Sung Kook "Bill" Hwang, the founder of Archegos Capital Management, appeared in a Manhattan federal court on Wednesday to face charges related to the spectacular collapse of his $36 billion fund in March 2021. The criminal racketeering trial, which has captured the attention of the financial world, centers on allegations that Hwang and his former Chief Financial Officer, Patrick Halligan, engaged in illegal activities that led to massive losses for global banks and investors.
The collapse of Archegos was triggered by the fund's aggressive use of financial derivatives known as total return swaps, allowing it to take substantial positions in stocks without direct ownership. Prosecutors claim that Hwang and Halligan misrepresented Archegos' financial position to banks, enabling them to borrow heavily and inflate the prices of stocks like ViacomCBS and Discovery. When stock prices fell, the resulting margin calls led to a fire sale that wiped out Archegos and caused over $100 billion in shareholder losses across the market.
Sung Kook "Bill" Hwang's criminal racketeering trial over the collapse of Archegos Capital Management has begun.
He lost $20 billion over 10 days in late March 2021, imposing large losses on his bankers Nomura and Credit Suisse, $CS. pic.twitter.com/Ip4aaPIO4c — unusual_whales (@unusual_whales) May 8, 2024
Hwang, dressed in a dark suit and purple tie, was present for the initial jury selection process, which is expected to last eight weeks. The court will delve deeply into the mechanics of the trades and the communications between Archegos and its banking partners. Both Hwang and Halligan have pleaded not guilty to charges of racketeering conspiracy, securities fraud, and wire fraud, with each count carrying a potential 20-year sentence.
Federal prosecutors are set to argue that Hwang and Halligan orchestrated a complex scheme to manipulate the market through deceptive practices that misrepresented the fund's trading intentions and financial leverage. In contrast, defense attorneys have signaled that they will challenge the prosecution's framing of these trades as manipulative, suggesting that buying stocks in the open market does not constitute illegal activity.
Adding to the drama, two former Archegos executives, the head trader William Tomita and Chief Risk Officer Scott Becker, have pleaded guilty to related charges and are expected to testify against Hwang and Halligan. Their testimonies could provide critical insights into the internal operations and decision-making processes at Archegos.
