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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. There are 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 deputy 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. Prosecutors allege that Hwang’s strategy of constantly buying more stock had artificially boosted share prices.
When the stock prices eventually fell, 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, sought to portray his client instead as a high-conviction investor who took large bets in companies he believed in, such as media companies ViacomCBS and Discovery.
“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 pleaded guilty to fraud and racketeering charges and are co-operating with the prosecution against Hwang and Halligan.
The first witness called in the trial was Bryan Fairbanks, who was running risk management for UBS’s prime services business in the Americas at the time of Archegos’ collapse.
Jurors heard a series of recorded phone calls between Becker and Fairbanks, who now works at the Bank of Montreal.
Becker on several occasions told Fairbanks and his UBS colleagues that Archegos’ investments with other banks were weighted with easily tradable stocks such as Amazon and Apple. With UBS, Archegos held highly concentrated positions in more thinly traded stocks like ViacomCBS and GSX Techedu, a US-listed Chinese education company.
US authorities have argued that Archegos and Hwang made similar bets across all several banks.
“The information [from Archegos] was lies,” Fairbanks said.
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 shut down following accusations of insider trading.
At Archegos, Hwang used total return swaps arranged by investment banks to take outsized bets on certain stocks. The derivatives enabled Hwang to inflate his assets from $1.6bn to more than $36bn in just 12 months.
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 afterwards, 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.
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