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US prosecutors accused Bill Hwang of running his family office Archegos Capital as a criminal enterprise in an attempt to become a “legend on Wall Street”, before its downfall in 2021 sent shockwaves through US equity markets and cost Wall Street banks billions of dollars.
Hwang’s trial, which began with opening arguments in Manhattan federal court on Monday, is one of Wall Street’s highest-profile cases in recent years, with hopes that it may finally provide answers on the motivations behind one of the industry’s major blow-ups.
At issue in the trial will be whether prosecutors are able to convince a 12-person jury that Hwang and Patrick Halligan, his top lieutenant and Archegos’ former finance chief, knowingly used derivatives to illegally manipulate financial markets while also misleading his lenders.
“From the inside these two men turned an investment business into a crime business, all because the defendant Bill Hwang wanted to become a legend on Wall Street,” Alexandra Rothman, a US prosecutor, said in her opening statement.
Archegos was an obscure family office when it collapsed three years ago after the fund disastrously used derivatives known as total return swaps to magnify risk on a handful of US stock investments. The resulting losses to Archegos’s lenders, including Credit Suisse, Nomura, Morgan Stanley and UBS, totalled more than $10bn.
Barry Berke, a lawyer for Hwang, on Monday sought to portray his client instead as a high-conviction investor who took large bets in companies he believed in. “Mr Hwang . . . most certainly put his money where his mouth is”, Berke said.
The 60 year-old Hwang, whose legal name is Sung Kook Hwang, and Halligan were charged in 2022 with market manipulation, fraud and racketeering. The two men face decades behind bars if found guilty.
Two other former Archegos employees, Scott Becker and William Tomita, have already pleaded guilty to fraud and racketeering charges and are co-operating with the prosecution against Hwang and Halligan.
Hwang, a devout Christian from South Korea who had previously worked for Julian Robertson’s Tiger Management, founded Archegos in 2013. His former fund, Tiger Asia, was shuttered following accusations of insider trading.
At Archegos, Hwang used total return swaps arranged by investment banks to take outsized bets on certain stocks such as ViacomCBS and Tencent.
The derivatives enabled Hwang to inflate his assets from $1.6bn to more than to $36bn in just 12 months. His trading style also masked Archegos from public scrutiny that would have come from being required to disclose its vast holdings if it had owned the shares outright.
Hwang’s strategy backfired in March 2021 as shares of ViacomCBS, now known as Paramount Global, fell by almost a third in just a few days. Archegos collapsed shortly after, leaving several investment banks behind the total return swaps on the hook. Credit Suisse ended up losing more than $5bn from its exposure to Archegos.
US authorities have argued that Wall Street banks agreed to provide financing to Archegos because the fund made misleading statements about it positions.
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