Archegos Founder Bill Hwang Found Guilty of Fraud

Improve the News Foundation -
0:00
/1861

Facts

  • The founder of Archegos Capital Management, Bill Hwang, was convicted on Wednesday on 10 out of 11 counts that include market manipulation, racketeering, and wire fraud. The charges stem from the collapse of Archegos, which led to billions in losses for investors and banks.1
  • Prosecutors allege that Hwang lied to banks about nearly every 'materially important metric' regarding investments they held and the creditworthiness of Archegos, which allowed them to inflate their portfolio from $1.5B to $36B.2
  • Hwang allegedly lied about the derivatives owned by Archegos to enable borrowing that would inflate the price of the underlying stock. In March 2021, a dip in stock prices had banks ask Archegos for a deposit that it could not provide, which led to a sell-off and a $100B shareholder loss.3
  • The collapse of Archegos also led to $10B in losses for banks that loaned to the firm, including Morgan Stanley and Nomura. Credit Suisse alone lost $5.5B, and the scheme was a contributing factor to their 2023 bankruptcy and takeover by UBS.4
  • Patrick Halligan, the chief financial officer of Archegos, was also convicted on three counts for his role in the scheme. The defense argued that the trades made by Hwang and the firm were aggressive but legal.1
  • Sentencing is scheduled for this October as both men remain free on bail. Halligan's lawyer said that they plan to appeal the conviction.2

Sources: 1New York Times, 2BBC News, 3Reuters and 4France 24.

Narratives

  • Narrative A, as provided by Bloomberg. The saga of Archegos epitomizes everything wrong with Wall Street. Hwang was a known fraudster before Archegos, but the promises of big cash and his experience in the finance world lured in big players that would underwrite his schemes. This scandal was business as usual on Wall Street, as the systemic issues they have are yet to be rectified.
  • Narrative B, as provided by Ft. The American financial system remains sound, and the basis for this conviction is less sound than it might seem at first glance. None of the trades made by Hwang constituted manipulation on their own, and prosecutors relied on flimsy accusations that his intent was criminal. All traders are trying to 'manipulate' the market to get an advantage, and Hwang was made a scapegoat by banks that bet big and lost.

Predictions