NEW YORK — The owner and chief financial officer of a hedge fund that collapsed when it defaulted on margin calls, costing leading global investment banks and brokers billions of dollars, went on trial Monday on fraud charges.
Bill Hwang, the founder of Archegos Capital Management, and his former CFO Patrick Halligan, were both indicted in April 2022 in a scheme that U.S. Attorney Damian Williams said “nearly compromised our financial system.”
Prosecutors have accused Hwang of lying to banks to get billions of dollars that his New York-based private investment firm then used to inflate the stock prices of publicly traded companies and expand his portfolio from $10 billion to $160 billion.
The indictment stated that Hwang led market participants to believe that the prices of stocks in the fund’s portfolio were the product of natural forces of supply and demand, when in reality they were the result of manipulative trading and deceptive behavior that induced others to trade.
Hwang and Halligan pleaded not guilty, while Archegos’ chief trader and his chief risk officer pleaded guilty and are cooperating with prosecutors.
According to the indictment, Hwang first invested his personal fortune, which grew from $1.5 billion to more than $35 billion, and later borrowed money from major banks and brokers, vastly expanding the scheme.
The alleged fraud began when Hwang was working remotely during the coronavirus pandemic in the spring of 2020. COVID-related market losses prompted Hwang to reduce or sell many of Archegos’ previous investment positions, so he began building “extraordinarily large positions in a handful effects’. “, the complaint said.
The complaint stated that the investing public was unaware that Archegos had come to dominate the trading and stock ownership of multiple companies because it used derivatives with no disclosure requirement to build its positions.
At one point, Hwang and his firm secretly controlled more than 50 percent of ViacomCBS stock, prosecutors said.
But the risky maneuvers left the company’s portfolio highly vulnerable to price swings in a handful of stocks, leading to margin calls in late March 2021 that wiped out more than $100 million in market value in a matter of days, the indictment said.
Nearly a dozen companies, as well as banks and prime brokers that were duped by Archegos, lost billions as a result, according to the indictment.
Hwang, of Tenafly, New Jersey, was released on $100 million bail, while Halligan, of Syosset, was free on $1 million bail.