Archegos Capital Management’s owner, Bill Hwang, and its former chief financial officer, Patrick Halligan, were arrested Wednesday in connection with the implosion of the family office last year.
The men are expected to appear in Manhattan federal court later Wednesday and are being charged with racketeering conspiracy, securities fraud and wire fraud, according to a statement from the U.S. district court.
In a 59-page indictment, federal prosecutors allege Hwang used his personal fortune to manipulate markets and commit fraud in a scheme that had far-reaching consequences. Over the course of about a year, Hwang’s wealth rose from about $1.5 billion to more than $35 billion, the documents said.
The family office’s collapse resulted in billions of dollars of losses for banks and Archegos’ own employees. It also shed light on potential risks at family offices, which are private funds that operate under less regulatory oversight than hedge funds.
The charging documents say the men used leverage to inflate their market positions, which swelled to as much as $160 billion. Hwang allegedly used derivative securities that had no public disclosure requirements, which helped shield the size of Archegos’ positions in the market. As a result, investors were unaware that Archegos was dominating the trading of a few select companies.
The family office focused on a handful of companies that included media companies ViacomCBS and Discovery Communications and Chinese education technology company GSX Techedu, among others.
The scheme fell apart in late March 2021 when the prices of these stocks declined and Archegos was unable to continue to prop up its positions, according to the documents. After Archegos couldn’t meet its margin calls, the firms’ counterparties suffered significant losses.
Credit Suisse suffered the most, tallying some $5 billion in losses, when the family office collapsed. But Nomura, Morgan Stanley and UBS also lost money.
In addition to the action by the U.S. Attorney’s Office for the Southern District of New York, the Securities and Exchange Commission has filed civil charges.
“The collapse of Archegos last spring demonstrated how activities by one firm can have far-reaching implications for investors and market participants,” said SEC Chair Gary Gensler, in a press release.
The complaints also name William Tomita, Archegos’ head trader, and Scott Becker, its chief risk officer, for their alleged involvement. Criminal charges have not been filed against Tomita and Becker, but they are named as defendants in the SEC’s suit.
“We are extremely disappointed that the U.S. 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, a lawyer at Gibbons, who is representing Hwang. In a statement, he added, Hwang is “innocent of any wrongdoing” and has been cooperating with the government’s investigation.
Mary Mulligan, a lawyer at Friedman, Kaplan Seiler & Adelman, is representing Halligan, and said he was “innocent and will be exonerated.”
In 2012, Hwang pleaded guilty in an insider trading case involving two Chinese bank stocks. At the time, he was running an Asia-focused hedge fund, Tiger Asia Management. Last May, Ark Invest CEO Cathie Wood disclosed that Hwang had provided the seed funding for her first four ETFs.
