Bill Huang, founder of the collapsed Archegos Capital Management family office, has been arrested by US authorities on charges of racketeering, fraud and market manipulation.
The indictment, released Wednesday, accused 58-year-old Huang and former chief financial officer Patrick Halligan, 45, of using Archegos as a “tool for market manipulation and fraud” with far-reaching consequences for other participants in securities markets. United States”.
The case, filed by the Manhattan Federal Prosecutor’s Office, marks the first criminal charge against Huang, one of the so-called Tiger Cub veterans of Julian Robertson’s Tiger Management Fund, whose little-known investment mechanism rocked some of Wall Street’s largest financial institutions. explosions. a year ago.
“The scale of the trade was staggering,” said Damien Williams, the U.S. Attorney for Southern New York.
While Archegos was a relatively obscure family office, it managed to attract many large creditors. Archegos’ capital grew from $ 1.5 billion in March 2020 to $ 35 billion a year later, with the group’s position growing to as much as $ 160 billion.
The collapse of Archegos caused billions of dollars in losses for investment banks, including Credit Suisse, UBS, Nomura and Morgan Stanley, after failing to meet margin demands, with more than $ 100 billion erased from estimates by nearly a dozen companies since Archegos’ positions were liquidated.
The group used money borrowed from banks such as Morgan Stanley and Credit Suisse to accumulate billions of dollars in US-registered companies such as ViacomCBS – now known as Paramount – and online retailers Shopify and Farfetch. Using derivatives when the bank with which it traded, bought or sold shares on behalf of Archegos, the company did not leave a visible imprint of its activities on the investing public.
“This scheme was historic,” Williams said. “Lies fed [stock price] inflation and inflation feeds more lies. He walked around and around. But last year the music stopped, the bubble burst, prices fell, and when they did, billions of dollars almost evaporated overnight.
Hwang and Halligan pleaded not guilty during a hearing in Manhattan federal court.
Neatly dressed in a green polo sweater, Huang agreed to sign a $ 100 million bond to be backed by $ 5 million in cash and interest in two properties, including his home.
The former hedge fund manager has agreed to travel restrictions, restricting travel to New Jersey, Connecticut and parts of New York. He said he had lost his passport and vowed not to apply for a new one, a government lawyer told the court.
Huang’s lawyer said Wednesday that the investor was “completely innocent of any wrongdoing” and that the allegations were “exaggerated.”
“We are extremely disappointed that the US Attorney’s Office deems it appropriate to bring charges in a case that has absolutely no factual or legal basis; This type of prosecution for open market transactions is unprecedented and threatens all investors, ”said Lawrence Lustberg, Hwang’s adviser.
Halligan’s lawyer said he was innocent and “will be acquitted.”
Scott Becker, Archegos’ director of risk management, and William Tomita, the family’s chief salesman, were also accused of their roles in the alleged plot. They have pleaded guilty and are cooperating with the US government, according to the Department of Justice.
The Securities and Exchange Commission filed a parallel civil case against Archegos and Hwang on Wednesday morning. It says that in March 2021, Archegos’ derivative and stock positions in ViacomCBS accounted for more than half of the company’s freely traded shares.
The SEC said that in June 2020, when asked by a colleague whether the relative resilience of ViacomCBS shares was a “sign of strength” on a day when the wider stock market collapsed, Huang sent a text: “No. It’s a sign that I’m buying. “He added emojis for tears of joy or laughter, the SEC notes.
The Commodity Futures Trading Commission has also filed civil fraud charges against Archegos and Halligan.
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Prosecutors say Hwang and Halligan operated two interrelated criminal schemes. They accused Archegos of concealing its trade and position so that its counterparties and other market traders could believe that “the prices of these shares are a product of the natural forces of supply and demand, when in fact they are an artificial product of manipulative trade. of Hwang ”.
The prosecution also alleges that the defendants misrepresented the group’s investment plans and stakes, as Archegos took out billions of dollars in loans from major Wall Street creditors to support its deals.
Although these banks knew that Archegos was betting on a relatively small number of deals, prosecutors said they had been misinformed about the scale of those deals and were assured by the family office that Archegos could leave its deals in just two weeks.
But that was not the case. Last year, the group’s position in ViacomCBS exceeded $ 20 billion, and its trading in the media company accounted for more than 10 percent of daily equity activity. Prosecutors noted that it would take Archegos more than three months to sell the shares to ViacomCBS without significantly changing the price.
Hwang sometimes also coordinates deals with a former unnamed colleague who runs a hedge fund, prosecutors say. When Archegos tried to increase its position in GSX Techedu in 2021, it reached the limits of one of its main brokers, who refused to buy a larger stake in the Chinese education company registered in the United States. This limitation limits its ability to enter into new GSX swap agreements with any of its customers.
According to the indictment, Huang knew that the former colleague, described as a “close friend”, had a similar position at GSX Techedu in the same bank. Prosecutors say he “made” the man move his position to another bank, giving Archegos the opportunity to increase his position at GSX.
The fall of Archegos has sparked new rules by SEC regulators, who are pushing to revise disclosures for large investors.
Additional reports by Mark Vandevelde in New York
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