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Sung Kook (Bill) Hwang – the Founder and Head of Archegos – and Three Others Charged with Racketeering and Fraud Offenses Related to Market Manipulation Scheme

WPCNR FBI WIRE. From the Federal Bureau of Investigation. April 28, 2022:

Damian Williams, the United States Attorney for the Southern District of New York, Deputy United States Attorney General Lisa O. Monaco, and Michael J. Driscoll, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an indictment charging SUNG KOOK (BILL) HWANG, the founder and head of a private investment firm known as Archegos, and PATRICK HALLIGAN, Archegos’s Chief Financial Officer, with racketeering conspiracy, securities fraud, and wire fraud offenses in connection with interrelated schemes to unlawfully manipulate the prices of publicly traded securities in Archegos’s portfolio and to defraud many leading global investment banks and brokerages.

Also unsealed are the guilty pleas of SCOTT BECKER and WILLIAM TOMITA in connection with their participation in the conspiracy. BECKER pled guilty pursuant to an Information before U.S. District Judge Laura Taylor Swain on April 21, 2022. TOMITA pled guilty pursuant to an Information before Judge Swain on April 21, 2022. Both are cooperating with the Government.

U.S. Attorney Damian Williams said:

“We allege that these defendants and their co-conspirators lied to banks to obtain billions of dollars that they then used to inflate the stock price of a number of publicly-traded companies. The lies fed the inflation, and the inflation led to more lies.  Round and round it went. In one year, Hwang allegedly turned a $1.5 billion portfolio and pumped it up into a $35 billion portfolio.  But last year, the music stopped. The bubble burst.  The prices dropped. And when they did, billions of dollars of capital evaporated nearly overnight.”

Deputy Attorney General Lisa O. Monaco said: “Today’s announcement demonstrates the department’s unwavering commitment to hold accountable individuals who distort and defraud our financial markets, including those who occupy the C-Suite. That is especially true for this kind of crime—the kind that leaves a financial crater in its wake.”

FBI Assistant Director-in-Charge Michael J. Driscoll said:

“As alleged, Hwang and his co-conspirators convinced major financial institutions to enter into agreements with them based on lies, the result of which ultimately led to a massive market manipulation scheme. We allege the defendants caused harm to U.S. financial markets and ordinary investors alike, causing significant losses to banks, market participants, and Archegos employees. Today’s charges highlight our commitment to making sure the investment arena remains free from fraudulent activity of all kinds.”

According to the allegations in the Indictment unsealed today in Manhattan federal court:[1]

SUNG KOOK (BILL) HWANG is the founder and owner of Archegos Capital Management and its related business entities, which are collectively known as Archegos. As alleged, HWANG, along with PATRICK HALLIGAN, SCOTT BECKER, and WILLIAM TOMITA lied to banks to obtain billions of dollars that they then used to artificially inflate the stock price of a number of publicly traded companies.

HWANG and his co-conspirators invested in stocks mostly through special contracts with banks and brokers called “swaps.”

As alleged, these swaps allowed HWANG to cause massive buying of certain stocks, including at carefully selected days and times, to artificially pump up stock prices. HWANG, HALLIGAN, and their co-conspirators lied to banks and used a series of manipulative trading techniques to keep those prices high and prevent them from falling.

The lies fed the inflation, and the inflation led to more lies. The scale of this alleged fraud was stunning.  In one year, Hwang turned a $1.5 billion portfolio and fraudulently pumped it up into a $35 billion portfolio.

Last year, the music stopped. The prices dropped and HWANG was unable to keep the prices propped up. When the prices fell, HWANG’s positions were sold off and he could no longer manipulate the prices, and billions of dollars of capital evaporated nearly overnight.

As alleged, the defendants committed this fraud in secret.

Since 2014, HWANG has run Archegos as a private hedge fund or “family office,” meaning that Archegos, unlike other large hedge funds, was not required to tell regulators information about its holdings and debt that might have shined a light on the fraud and allowed the crisis to be averted.  

And because HWANG traded mostly through swaps, he was able to do the massive buying alleged in the Indictment without anyone knowing that Archegos was actually behind all the trading.

Regular market participants, and even the companies themselves, were duped into thinking the price increases were caused by the normal interplay of supply and demand when, instead, as alleged, they were the artificial result of HWANG’s manipulative trading.

To take just one example, as alleged, by March 24, 2021, HWANG effectively controlled more than 50% of the freely trading shares of Viacom – and no one outside of Archegos knew about it—not investors purchasing Viacom in the market, or the executives at Viacom itself, or even the banks and brokerages who held the stock as part of the swaps.

Because, as alleged, by using various banks and brokerages for his swaps, HWANG made sure that no single institution would have any idea that he was behind all of this trading.

The Indictment further alleges that in order to get the billions of dollars Archegos needed to sustain this massive market manipulation scheme, HWANG and his co-conspirators lied to and misled some of Wall Street’s leading banks.

They lied about how big Archegos’s investments had become. They lied about how much cash Archegos had on hand. They lied about the nature of the stocks that Archegos held.

And, as alleged, they told those lies for a purpose: so that the banks would have no idea what Archegos was really up to, how risky the portfolio was, and what would happen if the bubble burst one day.

As alleged, that day ultimately came.

Just over a year ago, the market turned and the stock prices HWANG and his co-conspirators had artificially inflated crashed, causing immense damage to U.S. financial markets and ordinary investors.

In a matter of days, the companies at the center of Archegos’s trading scheme lost more than $100 billion in market capitalization, Archegos owed billions of dollars more than it had on hand, and Archegos collapsed.

Market participants who purchased the relevant stocks at artificial prices lost the value they believed their investments held, the banks lost billions of dollars, and Archegos employees, many of whom were required to invest 25% or more of their bonuses with Archegos as deferred compensation, lost millions of dollars.

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