CRIMINAL CAPITALI$M
US indicts Archegos founder Hwang for fraud,market manipulation
2022/4/27
© Agence France-Presse
New York (AFP) - US authorities on Wednesday arrested Archegos founder Bill Hwang and charged him with securities fraud and market manipulation following the fund's spectacular implosion last year that cost large banks billions of dollars.
The family-owned hedge fund run by Hwang had taken huge bets on a few stocks with money borrowed from banks, and when several of those bets turned sour, the fund was unable to meet "margin calls" to cover the losses.
The 2021 collapse of the fund sent shockwaves through financial markets and caused $10 billion in losses for Credit Suisse, Nomura, Morgan Stanley and other leading financial institutions.
Hwang and Patrick Halligan, chief financial officer of Archegos, were both arrested by the FBI early Wednesday.
"Their alleged crimes jeopardized not only their own company but also innocent investors and financial institutions around the world," Deputy Attorney General Lisa Monaco told reporters.
Both men pled "not guilty" in court appearances, said attorneys for Hwang and Halligan.
A searing 59-page indictment said Hwang and Halligan used the firm "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.
Hwang and other conspirators, including head trader William Tomita, sought to defraud investors by convincing them that shares in the fund's portfolio were on the rise when in fact the stock price increases "were the artificial product of Hwang's manipulative trading and deceptive conduct that caused others to trade," the indictment said.
They also repeatedly made "false and misleading statements" to convince others to trade with and extend credit to the firm.
Inflating share prices
The fund used derivatives to take large stakes in top Chinese names such as Baidu Inc, Tencent Music Entertainment Group and Vipshop Holding, plus US giants such as ViacomCBS and Discovery.
The plan initially worked and the fund tripled in size in just a year, while Hwang's personal fortune soared to $35 billion from just $1.5 billion and turned him and the firm into "significant economic forces in the United States securities markets," the filing said.
The US financial markets regulator, the Securities and Exchange Commission (SEC), also charged Hwang, Halligan, Tomita and Chief Risk Officer Scott Becker for their roles in the scheme.
The move to inflate share prices caused the firm to expand rapidly, "increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021," the SEC said in a statement.
Both Becker and Tomita also pled guilty to criminal charges, according to a Justice Department press release that said both men were cooperating with the government.
Hwang studied in the United States and went to work for Tiger Management, rising to form his own Tiger Asia Management. In 2012, Hwang paid $44 million to settle with the SEC over an insider trading case and shuttered the firm.
U.S. charges investors with deceitful Wall Street scam to make billions
Stock traders work on the floor of the New York Stock Exchange on Wall Street in New York City on April 25. Photo by John Angelillo/UPI | License Photo
April 27 (UPI) -- Federal regulators said on Wednesday that it's charged a Wall Street investors with securities and wire fraud in a racketeering conspiracy that they say included lying to other Wall Street firms.
The Securities and Exchange Commission said the charges were filed against Archegos Capital owner Bill Hwang and Chief Financial Officer Patrick Halligan.
Prosecutors say Hwang used his personal finances to manipulate markets and commit fraud in a scheme that increased his wealth from about $1.5 billion to more than $35 billion.
"Hwang purchased on margin billions of dollars of total return swaps," the SEC said in a statement. "These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front.
Also indicted were Archegos head trader William Tomita and Chief Risk Officer Scott Becker.
SEC Chair Gary Gensler said the case underscores the importance of updating the security-based swaps market to enhance the investor protections, integrity and transparency.
"As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies' securities, which induced other investors to purchase those securities at inflated prices."
Prosecutors say Archegos deliberately misled parties about the firm's exposure, concentration and liquidity to get increased trading capacity so Archegos could continue buying swaps and driving up prices.
The scheme unraveled last year when prices declined in Archegos' most concentrated positions, which drew sizable margin calls that overwhelmed Hwang. The result was billions of dollars in credit losses.
"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," Gurbir Grewal, director of the SEC Division of Enforcement, said in a statement.
"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."
Stock traders work on the floor of the New York Stock Exchange on Wall Street in New York City on April 25. Photo by John Angelillo/UPI | License Photo
April 27 (UPI) -- Federal regulators said on Wednesday that it's charged a Wall Street investors with securities and wire fraud in a racketeering conspiracy that they say included lying to other Wall Street firms.
The Securities and Exchange Commission said the charges were filed against Archegos Capital owner Bill Hwang and Chief Financial Officer Patrick Halligan.
Prosecutors say Hwang used his personal finances to manipulate markets and commit fraud in a scheme that increased his wealth from about $1.5 billion to more than $35 billion.
"Hwang purchased on margin billions of dollars of total return swaps," the SEC said in a statement. "These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front.
Also indicted were Archegos head trader William Tomita and Chief Risk Officer Scott Becker.
SEC Chair Gary Gensler said the case underscores the importance of updating the security-based swaps market to enhance the investor protections, integrity and transparency.
"As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies' securities, which induced other investors to purchase those securities at inflated prices."
Prosecutors say Archegos deliberately misled parties about the firm's exposure, concentration and liquidity to get increased trading capacity so Archegos could continue buying swaps and driving up prices.
The scheme unraveled last year when prices declined in Archegos' most concentrated positions, which drew sizable margin calls that overwhelmed Hwang. The result was billions of dollars in credit losses.
"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," Gurbir Grewal, director of the SEC Division of Enforcement, said in a statement.
"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."
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