Archegos founder Bill Hwang charged with fraud that rocked Wall Street

Archegos Capital Management founder Bill Hwang and the fund’s chief financial officer Patrick Halligan were arrested Wednesday by federal agents on criminal charges including securities fraud, wire fraud and racketeering.

In a lawsuit filed in the Southern District of New York, US prosecutors allege Hwang — whose fund spectacularly collapsed in March 2021, sending shock waves through Wall Street and saddling big banks including Morgan Stanley and Credit Suisse with more than $10 billion in losses — had increased the size of his family office portfolio from $1.5 billion to $35 billion in just one year.

Hwang and his conspirators were involved in a “brazen scheme” to “manipulate the market” that defrauded “many leading global investment banks and brokerages,” according to the suit.

Hwang and Halligan pleaded not guilty Wednesday afternoon to 11 criminal charges.

Hwang, who was arrested early Wednesday by federal officers, will be released on $100 million bail he made by paying $5 million in cash and using two properties to secure the bond. He also surrendered his wife’s passport – he told prosecutors he had lost his own – and promised to stay in the Tri-State area.

Halligan is being released on $1 million bail with the agreement he will not leave the Tri-State area. The pair will return to court on May 19.

“Bill Hwang is entirely innocent of any wrongdoing,” his lawyer, Lawrence Lustberg, said in a statement. “Even more disappointing is that the Government felt obligated to arrest Mr. Hwang without notice. Mr. Hwang has made himself available and fully cooperated with the government’s investigation.”

“Pat Halligan is innocent and will be exonerated,” Halligan’s lawyer, Mary Mulligan, said in a statement.

However, Archegos head trader William Tomita and director of risk management Scott Becker have both pled guilty and are cooperating with investigators, Manhattan US Attorney Damian Williams said at a Wednesday press conference. The men will also help the Commodity Futures Trading Commission and the Securities and Exchange Commission in civil investigations of Archegos.

At a Wednesday press conference, US prosecutors alleged both Hwang and Halligan lied to banks to obtain billions they used for their funds – and in so doing jeopardized pensions, savings, and jobs of everyday people.

The prosecutors noted that by using a family office vehicle, the defendants committed fraud “in darkness.”

Hwang relied on massive leverage and risky derivatives to take concentrated positions. When the massive bets he’d made on ViacomCBS and Discovery went south, he failed to meet margin calls and his brokers tried to liquidate their positions — his collateral — as quickly as possible.

The move spurred a frantic, market-melting fire sale that left Credit Suisse with more than $5 billion in losses and Japanese bank Nomura with $3 billion in losses. US banks like Goldman Sachs were quicker to get out of their positions and escaped the incident largely unscathed.

A former protégé of famed investor Julian Robertson, Hwang opened his family office in 2013 after shuttering two hedge funds following an SEC insider trading probe in 2012. Within a few years, he built the modest operation to a multibillion-dollar empire.

In May, reports surfaced the US Department of Justice had launched a probe into the dramatic implosion of Archegos. Federal prosecutors sent requests for information to some of the banks that conducted business with the massive but little-known family office run by disgraced financier Bill Hwang before its epic collapse in March 2021.

In the wake of the Archegos collapse, regulators have sought to understand how one person could have controlled so much stock without disclosing it. The Securities and Exchange Commission opened an investigation Hwang’s actions just weeks after the incident. The new SEC Chairman Gary Gensler has said he may look to expand regulation of family offices — possibly by requiring that they disclose their positions.

Morgan Stanley, Credit Suisse and Nomura have all since replaced their prime brokerage chiefs in the wake of the destruction, while the Department of Justice and the Securities and Exchange Commission have both opened investigations.