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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WPCNR FOR THE RECORD. Partial Transcript of the of Court of Appeals Decision on Redistricting. April 27, 2022:

EDITOR’S NOTE: In a 78-page decision handed down this afternoon, Chief Justice of the New York State Court of Appeals, Janet DiFiori author of the majority opinion declared both State and Congressional redrawn districts “procedurally unconstitutional” and provided the following “remedy” to show the way ahead to settle the districting problem. The compl;ete decision may be read here paste in your browser to go direct to this historic decision:

https://nycourts.gov/ctapps/Decisions/2022/Apr22/60opn22-Decision.pdf

Here is the transcript from Chief Justice DiFiori’s court decision explaining the court remedy for the correcting of the “procedurally infirm” districts and what comes next:

“The majority correctly concludes that sections 4, 5, and 5-b of article III of the State Constitution, as ratified by the citizens of the State, provide the exclusive process for redistricting (see NY Const, art III, § 4 [e]). This process requires, among other things, that any redistricting plan to be voted on by the legislature must be initiated by the Independent Redistricting Committee (IRC) (see § 4 [b]).

Once this Court holds that the 2022 plans were unconstitutionally enacted and must be stricken on that threshold basis, it should not then step out of its judicial role to further opine on the purely academic issue of whether the 2022 congressional map failed to comply with the substantive requirements of section 4 (c) (5).

The 2022 plans, which the majority concludes are void ab initio, are no longer substantively at issue, nor can the majority seriously claim them to be so.

Furthermore, although the majority purports to provide “necessary guidance to inform the development of a new congressional map on remittal” (majority op at 24 n 12), the majority’s opinion provides no such guidance.

Its conclusion, based on affirmed findings of fact that the congressional map was drawn with partisan intent, is not illuminating in the least because the majority does not engage in the kind of careful district-specific analysis that might provide any practical guidance to an actual mapmaker, nor could it on this record (cf. Wilson dissenting op at 12-25).

By opining on this academic issue, the majority renders “an inappropriate advisory opinion” by “prospectively declar[ing] the [redistricting] invalid on additional . . . constitutional grounds” (T.D. v New York State Off. of Mental Health, 91 NY2d 860, 862 [1997]; see Self-Insurer’s Assn. v State Indus. Commn., 224 NY – 3 – No. 60 – 3 – 13, 16 [1918] [Cardozo, J.]

[“The function of the courts is to determine controversies between litigants . . . They do not give advisory opinions. The giving of such opinions is not the exercise of the judicial function”]).

Given the procedural violation flowing from the breakdown in the constitutional process, we must fashion a remedy that matches the error.

1 The Constitution contemplates that a court may be “required to order the adoption of . . . a redistricting plan as a remedy for a violation of law” (NY Const, art III, § 4 [e]). In so ordering, where a court finds that redistricting legislation violates article III, “the legislature shall have a full and reasonable opportunity to correct the law’s legal infirmities” (§ 5).

Consistent with these provisions, this Court should order the legislature to adopt either of the two plans that the IRC has already approved pursuant to section 5-b (g). Those plans show significant areas of bipartisan consensus among the IRC commissioners. The boundaries of the districts of Upstate New York, in particular, are nearly identical between the two plans and similar to those in the procedurally infirm plan enacted by the legislature (see Matter of Harkenrider v Hochul, — AD3d —, 2022 NY Slip Op 02648, *7 [4th Dept April 21, 2022] [Whalen, P.J. & Winslow, J., dissenting in part]).

Given the existence of these IRC-approved plans, there is no need for a redistricting plan to be crafted out of whole cloth and adopted by a court.

Rather, the legislature should be ordered to adopt one of the IRC-approved plans on a strict timetable, with limited opportunity to make amendments thereto.

As part of our judicially crafted remedy, we could order that any amendments to either plan “shall not 1 The majority seems unwilling to grasp this concept (majority op at 31-32 n 20). – 4 – No. 60 – 4 – affect more than [2%] of the population of any district contained in such plan” (Legislative Law former § 94).

In other words, the legislature would be bound by its own self-imposed restrictions, which were in effect at the time these plans were first presented for legislative approval. Such a remedy not only adheres more closely to the constitutional redistricting process, but it discourages political gamesmanship.

Throughout this proceeding, respondents have asserted that the legislature has near-plenary authority to adopt a redistricting plan, whereas petitioners have sought to take the process out of the hands of the legislature and to place it into the hands of the judiciary.

It is of course disputed why the constitutional process broke down, but it is readily apparent that the IRC’s bipartisan commissioners failed to fulfill their constitutional duty. None of the parties is entitled to the resolution that he or she seeks.

In addition, this remedy allows the legislature to enact a plan that minimizes the impact on the reliance interests of both the voters and candidates. Petitions have been circulated, citizens have contributed monetary donations to the candidates of their choice, and eligible voters have had the opportunity to educate themselves on the candidates who are campaigning for their votes, all in reliance on the procedurally infirm redistricting plan enacted by the legislature.

Of course, entrenched candidates have the party apparatus to support them in the event that further redistricting causes excessive upset to the current plan. In such a circumstance, outside candidates, upstart candidates, and independent candidates, who lack the resources of the well-heeled, will be disadvantaged most, leaving – 5 – No. 60 – 5 – the voters who support them without suitable options.

The legislature, duly elected by the citizens of this State, is in the best position to take these considerations into account. Yet, the remedy ordered by the majority takes the ultimate decision-making authority out of the hands of the legislature and entrusts it to a single trial court judge.

Moreover, it may ultimately subject the citizens of this State, for the next 10 years, to an electoral map created by an unelected individual, with no apparent ties to this State, whom our citizens never envisioned having such a profound effect on their democracy.

That is simply not what the people voted for when they enacted the constitutional provision at issue.

Although the IRC process is not perfect, it is preferable to a process that removes the people’s representatives entirely from the process.

The majority states that it “decline[s] to render the constitutional IRC process inconsequential in the manner requested by the State respondents” (majority op at 23); however, the majority does just that by crafting a remedy that cuts the legislature out of the process. The citizens of the State are entitled to a resolution that adheres as closely to the constitutional process as possible.

By ordering the legislature to enact redistricting legislation duly initiated by the IRC, this Court could afford the legislature its “full and reasonable” opportunity while honoring the constitutional process ratified by the people.