A Wall Street billionaire who lost tens of billions in a matter of days has returned to court for his successful fraud case.
Sung Kook “Bill” Hwang, 60, the founder of Archegos Capital Management, is alleged to have caused more than $100 billion in shareholder losses when his family office fund failed to meet margin calls in March 2021.
He was arrested in April 2022 and charged with fraud, racketeering and conspiracy as prosecutors allege he carried out a scheme to defraud investors by lying about his company’s portfolio, which at one point exceeded $100 billion.
If convicted, he faces a maximum of 380 years behind bars, which would amount to one of the largest frauds in American history.
At the start of his trial this week, the court heard from a bank manager who testified about Archegos’ attempts to forgo hundreds of millions of dollars in a fire sale as Hwang’s house of cards began to fall.
Sung Kook “Bill” Hwang, the founder of Archegos Capital Management, arrives at Manhattan Criminal Court this week, where he is charged with fraud, racketeering and conspiracy
Hwang’s family office Archegos Capital Management once had more than $100 billion under management before it defaulted on its loans in March 2021 and lost billions for investors.
The son of a Christian minister, Hwang was born in Korea before immigrating to the US in 1982. His early career was at Tiger Management, and after he founded a spin-off fund, Tiger Asia Management, the company was accused of insider trading.
Tiger Asia pleaded guilty to criminal wire fraud and agreed to pay $60 million, but Hwang settled without admitting guilt.
Hwang founded his family office in 2013 to manage hundreds of millions of dollars he made from his former hedge funds, reportedly attracting the attention of regulators after quickly building his wealth to more than $30 billion.
He was also known to fly under the radar and live modestly in New Jersey with his wife, leading Bible reading sessions with the local community and eschewing his billionaire status.
He made major investments in major companies, including Discovery Inc. and ViacomCBS Inc., with much of its holdings flying under the radar because family offices are not subject to the same regulatory scrutiny as regular hedge funds.
In addition to his allegedly fraudulent funds, Hwang also ran the Grace and Mercy Foundation for its philanthropic efforts to “support the poor and oppressed,” and at the end of 2022, Bloomberg reported that it had $528 million in assets.
At the start of his trial this week, prosecutors sought to exclude Hwang’s “previous good deeds” from evidence presented to jurors about his character.
Hwang, pictured in 2013, the same year he opened his family office, suffered heavy losses within days in March 2021, causing several banks to lose billions
Despite his billions, Hwang stayed under the radar and lived with his wife in a modest home in New Jersey (pictured), where he was known to hold regular Bible reading sessions with the neighborhood.
Hwang, pictured in the photo arriving in court Thursday, was once worth more than $30 billion, but prosecutors say a lack of regulation of family offices allowed him to hide much of his wealth.
Patrick Halligan, the former Chief Financial Officer of Archegos, is also charged along with Hwang for his alleged role in the collapse
With more than $100 billion in assets under management at its peak, Hwang’s company suffered a heavy loss when Viacom CBS announced a $3 billion secondary stock offering in March 2021, leading to a 10 percent drop in its stock price.
In addition to new regulations introduced by the SEC at the time that hurt its positions in China, Archegos suddenly faced a slew of margin calls as its collateral became too low.
Prosecutors say Hwang made a desperate attempt to comply by withdrawing cash and acting quickly to shore up the value of his assets.
Jennifer Miranda, director of risk management at Jefferies Financial Group, testified Wednesday about a March 2021 phone call she received from Archegos’ head of risk management, Scott Becker, when the fund was making these withdrawals.
She said Becker called her to urgently withdraw about $415 million, saying there “seemed to be an urgency to the call.”
‘What’s the emergency? Why?’ she recalled on the stand, reports Bloomberg.
Although Miranda was confused at the time, she was reportedly called as part of an urgent effort by Archegos to trade and move money to meet a wave of margin calls from banks.
Within two days, Archegos missed these margin calls, leading to a staggering loss of more than $10 billion from its banking partners, including Jefferies, Morgan Stanley and Nomura Holdings Inc.
The consequences have cost Credit Suisse more than $5.5 billion alone.
If convicted, Hwang (pictured with his family earlier in his career) faces up to 380 years in prison, which would amount to one of the largest frauds in American history.
Hwang founded his family office in 2013 after making hundreds of millions at a former hedge fund, and reportedly caught the attention of regulators after quickly building his wealth to more than $30 billion.
Becker has already pleaded guilty in the case and is scheduled to testify next week about his role in the alleged scheme.
Miranda testified that despite Becker’s apparent rush to withdraw money, she told her the company had no cash problems and had about $7 billion in assets at the time.
Based on conversations with Becker, Miranda said her bank allowed Archegos to withdraw $240 million – without knowing that Archegos was struggling to make ends meet with other banks.
She said Jefferies took a $40 million hit when it was forced to liquidate its Archegos holdings.
This was reportedly presented by prosecutors to allege a pattern of lying to investors about Archegos’ financial security, which also involved previous testimony from a former UBS risk manager.
In that case, former UBS executive Bryan Fairbanks testified that Archegos was able to increase its exposure from $8 billion to $10 billion by claiming it had up to 40 percent of its equity in freely available cash.
He said further claims that Archegos could liquidate its investments within days “gave us some comfort.”
When margin calls were missed and Archegos defaulted on its loans, UBS lost a total of $774 million.
In all, jurors are expected to hear testimony from 11 bank representatives who facilitated Archegos’ efforts to make the margin calls, which prosecutors say was central to the scheme to shore up the value of his business.
Because Archegos was a family office rather than a full-fledged hedge fund, it was not subject to the same levels of regulation and scrutiny as a hedge fund, which prosecutors said allowed Hwang to use return swaps.
By using return swaps, Archegos was able to hide the true risk of its huge portfolio while capturing huge credit exposure from banks, allowing it to execute risky trades.
Despite being worth over $30 billion at his peak, Hwang was not as well known as other Wall Street whales with similar fortunes because of this tactic.
He was also known to make no show of his fortune, living in a modest home in New Jersey while making routine appearances at his local church.