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The trial of Bill Hwang, the founder of Archegos Capital Management, began on Monday with prosecutors alleging that Hwang manipulated markets and defrauded banks, ultimately leading to the collapse of his firm.
According to Assistant U.S. Attorney Alexandra Rothman, Hwang, a billionaire, took substantial risks to increase his wealth further. She described Archegos as a "house of cards" built on manipulation and deceit. Using borrowed money and financial derivatives, Hwang's firm heavily traded in a few tech and media stocks, increasing its market footprint from around $10 billion to over $160 billion in a year, starting in March 2020.
However, when the share prices of some of Archegos's largest holdings began to decline, a series of margin calls and stock sales followed, resulting in the evaporation of over $100 billion in market value within a few days.
Hwang and Archegos's former chief financial officer, Patrick Halligan, are facing charges of racketeering conspiracy and securities fraud. They have pleaded not guilty, but two other former Archegos executives have already pleaded guilty and are cooperating with the prosecution. This scandal significantly impacted Wall Street, with a group of banks losing more than $10 billion due to their exposure to Archegos.
Prosecutors argued that Hwang's motives were driven by greed and ego, as he aspired to be a legendary figure on Wall Street, comparing himself to Warren Buffett and Jeff Bezos. They claimed that Hwang manipulated stock prices to achieve this status.
Hwang's defense argued that Archegos's trading practices, including its use of swaps, were legal and not manipulative. They emphasized that Hwang's investment strategy, focused on a concentrated number of stocks, was not unusual for him. Hwang believed that companies like ViacomCBS would benefit from the surge in video streaming and digital technologies caused by the pandemic, similar to successful investments he made in Netflix.
To increase buying power, Hwang allegedly directed his team to secure more financing from banks by providing misleading information about Archegos's portfolio. The defense argued that Hwang valued privacy and discretion, especially after the meme-stock era of early 2021, when individual investors caused turmoil in some hedge funds.
The trial is expected to last up to eight weeks, shedding further light on one of the most significant financial scandals in recent years.