Fund Boss Denies Fraud, Racketeering Charges

Archegos Capital Management founder Bill Hwang was released on bail on Wednesday after pleading not guilty to US criminal charges over the meltdown of his New York private investment firm, which left global banks with US$10 billion in losses.

Archegos, which had US$36 billion in assets, collapsed last year when it was caught short on highly leveraged trades.

Among the biggest fund blow-ups in years, the scandal roiled Wall Street, sparked a fire sale in stocks including ViacomCBS and Discovery and caused Credit Suisse, Nomura and Deutsche Bank, among other lenders, to lose billions on their trades with Archegos.

Prosecutors on Wednesday alleged that Hwang amassed his huge equity exposures by lying to the banks in order to increase Archegos' credit lines. He then used derivatives he traded with them to manipulate the underlying shares and ratchet up his returns.

The US Securities and Exchange commission, in a separate civil complaint also brought on Wednesday, said Hwang and Archegos "engaged in a brazen scheme to manipulate the market" and "propped up a US$36 billion house of cards" through a cycle of manipulative trading and lying to banks to obtain additional loans.

"Eventually, the weight of Defendants' fraudulent and manipulative scheme was too much for Archegos to bear, and over the course of less than a week in late March 2021, the house of cards collapsed," the SEC said.

Hwang was arrested on Wednesday morning, along with Archegos chief financial officer Patrick Halligan. Hwang pleaded not guilty to 11 counts including racketeering, market manipulation and fraud in Manhattan federal court on Wednesday afternoon. Halligan pleaded not guilty to three charges.

Lawrence Lustberg, a lawyer for Hwang, said in a statement that the case had "absolutely no factual or legal basis." He added: "Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime." He said that Hwang had previously cooperated with the government.

US Magistrate Judge Jennifer Willis ordered Hwang, who was wearing glasses and a green turtleneck, released on US$100 million bond, secured by two properties and US$5 million cash bail. His travel is restricted to the New York area, and he must attest to the court that he lost his passport.

Halligan was released on US$1 million bond. His lawyer said Halligan is "innocent and will be exonerated."

Hwang was banned from trading in Hong Kong for four years by the SAR's regulators in 2014. (Reuters/RTHK)

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