Investment firm head arrested on charges of multibillion-dollar fraud and racketeering
By Matt Egan and Kara Scannell
(CNN) -- Federal agents arrested Archegos Capital Management founder Sung Kook "Bill" Hwang on Wednesday morning on fraud charges, roughly one year after the investment firm's spectacular meltdown sent shock waves through Wall Street.
Prosecutors are charging both Hwang and Patrick Halligan, the firm's chief financial officer, with racketeering conspiracy, securities fraud and wire fraud offenses as part of schemes allegedly designed to "unlawfully manipulate" the price of publicly traded securities.
The alleged fraud pumped the portfolio of Archegos, a family office, from $1.5 billion to a staggering $35 billion in the span of just one year, according to prosecutors.
The Securities and Exchange Commission simultaneously charged Hwang with orchestrating a "massive market manipulation scheme" that caused billions of dollars in losses.
"Pat Halligan is innocent and will be exonerated," said his attorney, Mary Mulligan. A lawyer for Hwang could not immediately be reached for comment.
Both Hwang and Halligan were arrested at their homes on Wednesday morning.
Prosecutors alleged in charging documents that Hwang, Halligan and their co-conspirators used Archegos "as an instrument of market manipulation and fraud, with far-reaching consequences for other participants in the United States securities markets, companies whose stock prices they manipulated, innocent employees of Archegos whose savings they gambled and the financial institutions left holding billions of dollars in losses."
In March 2021, previously little-known Archegos Capital Management imploded, setting off a fire sale in the shares of the companies the firm bet on. Wall Street banks that lent billions to Archegos, including UBS and Credit Suisse, suffered at least $10 billion in losses.
The episode cast a spotlight on not only the risky leverage handed out to market players but hidden risks within the financial system linked to family offices, which do not need to make the same disclosures that other investment firms do.
According to prosecutors, Hwang duped investors into believing the prices of securities in the Archegos portfolio were the product of natural forces of supply and demand when, "in truth, they were the artificial product of Hwang's manipulative trading and deceptive conduct that caused others to trade."
With Hwang's "knowledge and approval," prosecutors say Archegos executives repeatedly made "materially false and misleading" statements about Archegos's portfolio of securities to leading investment banks and brokerages.
These statements were designed to "fraudulently induce" counterparties into trading with and extending credit to Archegos, prosecutors said, and to "hide the true risk of doing business with Archegos."
This is not Hwang's first run-in with authorities. In 2012, he pleaded guilty to one count of wire fraud after the SEC alleged that a hedge fund he founded, Tiger Asia Management, made nearly $17 million in illegal profits in a scheme involving Chinese bank stocks.
The-CNN-Wire
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