Bill Hwang, founder of collapsed family office Archegos Capital Management, has been arrested by US authorities, who charged the fund’s top executives with manipulating the prices of securities in their portfolios.
The indictment, unsealed on Wednesday, accuses Hwang and former chief financial officer Patrick Halligan of using 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, brought by federal prosecutors in Manhattan, marks the first criminal charges against Hwang, one of the so-called Tiger Cub veterans of Julian Robertson’s Tiger Management fund whose little-known fund rattled some of Wall Street’s biggest financial institutions when it imploded a year ago.
While Archegos was a relatively obscure family office, it managed to attract many of the biggest lenders. Archegos’s capital swelled from $1.5bn in March 2020 to $35bn a year later, with the group’s positions ballooning to as much as $160bn.
When it collapsed, it created billions of dollars of losses for investment banks including Credit Suisse, UBS, Nomura and Morgan Stanley after it defaulted on margin calls.
The group, using borrowed money from banks such as Morgan Stanley and Credit Suisse, amassed multibillion-dollar positions in US-listed companies such as ViacomCBS — now known as Paramount — and online retailers Shopify and Farfetch. But by using derivatives, where the bank it traded with bought or sold stocks on Archegos’s behalf, the firm left no visible footprint of its activity to the investing public.
An attorney for Hwang said on Wednesday that the investor was “entirely innocent of any wrongdoing” and that the allegations were “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,” said Lawrence Lustberg, Hwang’s counsel.
The Securities and Exchange Commission, which hit Archegos and Hwang with civil fraud charges alongside the criminal allegations on Wednesday morning, said that in March 2021 Archegos’s derivative and stock positions in ViacomCBS accounted for more than half of the company’s freely tradable stock.
The SEC said that in June 2020, when asked by a colleague whether the rise in ViacomCBS stock “was ‘a sign of strength’”, Hwang texted: “No. It is a sign of me buying.” He added the emoji for tears of joy or laughing, the SEC noted.
Prosecutors allege that Hwang and Halligan, along with several other executives, operated two interrelated criminal schemes. They charged that Archegos disguised its trading and positions so that its counterparties and other traders in the market 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 at the SEC, who are pushing to revamp disclosures for large investors.