Owner and Former CFO of Archegos Plead Not Guilty to U.S. Fraud Charges

Archegos Capital Management’s owner, Bill Hwang, as well as the company’s former chief financial officer, Patrick Halligan, have been arrested by federal agents and were charged with racketeering and securities fraud.

The men pleaded not guilty to the charges on Wednesday afternoon in Manhattan federal court. Hwang was released on a $100 million bond, which is secured by two properties and $5 million in cash and Halligan was released on a $1 million bond by U.S. Magistrate Judge Jennifer Willis.

Two other senior Archegos executives, who were named in the complaint, are also cooperating with authorities and have pleaded guilty.

In a 59-page indictment, federal prosecutors alleged Hwang used his personal fortune to manipulate markets and commit fraud in a scheme that left banks responsible for more than $10 billion.

According to the charging documents, Hwang and Halligan used leverage to inflate their market positions, which swelled to as much as $160 billion before the scheme came crashing down.

Hwang allegedly used derivative securities that had no public disclosure requirements, which helped shield the size of Archegos’ positions in the market.

In turn, investors who were unaware that Archegos was dominating the trading of a few select companies. This included ViacomCBS and Discovery Communications and Chinese education technology company GSX Techedu, and others.

Over the course of about a year, Hwang’s wealth climbed from $1.5 billion to more than $35 billion, the documents said.

The scheme fell apart in late March 2021 when the prices of these stocks declined and Archegos was unable to continue to prop up its positions, according to the documents.

Archegos couldn’t meet its margin calls resulting in the firms’ counterparties suffering significant losses. Credit Suisse had $5 billion in losses, when the family office collapsed and Nomura, Morgan Stanley and UBS also lost money.

Suits have been filed by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“The collapse of Archegos last spring demonstrated how activities by one firm can have far-reaching implications for investors and market participants,” said SEC Chair Gary Gensler, in a press release.

Attorneys for both Hwang and Halligan said their clients are innocent.

“We are extremely disappointed that the U.S. Attorney’s Office has seen fit to indict 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 is representing Hwang.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.