Archegos Capital Management owner Bill Hwang and his former finance director, Patrick Halligan, were arrested Wednesday in connection with the family office implosion last year.
The men are expected to appear in Manhattan federal court later Wednesday and face charges of racketeering conspiracy, securities fraud and wire transfer fraud, according to a US court statement.
In a 59-page indictment, federal prosecutors allege that Hwang used his personal fortune to manipulate markets and commit fraud in a scheme with far-reaching consequences. Over the course of about a year, Hwang’s wealth increased from about $1.5 billion to more than $35 billion, the documents said.
When the family office collapsed, it resulted in billions in losses for banks and Archegos own employees. It also sheds light on potential risks at family offices, which operate under less regulatory oversight than hedge funds.
According to the indictment documents, the men used leverage to inflate their market positions, which amounted to a whopping $160 billion. Hwang is alleged to have used derivative securities that were not made public, which helped protect the size of Archegos’ positions in the market. As a result, investors were unaware that Archegos dominated the trading of a few select companies.
The plan fell through at the end of March 2021 when the prices of these stocks fell and Archegos was unable to continue supporting its positions, according to the documents. After Archegos failed to meet its margin calls, the company’s counterparties suffered significant losses.
In addition to the action by the US Attorney’s Office for the Southern District of New York, the Securities and Exchange Commission has filed civil charges.
“The collapse of Archegos last spring showed how the operations of one company can have far-reaching consequences for investors and market participants,” SEC Chair Gary Gensler said in a press release.
The complaints also cite William Tomita, Archegos’ chief trader, and Scott Becker, its chief risk officer, for their alleged involvement.
This story is evolving. Come back for updates.