Three years ago, Archegos Capital Management, a multibillion-dollar investment firm, collapsed suddenly, causing big losses for Wall Street banks and leading to federal criminal charges against founder Bill Hwang. Set to go on trial in Manhattan federal court, Hwang, along with former CFO Patrick Halligan, faces multiple charges including securities fraud and market manipulation. Archegos, managed mainly by Hwang, his family, and employees, used borrowed funds to inflate stock prices by buying shares, eventually increasing Hwang’s net worth to over $35 billion and the firm’s stock value to more than $100 billion.
Described by U.S. Attorney Damian Williams as a scheme “historic in scope,” Archegos was not well-known prior to its collapse and operated without much regulatory oversight due to managing no outside funds. Using sophisticated derivative contracts, the firm took on significant risk and accumulated substantial borrowings from banks. Despite thriving on rising stock prices, the firm was unable to withstand market downturns, leading to its collapse when invested stocks declined. While the impact on the overall stock market was limited, several banks, including Credit Suisse and UBS, suffered significant losses due to Archegos’s failure.
If convicted, Hwang faces multiple counts with a potential maximum sentence of over 200 years in prison, though a more realistic outcome would likely be 20 years. The trial, beginning with jury selection, is anticipated to feature former Archegos employees as key witnesses who have entered into cooperation agreements with prosecutors. While prosecutors have alleged a “pump and brag scheme” employed by Hwang to increase stock holdings and portray wealth, they have not yet fully explained how he intended to profit from driving up stock prices, leaving the judge and others puzzled by his strategy.
This is not the first time Hwang has faced allegations of securities law violations. In 2012, he settled an insider trading investigation with the SEC related to his hedge fund Tiger Asia Management, resulting in a $44 million fine and a ban on managing public money for five years. While Tiger Asia pleaded guilty to insider trading charges in a separate action, Hwang was not criminally charged. Despite the ban being lifted in 2020, he focused on managing personal funds rather than funds for outside investors.
The trial marks a significant legal challenge for Hwang, who could potentially face life in prison if convicted on all counts. As prosecutors aim to establish his role in the stock price manipulation scheme orchestrated by Archegos, the trial is expected to shed light on the inner workings of the firm and Hwang’s motivations. With potential exit strategies and further details about the scheme yet to be unveiled, the trial will provide insight into a complex case that has already caused significant upheaval in the financial sector.
