The collapse of Archegos Capital Management in spring 2021, which led to billions in losses for some Wall Street banks, was the result of “lies and manipulation” by the firm’s founder, Bill Hwang, federal prosecutors told a jury in Manhattan on Monday.
During closing arguments, prosecutor Andrew Thomas said Mr. Hwang had defrauded banks and other market traders by artificially inflating stock prices to expand the size of Archegos.
Mr. Hwang’s lawyer, Barry Burke, said the government was criminalizing his client’s high-risk trading only because it caused losses at banks that lent him billions of dollars.
“Mr. Hwang made bets on companies he believed in,” Mr. Burke said. “That’s not a trick.”
Mr Hwang, 60, has been charged 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation. If convicted on all counts, he could spend the rest of his life in prison.
Archegos’s sudden collapse not only cost Wall Street banks about $10 billion in losses but also wiped out much of Mr. Hwang’s personal wealth.The firm that Mr. Hwang set up as a family office in 2013 was little-known on Wall Street at the time, even though it employed a few dozen people and had invested billions of dollars in the stock market.
At its peak, Archegos managed $36 billion for Mr. Hwang and his family and controlled more than $100 billion worth of stocks. The firm, which operated like a hedge fund but with limited regulatory oversight, amassed such a huge stock position by using sophisticated derivatives and borrowed money provided by Wall Street banks to boost its holdings.
But in the space of three days in March 2021, it all came crashing down when the prices of some of those stocks began to fall and the banks demanded that Archegos repay them.
The courtroom at the Manhattan federal courthouse was packed for closing arguments, with many of Mr. Hwang’s supporters in attendance. Damian Williams, the U.S. attorney for the Southern District of New York in Manhattan, was present during the proceedings.
The trial, which began in early May, included testimony from 21 prosecution witnesses. Prosecutors introduced numerous internal email communications and text messages between Archegos employees as evidence. They also played numerous recorded conversations between Archegos traders and employees of Wall Street banks that gave the firm access to billions of dollars to trade.
In his closing argument, Mr. Thomas showed the jury highlights of witness testimony and some of Mr. Hwang's text messages and emails. He told the jury that many of Mr. Hwang's text messages were “like leaving fingerprints at a crime scene.”
Mr. Hwang, whose legal name is Sung Kook Hwang, did not testify at the trial, nor did Mr. Hwang’s co-defendant, Patrick Halligan, Archegos’s former chief financial officer.
Prosecution's case focus on allegations Mr. Hwang and Mr. Halligan misled banks including Credit Suisse, UBS, Morgan Stanley and Goldman Sachs about the firm’s overall footprint in the market. Mr. Thomas told the jury that Mr. Hwang had “tried to artificially manipulate the prices” of a portfolio of stocks held by the firm.
“Hwang ran Archegos through a fraudulent scheme, and Halligan helped him do it,” Mr. Thomas told the jury.
Two former Archegos employees who pleaded guilty and cooperated with authorities were key witnesses.
Scott Baker, the firm’s former chief risk officer, testified that it was his job to lie to banks about Archegos’s stock holdings and the size of borrowings so that banks would continue lending to the firm. But during cross-examination, he said Mr. Hwang had never told him to lie.
Mr. Halligan’s lawyer, Timothy Hagerty, said in his closing argument that without Mr. Baker’s testimony, prosecutors had no case against his client. He said Mr. Baker had lied about Mr. Halligan’s role at Archegos and reminded the jury that Mr. Baker had admitted he hated Mr. Halligan.
William Tomita, a former top Archegos trader and the government’s other key witness, testified that Mr. Hwang had instructed him on how to give Confusing picture for banks About the firm's stock holdings.
Mr. Tomita also testified that Mr. Hwang placed large buy orders at the end of the day to push up stock prices. He said Wall Street banks used the closing price of those stocks to determine how much money the firm could borrow.
Mr. Hwang’s legal team sought to undermine two key associates through cross-examination and expert testimony, seeking to offer more benign explanations for Archegos’ excessive purchases of shares. Mr. Hwang’s team called only two witnesses.
In his closing argument, Mr. Burke said the weakness in the prosecution’s case was that Mr. Hwang and Archegos “never cashed out” after building large positions in stocks.
In the end, Archegos' failure had limited impact on the broader stock market. But the firm's collapse did shed light on Wall Street's practice of unregulated lending to hedge funds and large family offices, and the risks it poses.
Speaking to a group of reporters at the New York Times last month, Securities and Exchange Commission Chairman Gary Gensler said he was concerned about the level of borrowing by hedge funds to trade. He did not comment specifically on Archegos or Mr. Hwang’s trial.
Federal Judge Alvin K. Hellerstein, who is overseeing the case, intends to instruct the jury on the law on Tuesday, and then turn the case over to them for decision.
The long trial focused mainly on mystical themes, but it also included some light-hearted moments. Early in the proceedings, 90-year-old Judge Hellerstein interrupted a witness' testimony to announce that he had just learned he had become a great-grandfather. Everyone, including the lawyers and the jury, applauded.