One year after the collapse of Hwang’s private equity firm, Archegos Capital Management, which caused global financial shocks, prosecutors provided their first full account of what happened inside the company – and new details about the scale of Hwang’s transactions. and the origin of its strategy. Hwang was charged with fraud and Patrick Halligan, Archegos’ chief financial officer, was arrested and charged with fraud. If convicted on all charges, Huang faces up to 380 years in prison. Both men pleaded not guilty in a lower Manhattan courtroom Wednesday and were released on bail. The collapse of the Archegos – Hwang’s family office that was virtually unknown even on Wall Street – revealed gaps in the way big banks manage their risks, as well as the way regulators oversee Wall Street. A year later, Credit Suisse AG, among others, is still facing the consequences. Hwang’s spectacular gains and losses were extended to well-known stocks such as entertainment giant ViacomCBS Inc. The two men were charged with 11 felony counts, including extortion, market manipulation, bank fraud and securities fraud, according to an indictment that was not sealed on Wednesday. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have also filed civil lawsuits. Some of the prosecutors’ allegations are well known after the Archegos collapse, such as Hwang’s use of swaps to keep the fund’s shares below 5% to avoid provoking revelations and misleading banks about the composition of his portfolio and the specific shares in which he bet. . However, authorities on Wednesday revealed the extent of the fraud: Hwang reportedly boosted his portfolio from $ 1.5 billion to more than $ 35 billion a year and led Archegos’s overall market size — including of loan money — at $ 160 billion its peak.
“Not as usual”
“The scale of the deal has been staggering,” Damian Williams, the U.S. attorney general for New York’s Southern District, told reporters Wednesday. “This was not business as usual or some sophisticated strategy – it was a scam.” The documents also reveal a shift in Hwang’s investment process that began after he moved to distance work with the Covid-19 pandemic, devoting more time to communicating with traders than with analysts. Prosecutors also allege that Hwang coordinated some transactions with a close friend and former colleague at an anonymous hedge fund to maximize his impact on the market. The fund’s manager, identified only as “Adviser-1”, is Tao Li, head of Teng Yue Partners, Bloomberg reported on Wednesday. Hwang’s co-founder Li and Teng Yue have not been charged with the offense and the company did not respond to requests for comment. “Bill Huang is completely innocent of any wrongdoing,” Lawrence Lustberg’s lawyer said in a statement. “There is absolutely no evidence that he committed any kind of crime, let alone the exaggerated allegations that run through this indictment.” Lustberg said Huang was involved in the investigation into Archego. CFO’s attorney, Mary Mulligan, said in a statement: “Pat Halligan is innocent and will be acquitted.” With his salt and pepper hair and wearing a face mask, green jacket and tan pants, Huang appeared in court Wednesday afternoon to plead not guilty. He agreed to pay $ 5 million in cash and pledged two properties to secure a $ 100 million guarantee, while Hulligan agreed to a $ 1 million guarantee. Both men agreed to limit their travels. The indictment alleges that Archegos’s positions were inflated through the use of borrowed money and derivative securities that did not require public reporting. When the market turned against the positions in March 2021, Hwang asked the mutual fund traders to buy in an effort to support their price, federal prosecutors accused. In addition to Huang and Hulligan, the United States has named William Tomita and Scott Becker, former senior Archegos executives, as conspirators. They have pleaded guilty and are cooperating with the authorities. The men, who were named as defendants in the SEC lawsuit, also agreed to work with the CFTC and the SEC. Speaking at a white-collar crime conference in New York on Wednesday morning, US Deputy Attorney General Lisa Monaco said the case against Huang, 57, and Hulligan, 45, “is really typical. and an example of the focus we give to holding individuals accountable when it comes to corporate crime and corporate abuse. “ Archegos collapsed after amassing a concentrated stock portfolio using borrowed money. It collapsed after the fall of some of the shares, causing profit margins from banks, which then dissolved Hwang’s shares. Banks have lost more than $ 10 billion, prompting the departures of several executives, and are investigating how companies monitor the risks of their venture capital firms. The fortunes differed between the companies Archegos dealt with: Credit Suisse, Nomura Holdings Inc. and Morgan Stanley suffered some of the biggest losses. Others, including Goldman Sachs Group Inc., Wells Fargo & Co. and Deutsche Bank AG, escaped relatively unscathed. Deputy Attorney General Lisa Monaco said the case against Huang “is really a hallmark and an example of our focus on holding individuals accountable when it comes to corporate crime.” [File: Mark Kauzlarich/Bloomberg] Prosecutors said Hwang and Halligan had “repeatedly made substantially false and misleading statements about Archegos’ securities portfolio to many of the world’s leading investment banks and stockbrokers,” which encouraged Archegos to government. Authorities said Hwang knew Archegos could move the market. In June 2020, when an Archegos analyst texted him that a rise in ViacomCBS’s share price that day was “a sign of strength,” Hwang replied: “No. It’s a sign that I’m buying “, followed by a” tears of joy “emoji. In addition to ViacomCBS, which has since been renamed Paramount Global, the titles Hwang allegedly manipulated were Discovery Communications Inc., Tencent Music Group, Texas Capital Bancshares Inc. and Rocket Companies Inc. The criminal conduct allegedly involved concealment and deception of the actual size of the positions, liquidity and fundraising by the counterparties, with the spread of transactions to many different banks. When banks began asking the fund for the size of its holdings, it usually claimed that any individual stake did not exceed 35% of its capital. In fact, prosecutors said, its stake in Viacom at one point was equivalent to 96% of its capital. It also included the purchase of shares purely to keep their price high, prosecutors were accused. The plan began to unfold on March 23 last year, prosecutors said, the day Viacom announced a minor offering of shares. Shares began to fall in anticipation of more shares in the market. Viacom was so important to Archegos that Hwang tried to defend the price by participating in an “exceptional trading volume” in an effort to overcome the market. Although Halligan challenged the strategy, Hwang told his traders to “just keep working on the orders,” according to the indictment. The attempt failed. Prosecutors said Huang usually invested in cash through stock purchases until the size of his positions approached 5% of a company’s existing stock. As soon as he approached this limit, he would turn to a new method of trading to avoid public disclosure of his holdings. Using a so-called “total return on exchange”, he would then enter into contracts with banks that would pay off if stock prices rose, but would incur costs if they fell. In some cases, his positions amounted to more than 50% of the existing shares of the companies in which he invested, according to the indictment. “They lied a lot,” U.S. Attorney Williams said Wednesday. “They lied about how big Archegos’s investments had become, they lied about how much cash Archegos had, they lied about the nature of Archegos’s shares. “They lied for a reason – so that the banks have no idea that Archegos was really ready for a big market manipulation plan.”
