more stocks.
“What did he want to do? What did he want to accomplish? Being a big shot. I think that's possible, but I don't think that was his goal.” Judge Alvin Hellerstein said at a hearing last year. “I don't understand his purpose.”
Prosecutors said testimony about Hwang's potential exit strategy would be presented at trial.
This is the second time that Hwang, a former hedge fund manager, has been charged with violating federal securities laws.
In 2012, he reached a civil settlement with the Securities and Exchange Commission in an insider trading investigation involving his former hedge fund, Tiger Asia Management, and was fined $44 million. Mr. Huang was not criminally charged, but Tiger Asia pleaded guilty to federal insider trading charges in a related case brought by federal prosecutors in New Jersey.
The settlement with securities regulators bars Hwang from managing public funds for at least five years. Regulators officially lifted this ban in 2020. However, Mr. Huang focused on managing funds for himself and his family rather than for outside investors.