Archego’s Capital Management owner Bill Hwang and its former chief financial officer, Patrick Halligan, were arrested on Wednesday in connection with the family office’s implosion last year.
The men are expected to appear in federal court in Manhattan later Wednesday and are charged with vandalism conspiracy, securities fraud and fraud, according to a U.S. District Court statement.
In a 59-page indictment, federal prosecutors claim that Hwang used his personal fortune to manipulate markets and commit fraud in a scheme that had far-reaching consequences. In about a year, Hwang’s wealth rose from about $ 1.5 billion to more than $ 35 billion, the documents say.
The collapse of the family office resulted in billions of dollars in losses for banks and Archego’s own employees. It also highlights potential risks in family offices, which are private funds operating under less regulatory oversight than hedge funds.
The collection documents say the men used leverage to inflate their market positions, which grew to as much as $ 160 billion. Hwang allegedly used derivative securities that had no disclosure requirements, which helped protect the size of Archegos’ positions in the market. As a result, investors were unaware that Archegos dominated trading with a select few companies.
The family office focused on a handful of companies, including media companies ViacomCBS and Discovery Communications and the Chinese educational technology company GSX Techedu.
The scheme fell apart at the end of March 2021 as the prices of these shares fell and Archegos was unable to continue to support its positions, according to the documents. After Archegos failed to meet its margin requirements, the companies’ counterparties suffered significant losses.
Credit Suisse suffered the most, with about $ 5 billion in losses when the family office collapsed. But Nomura, Morgan Stanley and UBS also lost money.
In addition to the case from the U.S. Attorney’s Office for the Southern District of New York, the Securities and Exchange Commission has filed civil lawsuits.
“Archego’s collapse last spring showed how activities carried out by a company can have far-reaching consequences for investors and market participants,” SEC President Gary Gensler said in a press release.
Complainants also mention William Tomita, Archegos’ chief negotiator, and Scott Becker, its chief risk officer, for their alleged involvement.
“We are extremely disappointed that the US Public Prosecutor’s Office has found it appropriate to prosecute a case that has absolutely no factual or legal basis; a prosecution of this type, for open market transactions, is unprecedented and threatens all investors. , “said Lawrence Lustberg, a lawyer at Gibbons, who represents Hwang. In a statement, he added that Hwang is “innocent of any offense” and has cooperated with the government investigation.
Mary Mulligan, a lawyer at Friedman, Kaplan Seiler & Adelman, representing Halligan, saying he was “innocent and will be acquitted.”
In 2012, Hwang pleaded guilty to an insider trading case involving two Chinese bank shares. At the time, he ran an Asia-focused hedge fund, Tiger Asia Management. Last May, Ark Invest CEO Cathie Wood revealed that Hwang had provided start-up financing for her first four ETFs.