Archegos Owner Bill Hwang Criminally Charged in Stock Scheme

Wednesday, April 27, 2022
author picture Raphael Thomas
Video/image source : youtube, wsjcom/ar
Original content created by staff

Archegos Owner Bill Hwang Convicted of Wire Fraud and Securities Fraud

Archegos Owner Bill Hwang has been convicted of wire fraud and securities fraud. The Securities and Exchange Commission (SEC) alleged that Hwang‚ who also runs Tiger Asia Management‚ made illegal profits of nearly $17 million through a stock scheme involving stocks in a Chinese bank. Hwang has pleaded not guilty to the charges. However‚ his conviction could affect the price of the Archegos baseball team.

Hwang used swaps to hide size of portfolio

Assuming Bill Hwang used total return swaps to hide his position size‚ he could have benefited from the banks' cost of capital‚ but he may have taken extra risks to do so. Since LTCM‚ the industry has shored up its leveraging models and has learned the importance of margin and collateral. Nevertheless‚ the size of Hwang's portfolio could have inflated without his disclosure. The indictment alleges that Hwang manipulated stocks in order to make them rise in price. As early as March 2020‚ he began moving away from buy-and-hold trading and toward cornering stocks and driving up prices with size. Securities regulators claim that he also sidelined his research operations and ignored research targets to hide the size of his portfolio. Ultimately‚ the investment strategy helped Hwang swindle the world's largest banks. The DOJ found that Hwang's leverage was out of control and that he was trading on a 3-1 margin with prime brokers. That meant his losses were five times greater than his mentor's. Hwang's zeal for wealth outstripped his intelligence. His long positions grew too large to unload in time and he was left with nothing. His investigation found more information than previously suspected through his relationships with banks and brokers. The Wall Street Journal also reported that Hwang's trading operation purchased eight2.1 million shares of ViacomCBS on June 11‚ 2020. That represented 17% of the trading volume for the day. His trading operation was also noted in his text messages. The indictment charged Hwang and Patrick Halligan with market manipulation and conspiracy to defraud sophisticated banks. And his actions may be repeated in the future.

He lied to banks

According to the SEC‚ bankers were allegedly misled by Archegos' founder Bill Hwang about the company's stock scheme. The company‚ which was also a prime broker‚ made swap deals with many banks. Those banks include Credit Suisse‚ Goldman Sachs‚ and Nomura. The banks extended margins to Hwang‚ and it's not known whether they were informed of the company's stock scheme. As a result‚ Archegos failed to repay its loans‚ causing Hwang to accrue enormous equity exposure. Hwang manipulated the price of seven of the Archegos portfolio companies using leveraged equity swaps and derivatives. The result was that his leverage was over 1‚000%. However‚ because these securities were not public‚ many people didn't know about Hwang's massive equity exposures. As a result‚ Archegos had a total capital of more than $4 billion by the time it went bust in March of last year. In addition to his personal losses‚ the collapse of the company left banks with $10 billion in debt. The collapse of Archegos caused a global banking system to lose $10 billion. In the process‚ Hwang and Halligan pleaded not guilty to the charges against them. The indictment filed in Manhattan alleges that Hwang used swaps with large Wall Street banks to build leverage. These swaps allow investors to bet on a stock's price movements without actually owning the securities. The client posts collateral to secure the trades with the bank. This scheme allowed Mr. Hwang to hide his position and evade regulatory scrutiny. The firm that financed the scheme had little way to monitor its activities.

He manipulated prices

Former hedge fund manager Bill Hwang is being charged with operating a stock scheme. Prosecutors say Hwang used leveraged equity swaps to manipulate prices by more than 1‚000 percent. Hwang traded through a family office‚ which is not required to register with the Securities and Exchange Commission. As a result‚ Hwang had no obligation to report his level of exposure to regulators. As a result‚ he made millions of dollars without telling the SEC about his activities. In addition to the securities fraud‚ he also made a large amount of money through illegal investments in hedge funds. While he wasn't a top investor‚ he had enough money to buy shares in dozens of companies. He grew his personal fortune from $1.5 billion to over $35 billion with the help of borrowed money‚ increasing his portfolio to more than $160 billion. His success in the market was concealed from investors because the derivative securities he traded were not required to be disclosed publicly. The Archegos stock scheme caused enormous damage to the U.S. financial markets‚ putting millions of dollars at risk. The implosion of the fund's stock price in March 2021 was caused by Hwang's risky maneuvers‚ which led to a flurry of margin calls that wiped out the market value of dozens of companies. Consequently‚ banks and prime brokers lost billions of dollars. Not only did the Archegos stock scheme affect banks and their customers‚ but many innocent employees of the firm were also impacted by the schemes. Consequently‚ many employees had to allocate substantial portions of their pay to the firm as deferred compensation. Several securities and exchange commission officials also filed civil charges against Hwang and Halligan. The two men face multiple charges‚ including securities fraud‚ racketeering‚ and wire fraud. The charges allege that the two men used their private firm to evade regulations that govern other hedge funds. Halligan‚ meanwhile‚ has pleaded not guilty to all charges. However‚ both Hwang and Halligan were arrested this week‚ and their trial is scheduled for later this year.

He pleaded not guilty to charges

The archegos owner pleaded not guilty to charges of stock fraud on Wednesday. He was arrested in early Wednesday morning and is free on bond of $1 million. His lawyer said the criminal charges have no legal basis. Halligan is also free on bail of $1 million. He voluntarily gave an interview at the U.S. Attorney's Office. Halligan fully cooperated with the investigation. The prosecution against the former CEO and chief financial officer of Archegos Capital Management focuses on how the firm manipulated stock prices. Hwang‚ a former protege of Julian Robertson‚ built up his family office from a small operation into a multi-billion-dollar empire. The collapse of Archegos sparked a fire sale in the stock market‚ causing banks to lose billions of dollars in trades with the company. Halligan and Hwang are accused of luring Wall Street banks into giving the company loans worth billions of dollars. The loans were used to artificially prop up the price of publicly traded securities. The Archegos capital grew from $1.5 billion to $35 billion in a year. While Hwang had indicated he would surrender‚ prosecutors found it hard to find the evidence needed to convict him. In the SEC complaint‚ the defendants accused Hwang and Halligan of defrauding banks and brokerages by manipulating stock prices and using false financial statements. The company subsequently collapsed‚ causing significant losses to Credit Suisse and ViacomCBS. In addition‚ the SEC charged Hwang with purchasing billions of dollars in total return swaps on margin to manipulate the prices.

He faces 380 years in prison

Archegos CEO Bill Hwang is facing criminal charges for allegedly orchestrating a massive stock scheme‚ which involved coordinating trades with a former colleague and friend. The buddy‚ Tao Li‚ has pleaded guilty to a charge of fraud and is out on $1 million bail. Despite the convictions‚ both men are cooperating with the government's investigation. Hwang's fund ran into trouble in March 2021 when its shares in the television company ViacomCBS Inc. fell precipitously. The fall in ViacomCBS stock triggered the big banks‚ who demanded repayment of loans and more collateral. The SEC alleges that Hwang used special contracts to invest in shares of a variety of companies. The deals allowed him to take huge positions in a variety of equity securities while only requiring a small amount of money up front. The SEC claims that Hwang entered into the agreements without any economic purpose‚ primarily to artificially drive up share prices and incentivize other investors to purchase them. The Archegos analyst asked Hwang about the increasing value of ViacomCBS inventory‚ which Hwang replied with an emoji indicating tears of pleasure. In addition to causing Viacom's shares to fall‚ Hwang's shares of Archegos also fell. Hwang tried to defend the company's value through unprecedented buying‚ but his efforts failed to achieve the desired results. Halligan questioned the technique used by Hwang and asked for details on whether Hwang had instructed merchants to simply hold working orders and avoid paying attention to the company's stock prices. The company's stock prices plunged in a day after Archegos sold its new stock. The company's margin calls caused panic within Archegos‚ which in turn caused banks to sell their collateral. Hwang then instructed his traders to buy shares in the morning to give the family office more trading capacity. The strategy failed‚ but it did give the Archegos family office an extra $900 million in the same day.