The collapse of Archegos Capital Administration in spring 2021, which induced billions in losses for a handful of Wall Avenue banks, was the results of “lies and manipulation” by Invoice Hwang, the agency’s founder, a federal prosecutor informed a jury in Manhattan on Monday.
Throughout closing arguments, Andrew Thomas, the prosecutor, mentioned that Mr. Hwang had defrauded the banks and different merchants out there 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 consumer’s high-risk buying and selling solely as a result of it induced losses for the banks that had lent him billions of {dollars}.
“Mr. Hwang wager on firms he believed in,” Mr. Berke mentioned. “That’s not 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 might spend the remainder of his life in jail.
The sudden collapse of Archegos not solely induced practically $10 billion in losses for Wall Avenue banks, but additionally 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 Avenue on the time, although it employed just a few 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 through the use of subtle derivatives and borrowed cash supplied by Wall Avenue banks to inflate its holdings.
However 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. legal professional for the Southern District of New York in Manhattan, was current for a part of the continuing.
The trial, which started in early Could, featured testimony from 21 prosecution witnesses. Prosecutors launched quite a few inside e mail communications and textual content messages amongst Archegos workers as proof. In addition they performed a number of recorded conversations between Archegos merchants and workers of the Wall Avenue 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 identify 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 score Suisse, UBS, Morgan Stanley and Goldman Sachs in regards to the agency’s total footprint out there. 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 danger officer, testified that it was his job to misinform the banks in regards to the measurement of Archegos’s inventory holdings and borrowings in order that the banks would maintain lending to the agency. On cross-examination, Mr. Becker mentioned Mr. Hwang by no means particularly informed him to lie.
However William Tomita, a former high dealer for Archegos and the federal government’s different star witness, testified that Mr. Hwang had instructed him on how you can give a deceptive image to banks in regards to 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 Avenue banks had used the closing value of these shares to find out how a lot cash the agency might borrow.
Mr. Hwang’s authorized workforce sought to undermine the 2 key cooperators on cross-examination and with professional testimony that attempted to supply a extra benign clarification for Archegos’s outsized shopping for of shares. Mr. Hwang’s workforce referred to 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 increase massive positions in shares.
“Mr. Hwang believed in his investments,” he mentioned. He believed in these shares.”
Ultimately, the impression of Archegos’s failure on the broader inventory market was restricted. However the agency’s collapse make clear Wall Avenue’s observe of unrestrained lending to hedge funds and massive household workplaces and the danger it might entail.
Talking final month to a bunch of reporters at The New York Instances, Gary Gensler, the Securities and Alternate Fee chair, mentioned he was involved in regards to the degree of borrowing by hedge funds to make trades. He didn’t remark particularly on Archegos or Mr. Hwang’s trial.
The federal choose overseeing the case, Alvin Ok. 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 material however did embody just a few lighter moments. Early within the proceedings, Choose Hellerstein, 90, interrupted testimony from a witness to announce that he had simply realized he had turn out to be a great-grandfather. Everybody applauded, together with the attorneys and the jury.
