NEW YORK (REUTERS) - Federal prosecutors have charged Archegos Capital Management owner Bill Hwang and the family office's former chief financial officer, Patrick Halligan, with racketeering and fraud, according to an indictment released on Wednesday (April 27).
Prosecutors said that Hwang and Halligan "corrupted the operations and activities" of the family office to manipulate the price of stocks it held and lied to banks and brokerages, which lost billions on trades.
The US Securities and Exchange Commission also said on Wednesday that it had sued Hwang, Halligan, head trader William Tomita, and chief risk officer Scott Becker for their alleged roles in the scheme.
Attorneys for the individuals did not immediately respond to requests for comment.
SEC enforcement director Gurbir Grewal said Hwang and the firm "propped up a US$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".
US Attorney Damian Williams and Deputy Attorney-General Lisa Monaco are scheduled to hold a news conference on the charges on Monday morning.
Archegos, a family office run by former Tiger Asia manager Hwang, defaulted on margin calls in March of last year, leaving banks nursing heavy losses and sparking a fire sale of shares including those of ViacomCBS and Discovery.
The blowup cost big global banks including Credit Suisse, Nomura Holdings, Morgan Stanley and Deutsche Bank more than US$10 billion (S$13.7 billion) in losses.
Hwang's family office used leverage to amplify his bets, holding stock positions worth more than US$50 billion while his funds had assets of about US$10 billion, three sources familiar with the trades told Reuters in April 2021.
He did that by buying derivatives known as total return swaps from major Wall Street banks, according to the sources.
The trades allow investors to bet on stock price moves without owning the underlying securities. Instead, the bank buys the stocks and promises the investor a performance-related return.
That client, in turn, posts collateral to secure the trades with the bank.
In the indictment, prosecutors allege that Hwang manipulated the stock price of seven of Archegos' portfolio companies, including Viacom, Discovery and Tencent Music Entertainment.
Prosecutors say Hwang did so by controlling the timing and size of trades to have a greater impact on price.
Hwang and Halligan also stand accused of defrauding counterparties in Archegos trades by misrepresenting its positions.
Family offices are private funds that manage the wealth of individuals. Single family offices have few regulatory requirements.