Federal agents have arrested Bill Huang, owner of Archegos Capital Management, the $10 billion private investment firm. exploded last year In a business disaster, the former chief financial officer Wednesday morning.
Mr. Hwang and his former assistant Patrick Halligan have been arrested at their homes and are expected to appear in Manhattan Federal Court later today. Federal prosecutors in Manhattan announced the arrests as they unveiled a 59-page indictment against the two men.
Federal prosecutors said the men are accused of racketeering conspiracy, securities fraud and electronic fraud in connection with a scheme to manipulate publicly traded stock prices in order to boost revenues. They said the plan, which relied heavily on leverage, helped increase the company’s portfolio to $35 billion from $1.5 billion in one year.
The Archegos crash shocked Wall Street, caused major losses for major banks, and led to investigations by federal prosecutors, the Securities and Exchange Commission and other regulators. The Securities and Exchange Commission filed its civil complaint on Wednesday against Mr. Hwang, Mr. Halligan and two former traders at Archegos.
Larry Lustberg, Mr Huang’s lawyer, confirmed the early morning arrests but declined to comment immediately. Mrs Halligan’s lawyer, Mary Mulligan, said her client was “innocent and will be acquitted”.
The arrests will be one of the largest white collar trials on Wall Street in years. Archegos’ collapse has highlighted large family offices, which operate with less regulatory oversight than hedge funds but sometimes do just as much trading.
Archegos’ losses are compounded by the use of a derivative called a total return swap, which is a complex security that banks sell and allows the company to use borrowed money to buy shares. The derivative allowed Archegos to take larger positions in the stock more quickly than it would normally have done if it were only buying the shares with cash. The swaps also allowed Archegos and Mr. Hwang to avoid having to disclose their large positions in a handful of stocks to regulators and other investors.
The indictment against Mr. Huang and Mr. Halligan said that they and others at the firm had provided “materially false and misleading statements” to major banks that arranged derivative trades and allowed them to effectively amass huge equity positions using billions of borrowed money.
The scheme initially worked as it pumped the actual size of equity positions held by Mr. Hwang’s family office to $160 billion from $10 billion – rivaling some of the world’s largest hedge funds. But things quickly unraveled in March 2021, when sharp declines in a few stocks in Archegos’ portfolio led banks to issue cover orders. These banks were forced to sell the securities and to control the guarantees that the company provided in exchange for its large loans.
Investigations into Archegos’ collapse began shortly after the company’s collapse. The collapse led to billions in losses for a number of banks including Credit Suisse, Nomura, Morgan Stanley and UBS. Credit Suisse incurred the most pain, losing more than $5 billion, and the trading debacle led to a number of high-profile management changes at the bank.
Over the past few months, federal authorities have requested documents from the company and banks and held meetings and interviews with a number of former employees of Archegos.
The indictment refers to two former merchants who worked at Archegos as part of the scheme. But it was not clear if these former traders would be charged or cooperate with the investigation.
Archegos’ collapse sparked calls for more disclosure by large family offices to the S.EC.
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