Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A star witness in Bill Hwang’s criminal trial testified that employees would do whatever it took to support their boss’s aggressive trading strategy, including lying to lenders in the run-up to the collapse in 2021 of his family office, Archegos Capital.
Over more than two days of testimony for the prosecution in Manhattan federal court, Archegos’s former chief risk officer Scott Becker said he repeatedly lied to banks in the hope they would facilitate more trades for the fund.
“At Archegos you did whatever you could” to support Hwang’s trading strategy, Becker said.
The downfall of Archegos three years ago captivated Wall Street, with questions over how an obscure family office managing Hwang’s personal fortune could trigger losses of more than $10bn at some of the biggest investment banks.
Becker described working under pressure to massage numbers and mislead banks about Archegos’s investments from finance chief Patrick Halligan, who is also on trial along with Hwang.
Hwang and Halligan were charged in 2022 with market manipulation, fraud and racketeering. The two men have pleaded not guilty and face decades behind bars if found guilty.
Becker and William Tomita, Archegos’s former head trader, pleaded guilty to fraud and racketeering charges and are co-operating with the prosecution.
The 12-person jury has at times struggled with the esoteric details of Wall Street trading, which the prosecution has gone through in painstaking detail. On Tuesday, the jury sent a note to the judge saying they were sometimes finding the trial hard to follow.
The prosecution had hoped to elicit testimony from Becker about an incident a few years ago at an Archegos employees retreat where Hwang allegedly said that he wanted to become “the richest man in the world”.
Prosecutors argued that a desire for vast wealth could have been Hwang’s motive for running Archegos as a criminal enterprise. However, the judge declined to allow the jury to hear this testimony from Becker.
Hwang’s defence has portrayed him as an investor who strongly believed in the companies he invested in while not being afraid of suffering large losses. Halligan’s lawyer has argued that he was a “bean counter” who trusted Archegos’s compliance staff.
Becker laid out the frenzied efforts in the days leading up to Archegos’s collapse in late March 2021, when shares of ViacomCBS and GSX — in which it held large positions — fell sharply and left it facing hundreds of millions of dollars in margin calls from counterparties.
Hwang responded to ViacomCBS’s falling price by buying another $900mn in stock, depleting Archegos’s cash reserves even further. By Wednesday March 24, Archegos was facing $13bn in margin calls that it had no hope of repaying on time. It collapsed later that week.
Becker testified how Archegos tried to recall excess cash held at some brokers — UBS, Macquarie and Jefferies — to repay margin calls from others. Halligan told Becker to “do whatever it takes to get the cash back”, Becker attested. On March 24, Archegos repaid Morgan Stanley $980mn that it was owed. Morgan Stanley still ended up losing $911mn from its dealings with the fund.
In the weeks leading up to its collapse, Becker said Archegos discussed working with more than half a dozen new brokerage firms, including JPMorgan Chase, Citigroup and HSBC, that could finance its trades in a derivative known as total return swaps. Archegos was looking for new brokers where it had less exposure and who would lend at lower rates.
Becker testified that he repeatedly lied to investment banks about the size and profile of Archegos’s positions. He also claimed that Halligan would file reports to its counterparties at a later date than required in months when the fund had a negative performance “so the counterparties would leave us alone”.
The court heard how UBS’s Bryan Fairbanks — who was running risk management for the bank’s prime services business in the Americas at the time of the collapse — praised Archegos as “honestly one of the most transparent, easiest-to-work with clients I’ve had in my, oh I don’t know, 15-ish years”.
Fairbanks last week testified in the case that the information UBS received “was lies”. UBS ended up losing about $860mn due to the collapse of Archegos.
After Archegos’s collapse, Becker said he was offered and turned down a job at Hwang’s charitable Grace and Mercy Foundation with the same $250,000 salary that he was earning at the fund.
Read the full article here
