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US prosecutors accused Invoice Hwang of operating his household workplace Archegos Capital as a felony enterprise in an try to grow to be a “legend on Wall Road”, earlier than its downfall in 2021 despatched shockwaves by means of US fairness markets and price Wall Road banks billions of {dollars}.
Hwang’s trial, which started with opening arguments in Manhattan federal courtroom on Monday, is one among Wall Road’s highest-profile instances in recent times. There are hopes that it might lastly present solutions on the motivations behind one of many trade’s main blow-ups.
At subject within the trial will likely be whether or not prosecutors are in a position to persuade a 12-person jury that Hwang and Patrick Halligan, his prime deputy and Archegos’ former finance chief, knowingly used derivatives to illegally manipulate monetary markets whereas additionally deceptive his lenders.
“From the within these two males turned an funding enterprise into a criminal offense enterprise, all as a result of the defendant Invoice Hwang needed to grow to be a legend on Wall Road,” Alexandra Rothman, a US prosecutor, mentioned in her opening assertion.
Archegos was an obscure household workplace when it collapsed three years in the past after the fund disastrously used derivatives referred to as complete return swaps to enlarge danger on a handful of US inventory investments. Prosecutors allege that Hwang’s technique of regularly shopping for extra inventory had artificially boosted share costs.
When the inventory costs ultimately fell, the ensuing losses to Archegos’s lenders — together with Credit score Suisse, Nomura, Morgan Stanley and UBS — totalled greater than $10bn.
Barry Berke, a lawyer for Hwang, sought to painting his shopper as an alternative as a high-conviction investor who took giant bets in firms he believed in, comparable to media firms ViacomCBS and Discovery.
“Mr Hwang . . . most actually put his cash the place his mouth is,” Berke mentioned.
The 60-year-old Hwang, whose authorized title is Sung Kook Hwang, and Halligan had been charged in 2022 with market manipulation, fraud and racketeering. The 2 males face a long time behind bars if discovered responsible.
Two different former Archegos workers, Scott Becker and William Tomita, have pleaded responsible to fraud and racketeering prices and are co-operating with the prosecution towards Hwang and Halligan.
The primary witness known as within the trial was Bryan Fairbanks, who was operating danger administration for UBS’s prime companies enterprise within the Americas on the time of Archegos’ collapse.
Jurors heard a collection of recorded cellphone calls between Becker and Fairbanks, who now works on the Financial institution of Montreal.
Becker on a number of events advised Fairbanks and his UBS colleagues that Archegos’ investments with different banks had been weighted with simply tradable shares comparable to Amazon and Apple. With UBS, Archegos held extremely concentrated positions in additional thinly traded shares like ViacomCBS and GSX Techedu, a US-listed Chinese language training firm.
US authorities have argued that Archegos and Hwang made comparable bets throughout all a number of banks.
“The knowledge [from Archegos] was lies,” Fairbanks mentioned.
Hwang, a religious Christian from South Korea who had beforehand labored for Julian Robertson’s Tiger Administration, based Archegos in 2013. His former fund, Tiger Asia, was shut down following accusations of insider buying and selling.
At Archegos, Hwang used complete return swaps organized by funding banks to take outsized bets on sure shares. The derivatives enabled Hwang to inflate his property from $1.6bn to greater than $36bn in simply 12 months.
Hwang’s technique backfired in March 2021 as shares of ViacomCBS, now referred to as Paramount International, fell by virtually a 3rd in only a few days. Archegos collapsed shortly afterwards, leaving a number of funding banks behind the whole return swaps on the hook. Credit score Suisse ended up shedding greater than $5bn from its publicity to Archegos.
