Billionaire Wall Street Investor Arrested For Massive Fraud Scheme

NEW YORK (AP) — The owner of a New York-based hedge fund that collapsed when it defaulted on margin calls was arrested Wednesday on charges alleging he defrauded leading global investment banks and brokerages of billions of dollars by telling them lies so his private investment firm could grow its portfolio from $10 billion to $160 billion.

The charges unsealed in an indictment in Manhattan federal court named Bill Hwang, the founder of Archegos Capital Management, and his former chief financial officer, Patrick Halligan. Both were expected to appear later in the day in court. They face racketeering conspiracy and fraud charges.

Hwang carried out the fraud from March 2020 to March 2021 by originally investing his personal fortune, which grew from $1.5 billion to over $35 billion, and later the investments he borrowed from major banks and brokerages, which grew from about $10 billion to over $160 billion, the indictment said.

He hid the extent of his market prowess from investors by using derivative securities that had no public disclosure requirement, it said.

“As a result, despite the size of Archegos’s positions, the investing public did not know that Archegos had come to dominate the trading and stock ownership of multiple companies,” the indictment said.

The risky maneuvers made the firm’s portfolio highly vulnerable to price fluctuations in a handful of stocks, causing a flurry of margin calls in late March 2021 that had a destructive domino effect. Over $100 billion in market value disappeared in days for nearly a dozen companies and banks and prime brokers duped by Archegos lost billions, the indictment said.

It said the schemes also caused millions of dollars in losses for innocent Archegos employees who had been required to allocate to the firm a substantial amount of their pay as deferred compensation.

Separate civil charges against Hwang and Halligan were brought by the Securities and Exchange Commission.

In a release, SEC Chair Gary Gensler said: “The collapse of Archegos last spring demonstrated how activities by one firm can have far-reaching implications for investors and market participants.”

“We allege that Hwang and Archegos propped up a $36 billion house of cards by engaging in a constant cycle of manipulative trading, lying to banks to obtain additional capacity, and then using that capacity to engage in still more manipulative trading,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

“But the house of cards could only be sustained if that cycle of deceptive trading, lies and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed, allegedly leaving Archegos’s counterparties billions in trading losses,” Grewal said.

Hwang’s attorney, Lawrence Lustberg, said lawyers were “extremely disappointed” with a prosecution that they believe has “absolutely no factual or legal basis.”

“A prosecution of this type, for open-market transactions, is unprecedented and threatens all investors,” he said in a written statement. “As you will see when the facts unfold, Bill Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime, let alone the overblown allegations that pervade this indictment.”

Lustberg said it was also disappointing that Hwang was arrested without notice even though he “has made himself available and fully cooperated with the Government’s investigation.”

“We vehemently dispute the charges as a matter of law and fact and are confident that we will prevail in Court, but in no event was an arrest necessary in this case, in the midst of an investigation that has gone on for more than a year and apparently remains ongoing,” he wrote.

Attorney Mary Mulligan, representing Halligan, said: “Pat Halligan is innocent and will be exonerated.

Associated Press Writer Karen Matthews contributed to this report.