The U.S. Securities and Exchange Commission has charged Archegos Capital Management founder Sung Kook "Bill" Hwang and Chief Financial Officer Patrick Halligan with 11 criminal counts in connection to the multibillion-dollar implosion of their hedge fund.
What Happened: Hwang and Halligan were charged early Wednesday morning with 11 criminal counts encompassing racketeering conspiracy, market manipulation, wire fraud and securities fraud. Prosecutors stated Hwang and Halligan were responsible for fraudulently pumping up the Archegos portfolio from $1.5 billion to $35 billion within the span of one year, while the company’s market positions swelled to $160 billion as Hwang and Halligan conspired to hide its real size from the market.
In late March 2021, Archegos faced margin calls on its positions but could not provide the funds needed to cover the transaction, forcing banks to jettison the stocks held on Archegos' behalf.
As a result of this situation, banks including Nomura Holdings Inc. NMR, Credit Suisse Group AG CS, Goldman Sachs GS and Morgan Stanley MS sold off large volumes of shares in ViacomCBS and Discovery — now known as Paramount Global PARAA and Warner Bros. Discovery WBD, respectively — and the Chinese companies Baidu Inc. BIDU and Tencent Music TME.
In the charges brought against Hwang and Halligan, prosecutors said the pair “repeatedly made materially false and misleading statements about Archegos’s portfolio of securities to numerous leading global investment banks and brokerages.” Banks lost more than $10 billion as a result of Archegos’ collapse, resulting in shake-up in the corporate leadership and regulatory probes into their operations.
What Else Happened: In addition to Hwang and Halligan, the SEC filed charges against Archegos head trader William Tomita and Chief Risk Officer Scott Becker. The U.S. Attorney’s Office for the Southern District of New York announced criminal charges for similar conduct against Hwang and Halligan and the Commodity Futures Trading Commission announced civil charges.
"We allege that Hwang and Archegos propped up a $36 billion house of cards by engaging in a constant cycle of manipulative trading, lying to banks to obtain additional capacity, and then using that capacity to engage in still more manipulative trading," said Gurbir Grewal, Director of the SEC’s Division of Enforcement.
"But the house of cards could only be sustained if that cycle of deceptive trading, lies and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed, allegedly leaving Archegos’s counterparties billions in trading losses."
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