Archegos founder Bill Hwang arrested on US fraud charges

Bill Hwang, founding father of collapsed household workplace Archegos Capital Management, has been arrested by US authorities, who charged the fund’s prime executives with manipulating the costs of securities of their portfolios.

The indictment, unsealed on Wednesday, accuses Hwang and former chief monetary officer Patrick Halligan of utilizing Archegos as an “instrument of market manipulation and fraud”, which had “far-reaching consequences for other participants in the United States securities markets”.

The case, introduced by federal prosecutors in Manhattan, marks the primary prison fees towards Hwang, one of many so-called Tiger Cub veterans of Julian Robertson’s Tiger Management fund whose little-known fund rattled a few of Wall Street’s greatest monetary establishments when it imploded a yr in the past.

While Archegos was a comparatively obscure household workplace, it managed to draw lots of the greatest lenders. Archegos’s capital swelled from $1.5bn in March 2020 to $35bn a yr later, with the group’s positions ballooning to as a lot as $160bn.

When it collapsed, it created billions of {dollars} of losses for funding banks together with Credit Suisse, UBS, Nomura and Morgan Stanley after it defaulted on margin calls.

The group, utilizing borrowed cash from banks similar to Morgan Stanley and Credit Suisse, amassed multibillion-dollar positions in US-listed firms similar to ViacomCBS — now referred to as Paramount — and on-line retailers Shopify and Farfetch. But by utilizing derivatives, the place the financial institution it traded with purchased or offered shares on Archegos’s behalf, the agency left no seen footprint of its exercise to the investing public.

An lawyer for Hwang mentioned on Wednesday that the investor was “entirely innocent of any wrongdoing” and that the allegations had been “overblown”.

“We are extremely disappointed that the US Attorney’s Office has seen fit to indict a case that has absolutely no factual or legal basis; a prosecution of this type, for open-market transactions, is unprecedented and threatens all investors,” mentioned Lawrence Lustberg, Hwang’s counsel.

The Securities and Exchange Commission, which hit Archegos and Hwang with civil fraud fees alongside the prison allegations on Wednesday morning, mentioned that in March 2021 Archegos’s by-product and inventory positions in ViacomCBS accounted for greater than half of the corporate’s freely tradable inventory.

The SEC mentioned that in June 2020, when requested by a colleague whether or not the rise in ViacomCBS inventory “was ‘a sign of strength’”, Hwang texted: “No. It is a sign of me buying.” He added the emoji for tears of pleasure or laughing, the SEC famous.

Prosecutors allege that Hwang and Halligan, together with a number of different executives, operated two interrelated prison schemes. They charged that Archegos disguised its buying and selling and positions in order that its counterparties and different merchants out there believed “the prices of those stocks were the product of natural forces of supply and demand when, in truth, they were the artificial product of Hwang’s manipulative trading”.

The downfall of Archegos has prompted new rulemaking from regulators on the SEC, who’re pushing to revamp disclosures for big traders.

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