Investment firm head arrested on charges of multibillion-dollar fraud and racketeering

Investment firm head arrested on charges of multibillion-dollar fraud and racketeering

Prosecutors are charging both Hwang and Patrick Halligan, the firm’s chief financial officer, with racketeering conspiracy, securities fraud and wire fraud offenses as part of schemes allegedly designed to “unlawfully manipulate” the price of publicly traded securities.

The alleged fraud pumped the portfolio of Archegos, a family office, from $1.5 billion to a staggering $35 billion in the span of just one year, according to prosecutors.

The Securities and Exchange Commission simultaneously charged Hwang with orchestrating a “massive market manipulation scheme” that caused billions of dollars in losses.

“Bill Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime, let alone the overblown allegations that pervade this indictment,” Lawrence S. Lustberg, Hwang’s lawyer, told CNN in a statement.

“Pat Halligan is innocent and will be exonerated,” said his attorney, Mary Mulligan.

Both Hwang and Halligan were arrested at their homes on Wednesday morning.

Prosecutors alleged in charging documents that Hwang, Halligan and their co-conspirators used Archegos “as an instrument of market manipulation and fraud, with far-reaching consequences for other participants in the United States securities markets, companies whose stock prices they manipulated, innocent employees of Archegos whose savings they gambled and the financial institutions left holding billions of dollars in losses.”

In March 2021, previously little-known Archegos Capital Management imploded, setting off a fire sale in the shares of the companies the firm bet on. Wall Street banks that lent billions to Archegos, including UBS and Credit Suisse, suffered at least $10 billion in losses.

The episode cast a spotlight on not only the risky leverage handed out to market players but hidden risks within the financial system linked to family offices, which do not need to make the same disclosures that other investment firms do.

According to prosecutors, Hwang duped investors into believing the prices of securities in the Archegos portfolio were the product of natural forces of supply and demand when, “in truth, they were the artificial product of Hwang’s manipulative trading and deceptive conduct that caused others to trade.”

With Hwang’s “knowledge and approval,” prosecutors say Archegos executives repeatedly made “materially false and misleading” statements about Archegos’s portfolio of securities to leading investment banks and brokerages.

These statements were designed to “fraudulently induce” counterparties into trading with and extending credit to Archegos, prosecutors said, and to “hide the true risk of doing business with Archegos.”

Hwang and Halligan pleaded not guilty to the criminal charges filed against them, and were set to be released late Wednesday — Hwang on $100 million bond, secured by $5 million in cash and two properties, according to the U.S. Attorney’s Office of the Southern District of New York. Halligan was set to be released on $1 million bond and the surrender of his passport. Hwang said he has lost his passport, the office noted.

“This is exactly the kind of criminal case the Department of Justice should prioritize, and we will continue to do so,” said United States Deputy Attorney General Lisa Monaco. “This case reaffirms that when executives commit crimes, those crimes and that conduct affect companies and ordinary citizens alike.”

“This kind of crime, the kind of crime that leaves a financial crater in its wake … jeopardizes pensions, savings, and jobs,” she said.

This is not Hwang’s first run-in with authorities. In 2012, he pleaded guilty to one count of wire fraud after the SEC alleged that a hedge fund he founded, Tiger Asia Management, made nearly $17 million in illegal profits in a scheme involving Chinese bank stocks.

Quoted from Various Sources

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