The collapse of Archegos Capital Management in spring 2021, which prompted billions in losses for a handful of Wall Street banks, was the results of “lies and manipulation” by Bill Hwang, the agency’s founder, a federal prosecutor informed a jury in Manhattan on Monday.
During closing arguments, Andrew Thomas, the prosecutor, mentioned that Mr. Hwang had defrauded the banks and different merchants available in the market by artificially inflating inventory costs to pump up the scale of Archegos.
Barry Berke, a lawyer for Mr. Hwang, mentioned the federal government was criminalizing his shopper’s high-risk buying and selling solely as a result of it prompted losses for the banks that had lent him billions of {dollars}.
“Mr. Hwang guess on corporations he believed in,” Mr. Berke mentioned. “That isn’t manipulative.”
Mr. Hwang, 60, is charged with 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation. If convicted on all counts, he may spend the remainder of his life in jail.
The sudden collapse of Archegos not solely prompted practically $10 billion in losses for Wall Street banks, but in addition worn out a lot of Mr. Hwang’s private fortune. The agency, which Mr. Hwang had arrange in 2013 as a household workplace, was little-known on Wall Street on the time, although it employed a number of dozen folks and invested tens of billions of {dollars} within the inventory market.
At its peak, Archegos managed $36 billion for Mr. Hwang and his household and managed shares price greater than $100 billion. The agency, which operated like a hedge fund however with restricted regulatory oversight, amassed such giant inventory positions by utilizing refined derivatives and borrowed cash supplied by Wall Street banks to inflate its holdings.
But within the span of three days in March 2021, all of it got here crashing down when the costs of a few of these shares started to tumble and the banks demanded to be repaid by Archegos.
The courtroom in Manhattan federal courtroom was packed for the closing arguments, with many supporters of Mr. Hwang in attendance. Damian Williams, the U.S. lawyer for the Southern District of New York in Manhattan, was current for a part of the continuing.
The trial, which started in early May, featured testimony from 21 prosecution witnesses. Prosecutors launched quite a few inner e mail communications and textual content messages amongst Archegos workers as proof. They additionally performed a number of recorded conversations between Archegos merchants and workers of the Wall Street banks that had supplied the agency entry to billions of {dollars} to make trades.
In his closing argument, Mr. Thomas displayed for the jury key components of witness testimony and a few of Mr. Hwang’s textual content messages and emails. He informed the jury that Mr. Hwang’s many textual content messages “have been like leaving fingerprints on the scene of the crime.”
Mr. Hwang, whose authorized title is Sung Kook Hwang, didn’t testify on the trial, nor did Mr. Hwang’s co-defendant, Patrick Halligan, the previous chief monetary officer of Archegos.
The prosecution’s case centered on allegations that Mr. Hwang and Mr. Halligan misled banks together with Credit Suisse, UBS, Morgan Stanley and Goldman Sachs concerning the agency’s general footprint available in the market. Mr. Thomas informed the jury that Mr. Hwang had “artificially tried to rig costs” of the portfolio of shares the agency held.
“Hwang ran Archegos via fraud and Halligan helped him do it,” Mr. Thomas informed the jury.
Two former Archegos workers who had pleaded responsible and cooperated with the authorities have been key witnesses.
Scott Becker, the agency’s former chief threat officer, testified that it was his job to mislead the banks concerning the measurement of Archegos’s inventory holdings and borrowings in order that the banks would hold lending to the agency. On cross-examination, Mr. Becker mentioned Mr. Hwang by no means particularly informed him to lie.
But William Tomita, a former high dealer for Archegos and the federal government’s different star witness, testified that Mr. Hwang had instructed him on methods to give a misleading picture to banks concerning the agency’s inventory holdings.
Mr. Tomita additionally testified that Mr. Hwang had put in massive purchase orders on the finish of the day to drive up inventory costs. He mentioned Wall Street banks had used the closing worth of these shares to find out how a lot cash the agency may borrow.
Mr. Hwang’s authorized workforce sought to undermine the 2 key cooperators on cross-examination and with knowledgeable testimony that attempted to supply a extra benign clarification for Archegos’s outsized shopping for of shares. Mr. Hwang’s workforce known as solely two witnesses.
In his closing argument, Mr. Berke mentioned a weak spot with the prosecution’s case was that Mr. Hwang and Archegos by no means “cashed out” after build up massive positions in shares.
“Mr. Hwang believed in his investments,” he mentioned. He believed in these shares.”
In the top, the influence of Archegos’s failure on the broader inventory market was restricted. But the agency’s collapse make clear Wall Street’s follow of unrestrained lending to hedge funds and large household workplaces and the chance it may entail.
Speaking final month to a gaggle of reporters at The New York Times, Gary Gensler, the Securities and Exchange Commission chair, mentioned he was involved concerning the degree of borrowing by hedge funds to make trades. He didn’t remark particularly on Archegos or Mr. Hwang’s trial.
The federal decide overseeing the case, Alvin Okay. Hellerstein, intends to instruct the jury on the regulation on Tuesday, and can then flip over the case to them to resolve.
The lengthy trial targeted largely on arcane subject material however did embrace a number of lighter moments. Early within the proceedings, Judge Hellerstein, 90, interrupted testimony from a witness to announce that he had simply discovered he had develop into a great-grandfather. Everyone applauded, together with the legal professionals and the jury.
