US authorities on Wednesday filed federal charges of securities fraud and market manipulation against Bill Hwang, founder of Archegos, the investment fund that imploded last year and caused billions of dollars in losses to major banks.
The family-owned hedge fund run by Hwang had taken huge bets on a few stocks with money borrowed from banks, and when several of those bets turned sour, the fund was unable to meet “margin calls” to cover the losses.
The 2021 collapse of the fund sent shockwaves through financial markets and caused $10 billion in losses for Credit Suisse, Nomura, Morgan Stanley and other leading financial institutions.
Hwang and Archegos Chief Financial Officer Patrick Halligan used the firm “as an instrument of market manipulation and fraud, with far-reaching consequences for other participants in the United States securities markets,” according to an indictment released in a New York federal court.
Hwang and other conspirators, including head trader William Tomita, sought to defraud investors by convincing them that shares in his portfolio were on the rise when the stock price increases “were the artificial product of Hwang’s manipulative trading and deceptive conduct that caused others to trade,” the indictment said.
They also repeatedly made “false and misleading statements” to convince others to trade with and extend credit to the firm.
The fund used derivatives to take large stakes in top Chinese names such as Baidu Inc, Tencent Music Entertainment Group and Vipshop Holding, plus US giants such as ViacomCBS and Discovery.
The plan initially worked and the fund tripled in size in just a year, while Hwang’s personal fortune soared to $35 billion from just $1.5 billion and turned him and the firm into “significant economic forces in the United States securities markets,” the filing said.
The US financial markets regulator, the Securities and Exchange Commission (SEC), also charged Hwang, Halligan, Tomita and Chief Risk Officer Scott Becker for their roles in the scheme.
The move to inflate share prices caused the firm to expand rapidly, “increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021,” the SEC said in a statement.
South Korean-born Hwang studied in the United States and went to work for Tiger Management, rising to form his own Tiger Asia Management. In 2012 he paid $44 million to settle with the SEC over an insider trading case.