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Archegos’ Bill Hwang Convicted of Fraud, Market Manipulation

William Tomita exits court in New York on June 10. (Jeenah Moon/Photographer: Jeenah Moon/Bloomb)

(Bloomberg) -- Archegos Capital Management founder Bill Hwang was found guilty of criminal charges stemming from his firm’s 2021 collapse, concluding a two-month trial that captivated Wall Street.

The jury delivered verdicts against Hwang and his co-defendant, former Archegos chief financial officer Patrick Halligan, Wednesday in Manhattan federal court. The panel began deliberating just the day before. 

Both men were convicted of defrauding Archegos counterparties like Credit Suisse Group AG and UBS Group AG by lying to them about the firm’s trading activity and the level of risk in its portfolio. Hwang was separately found guilty of manipulating several stocks, including the former ViacomCBS, though he was acquitted with regard to one stock. Both men were also convicted of participating in racketeering conspiracy.

Each count carries a maximum sentence of 20 years in prison. US District Judge Alvin Hellerstein set an Oct. 28 sentencing for both men. Hwang remains free on a $100 million bond secured by $5 million in cash and two properties. Halligan is free on a $1 million bond.

Hwang didn’t visibly react as the verdict was read, instead holding on to a plastic water bottle and staring straight ahead. Halligan clasped his hands on his lap and briefly glanced at the jury before looking down at the defense table.

After the verdict was delivered, Hwang got up and warmly greeted his wife and other supporters in the courtroom before exiting. His lawyers declined to comment. Hwang also declined to answer questions as he was leaving the courthouse.

Juror on the Fence

One of the jurors, who asked to remain unnamed, said he was on the fence during most of the trial because he worked on Wall Street for more than three decades. But he said Hwang condemned himself because he was trading on such a large scale and it had a manipulative impact on stocks.

The juror said he felt some sympathy for Halligan, who he thought might have been dragged into Hwang’s scheme.

Manhattan US Attorney Damian Williams said in a statement, “This verdict should send a resounding message that this office will continue to police the financial markets with an eagle eye and swiftly hold accountable those who think they can cheat the system.” Williams’ office brought the case against Hwang and Halligan.

According to prosecutors, Hwang’s actions pushed the value of Archegos, his family office, to around $36 billion at its height. But a March 2021 downturn in Viacom shares sparked a selloff that doomed the firm. Archegos’ counterparties lost some $10 billion, and the disaster was a major factor in Credit Suisse’s 2023 collapse.

Hwang and Halligan are likely to appeal their convictions. Edward Imperatore, a former federal prosecutor who followed the case, said there were viable arguments concerning the definition of market manipulation. 

“It is a murky area of the law,” he said, though he added that he doubted the men would be able to overturn their convictions.

Wall Street Victims

The scale of Archegos’ success and then its failure stunned the financial community in early 2021. The massive losses suffered by the banks raised serious questions about how they assessed the risks of taking on and extending credit to trading clients. At the time, neither Hwang nor Archegos was well-known on Wall Street, adding to the shock of what happened.

Manhattan federal prosecutors brought charges against Hwang and Halligan a year after Archegos’ collapse, after securing the cooperation of former Archegos head trader William Tomita and former risk head Scott Becker. Both men pleaded guilty and agreed to testify against their former bosses.

At the time, the Archegos case was the biggest white collar case brought by Williams’ office. Unlike in other big Wall Street prosecutions, however, the victims weren’t average investors but Wall Street itself — namely the banks that acted as Archegos’ prime brokers.

Hwang’s lawyers had said before trial that they planned to argue that the banks were sophisticated players that knew the risks of dealing with Archegos, a family office not required to publicly disclose its holdings, and went ahead anyway because of the fees they earned. 

Star Witnesses

But Hellerstein sharply restricted the defense’s ability to cast blame on the banks, sustaining objections when questions veered in that direction. At trial, the defense focused on trying to present Archegos’ trading as being part of a long-term strategy and tried to suggest that stock prices moved for other reasons than the firm’s alleged manipulation.

Tomita and Becker were indeed the star witnesses at the trial that began on May 13. Becker testified that he lied to banks to win access to credit and trading capacity for Archegos. He also gave jurors a picture of the frantic final days at Archegos as the firm continued lying to the banks to stave off margin calls.

Defense lawyers attacked Becker for having relatively little direct interaction with Hwang. That couldn’t be said about Tomita, though. The former trader worked closely with Hwang and offered damaging testimony about how his boss micromanaged his team to goose stocks to certain prices and also directed Tomita to lie to Archegos’ counterparties about the firm’s portfolio. 

Tomita testified that Hwang instructed his traders to do “the opposite” of what a “normal fund” would. He noted that normal funds would try to build up their positions at the lowest cost and try to minimize the impact of their own trading on prices. At Archegos, Tomita said, “I could see that it was me that generated the stock price.” 

‘Panic Button’

The jury also heard from many Archegos counterparties. Former UBS risk manager Bryan Fairbanks was the first witness to take the stand in the trial, and he vividly described being on the other end of Archegos’ lies.

Fairbanks described being told that Archegos’ portfolio largely comprised highly liquid megacap tech stocks like Apple Inc. and Amazon.com Inc., and that its trading in companies like Viacom and Chinese online education company GSX Techedu Inc. was unique to UBS. It was only at the very end that Fairbanks said he learned that Archegos was buying the same companies at all of its banks.

He said he “probably would have hit the panic button” if he had known how concentrated the firm’s positions were. 

“All the information they shared with us was lies,” Fairbanks testified.

Hwang’s lawyers tried to suggest Fairbanks and other bank witnesses were biased because Archegos’ failure hurt their careers, but the judge sustained objections to those questions. The defense did manage to gets some digs in at the banks, though.

‘Rich or Poor’

In cross-examining Goldman Sachs Group Inc. swaps sale specialist Nastassia Locasto, Hwang’s lawyers did establish that that bank viewed Archegos as a gap in its revenue stream and acted fast to onboard the family office as a client when it feared that a $2.8 billion portfolio — and $3 million in annual fees — would head to a rival.

The judge also barred the defense from some attacks on Tomita. Hwang’s lawyers had sought to undermine Tomita’s testimony that he spent the months after Archegos’ collapse wracked with pain and guilt over his actions.

“Do you recall you spent much of July 2021 in St. Tropez, France, playing polo?” Hwang lawyer Barry Berke asked him. Hellerstein sustained the prosecution’s objection before Tomita answered.

“Whether Mr. Tomita is rich or poor, whether he plays polo or baseball, whether he’s in St. Tropez or in Miami Beach, Florida, or New York City, is not relevant to this case,” the judge said. “You can examine his credibility, but you can’t examine his way of life.”

The defense instead focused heavily on normalizing Archegos’ trading as based on widely accepted principles. In opening statements, Berke highlighted Hwang’s devotion to the lessons of Philip A. Fisher’s classic 1950s investment text, Common Stocks and Uncommon Profits, which has also been cited as an influence by Warren Buffett.

The case is US v. Hwang, 22-cr-240, US District Court, Southern District of New York (Manhattan).

--With assistance from Vonnie Quinn, Sridhar Natarajan and Katherine Burton.

(Updates with comments by juror, US Attorney Damian Williams.)

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