NEW YORK – Sung Kook “Bill” Hwang maintained a low profile on Wall Street as he managed his own wealth through his “family office,” known as Archegos Capital Management. But then Archegos suddenly melted down in March 2021, making headlines and all but erasing Hwang’s US$36 billion (S$48.35 billion) fortune. The collapse also cost the firm’s lenders US$10 billion, contributing to the downfall of Credit Suisse.

Hwang, 60, was found guilty on July 10 of fraud, market manipulation and racketeering conspiracy charges that could prompt a life sentence. Archegos chief financial officer Patrick Halligan was also convicted of fraud and conspiracy after a two-month trial that featured the testimony of two former top Archegos executives and bankers from many of Wall Street’s biggest institutions. The jury deliberated for just a day and half.

Each count against Hwang and Halligan carries a maximum prison term of 20 years. They were originally scheduled to be sentenced on Oct 28. Now Nov 20 is set as the date for Hwang and Nov 26 for Halligan. 

1. What was Archegos?

Hwang set up his family office – a private firm devoted to managing his wealth – in 2013 with hundreds of millions of dollars he made from his former hedge fund. Hwang, a devout Christian, named his firm after a Greek word meaning “leader” or “prince” that is often used to refer to Jesus.

Family offices are subjected to few of the disclosure requirements that apply to hedge funds, so Archegos flew under the regulatory radar as it bought up derivative investments linked to the shares of several companies. Those included ViacomCBS and Discovery in the US and Baidu and GSX Techedu of China. After more than US$40 billion of Archegos and bank money evaporated, regulators and prosecutors took notice. 

Archegos employed just a few dozen people to manage Hwang’s wealth, including William Tomita, the firm’s polo-playing head trader, and its former head risk manager, Scott Becker. Both men pleaded guilty to felonies and agreed to testify against Hwang at trial. 

Becker testified that he had lied to counterparty banks to win access to credit and trading capacity for Archegos at the direction of Hwang and Halligan. Becker gave jurors a picture of the frantic final days at Archegos and testified about lying to the banks about the risks faced by the firm at the end.

2. Who is Bill Hwang?

Hwang, a son of a Christian pastor, was born in Korea and emigrated to the US in 1982, later earning degrees from the University of California at Los Angeles and Carnegie Mellon University. 

He worked at Julian Robertson’s Tiger Management before founding Tiger Asia Management, one of several spin-offs known collectively as the “Tiger Cubs.” In 2012, while he was running Tiger Asia, Hwang agreed to pay US$60 million to resolve criminal and civil claims that Tiger Asia used inside information to trade Chinese bank stocks. Tiger Asia pleaded guilty to a criminal wire fraud charge, and Hwang settled without admitting or denying wrongdoing. 

Even as he earned and lost billions, he eschewed the trappings of wealth and lived in an unassuming suburban New Jersey home. He held regular Bible readings and tended to the Grace and Mercy Foundation, a philanthropic organisation founded by Hwang and his wife to “support the poor and oppressed” through grants to charities. Grace and Mercy had US$528 million in assets at the end of 2022.

3. What caused Archegos to implode?

On March 22, 2021, ViacomCBS, which at the time was Archegos’s biggest holding, announced a US$3 billion secondary stock offering, leading to a 10 per cent drop in its shares. That same week, the US Securities and Exchange Commission said it would increase regulation of companies based in China. That put pressure on Archegos’s holdings of Chinese ADRs, the American Depositary Receipts that simplify buying shares of foreign stocks in the US. 

Archegos’s losses set off a cascade of so-called margin calls, which occur when a borrower’s collateral falls too low. The situation was made worse in the days following the ViacomCBS drop, according to the government, as Hwang poured the firm’s remaining cash into frantic trading in a vain hope to prop up the value of Archegos’s holdings. Jurors heard testimony that Halligan, the CFO, asked, “Are we going to be able to pay for these trades today? I don’t see how we can.”

4. What did the prosecution argue?

The government’s case against Hwang and Halligan had two main prongs.

Hwang and Archegos head trader William Tomita used manipulative trading tactics, such as heavy pre-market trading, bidding up prices during the trading day and trading at the market close, to increase the value of stocks in the firm’s portfolio. Tomita, who was one of the prosecution’s star witnesses, gave devastating testimony to that effect during several days on the witness stand.

With the help of Halligan, Tomita and Becker, the Archegos risk manager, the firm lied to lenders about the risks contained in its portfolio to land even more credit, despite the fact that the holdings were highly leveraged, or borrowed against, and were concentrated on a small number of companies. Becker was the prosecution’s other star witness, and his testimony corroborated the accounts of the many bankers who said they were fed lies about Archegos’s portfolio.

In the year preceding March 22, 2021, prosecutors say, Hwang increased the value of his personal fortune to about US$36 billion from US$1.5 billion, while Archegos’s positions grew to more than US$160 billion with borrowed money. 

Prosecutors said Hwang concealed his trades from the market and avoided regulatory scrutiny by trading in derivatives known as swaps instead of trading the shares themselves. The swap trades with about a dozen different counterparties came to overwhelm the value of company shares and short positions. The use of swaps allowed Archegos to avoid disclosing when its stake exceeded 5 per cent, as required by regulators, the indictment said. Using swaps also allowed Archegos to allegedly manipulate the market for a small number of stocks in which it covertly held a dominant position.

5. What were Hwang and Halligan’s defenses?

The defense argued that Archegos’s trading was not out of the ordinary on Wall Street and had been spun into something sinister by the prosecution. Lawyers for Hwang and Halligan said the men followed the law, which does not require lengthy filings from family offices or disclosure of swap transactions. The firm used multiple counterparties to minimise risk, not to conceal the nature of their trading, their lawyers said. And they argued that Archegos traded with big, sophisticated banks that profited from working with Archegos. Neither Hwang nor Halligan testified at their trial.

The defense lawyers also focused on trying to undermine Tomita’s and Becker’s credibility on cross-examination. They suggested that both men, who had already pleaded guilty, were lying in the hopes of receiving leniency for their crimes. Halligan’s lawyers, who tried to argue that he was just a “bean counter” who was not involved in Archegos’s trading, took particular aim at Becker, highlighting a “personal vendetta” against the CFO, who was his direct boss.

6. What happened to the banks that traded with Archegos?

Archegos’s failure left its lenders and counterparties holding the bag when its holdings plummeted in value and the firm was unable to pay. Credit Suisse lost US$5.5 billion in the collapse. An outside report prepared for the bank later found that its prime services business, which provided financing and other broker services to Archegos, “failed to rein in and, indeed, enabled Archegos’s voracious risk-taking” in favor of short-term profits. 

The scandal helped push Credit Suisse into a crisis that ended in its sale to rival UBS in 2023. Nomura Holdings lost US$2.9 billion. And the blowup cost Morgan Stanley US$911 million. Jurors heard from witnesses who were managers at UBS, Jefferies Financial Group and Credit Suisse. Representatives of UBS and Jefferies testified that Becker, the Archegos risk manager, lied about the firm’s portfolio.

7. What were the specific charges?

Hwang was charged with 11 criminal counts, including racketeering conspiracy. That is a charge made possible by the Racketeer Influenced and Corrupt Organizations Act, known as RICO, which has helped send numerous mafia figures, including former Gambino crime family boss John Gotti, to federal prison. The law was passed in 1970 to help prosecute organized crime rings, but US prosecutors have also used RICO in white-collar fraud cases, such as Hwang’s. 

In addition, Hwang was charged with securities fraud, wire fraud and market manipulation. He was convicted on all charges except for one count of market manipulation relating to the stock price of Chinese online video company IQiyi.

Halligan was convicted of racketeering conspiracy, securities fraud and wire fraud. BLOOMBERG