Bill Hwang, founder of the more than $10 billion Archegos Capital Management investment firm who was once revered as one of the Evangelical world’s biggest benefactors, could spend the rest of his life in prison after he was arrested and charged last Wednesday with racketeering conspiracy, securities fraud and wire fraud offenses.
The charges stem from a number of interrelated schemes to unlawfully manipulate the prices of publicly traded securities in Archegos’ portfolio, the U.S. Department of Justice announced. Prosecutors say those schemes caused billions of dollars in losses to leading global investment banks, brokerages and investors.
Archegos has operated as a private hedge fund, also known as a "family office." Unlike other large hedge funds, Archegos was not required to tell regulators information about its holdings and debt that might have shined a light on the fraud and allowed the crisis to be averted, prosecutors contend.
“Today’s announcement demonstrates the department’s unwavering commitment to hold accountable individuals who distort and defraud our financial markets, including those who occupy the C-Suite,” Lisa O. Monaco, deputy attorney general for the Southern District of New York, said in a statement. “That is especially true for this kind of crime — the kind that leaves a financial crater in its wake.”
Hwang, and his chief financial officer, Patrick Halligan, pleaded not guilty in Manhattan federal court on April 27, The Wall Street Journal reported. Hwang was released on a $100 million bond, while Halligan was released on a $1 million bond.
Lawrence Lustberg, a lawyer for Hwang, told The New York Times that the allegations against his client are “overblown” and the indictment “has absolutely no factual or legal basis.” He said Hwang is “entirely innocent of any wrongdoing.”
Mary Mulligan, a lawyer for Halligan, also told the outlet that her client “is innocent and will be exonerated.”
Federal prosecutors said two other Archegos employees, William Tomita, who was the firm’s head trader, and Scott Becker, who was its chief risk officer, pleaded guilty to their role in the schemes and are currently cooperating with the government.
According to the indictment, Hwang, along with Halligan, Becker and Tomita, lied to banks to obtain billions of dollars that they then used to artificially inflate the stock price of a number of publicly-traded companies. They allegedly invested in stocks mainly through special contracts with banks and brokers called “swaps.”
The swaps allowed Hwang "to cause massive buying of certain stocks, including on carefully selected days and times, which artificially pumped up stock prices," the Department of Justice statement says.
Hwang and his team are accused of lying to banks and using a series of manipulative trading techniques to keep those stock prices high and prevent them from falling. In one year, Hwang artificially increased the value of a $1.5 billion portfolio to $35 billion.
“We allege that these defendants and their co-conspirators lied to banks to obtain billions of dollars that they then used to inflate the stock price of a number of publicly-traded companies,” Damian Williams, U.S. attorney for the Southern District of New York, said in a statement.
“The lies fed the inflation, and the inflation led to more lies. Round and round it went. In one year, Hwang allegedly turned a $1.5 billion portfolio and pumped it up into a $35 billion portfolio. But last year, the music stopped. The bubble burst. The prices dropped. And when they did, billions of dollars of capital evaporated nearly overnight.”
Federal prosecutors said that in a matter of days, the companies at the center of Archegos’ trading scheme lost more than $100 billion in market capitalization. Archegos owed billions of dollars more than it had on hand, and Archegos collapsed.
Investors who purchased the affected stocks at artificial prices also lost the value they believed their investments held, and the banks lost billions of dollars. Archegos employees, many of whom were required to invest 25% or more of their bonuses with Archegos as deferred compensation, lost millions of dollars, federal prosecutors allege.
U.S.-listed Chinese companies were among Archegos’ largest positions, The Wall Street Journal notes, adding that manipulated stocks included ViacomCBS, Discovery Inc., now known as Warner Bros. Discovery Inc., GSX Techedu Inc., now known as Gaotu Techedu Inc., Chinese internet search company Baidu Inc. and online retailer Farfetch Ltd.
Archegos had positions of more than $10 billion in GSX, Baidu and Tencent Music Entertainment Group, and more than $20 billion in ViacomCBS by late March 2021, according to the indictment.
Criminal cases like the one filed against Hwang for “open market” stock manipulations based on legitimate trades are unusual, according to The Wall Street Journal, and they are not easy to win.
The publication cited the 1980s insider-trading scandal involving Ivan Boesky when his business associate, John Mulheren, was charged with manipulating shares of Gulf & Western Industries Inc. Those charges were reversed on appeal.
“There haven’t been many of these cases,” Harvey Pitt, a former SEC chairman who represented Boesky, told The WSJ. “They aren’t easy to win.”
This isn’t the first time Hwang, 58, whose father was a pastor and mother served as a missionary in Mexico, has faced criminal prosecution.
He previously ran a successful fund called Tiger Asia Management until he was forced to shutter it in 2012 after pleading guilty to insider trading in federal court. He and his firms paid $44 million to settle civil and criminal charges of manipulating Chinese stocks. His fund also forfeited about $16 million in related profits.
In recent years, Hwang, who co-founded the Grace and Mercy Foundation, has been a contributor to Focus on the Family and a trustee of the Fuller Theology Seminary. He was one of the Evangelical world’s biggest benefactors.
“I cannot think of another foundation or individual that has given significant donations to as many Christian organizations as he has,” Warren Cole Smith, who leads an organization called MinistryWatch, which monitors the finances of Christian ministries, told The Washington Post.
Through his Grace & Mercy Foundation started in 2006, which he leads with his wife, Becky, and funds almost entirely, Hwang has given some $79.1 million in grants to dozens of primarily Christian organizations, IRS Form 990s filed through the end of 2018 show. In total, he has given some $591 million to the foundation, Forbes reported.
The Fuller Foundation and Fuller Theological Seminary in Pasadena, California, where Hwang serves on the board of trustees, received a total of $14 million, making it one of the biggest beneficiaries of the foundation.
Since 2016, the Museum of the Bible in Washington, D.C., has been awarded $2.4 million while millions went to Christian humanitarian charities, such as Hope for New York and the Bowery Mission.
Tim Keller’s Redeemer Presbyterian Church, the Brooklyn Tabernacle megachurch, Christian liberal arts school The King’s College, and other churches and missionary organizations nationwide have also been blessed by Hwang’s philanthropy.
Ravi Zacharias International Ministries, whose late founder Ravi Zacharias has been accused of multiple cases of sexual misconduct and assault, also received $3.3 million.
Hwang faces one count of racketeering conspiracy, which comes with a maximum sentence of 20 years, multiple counts of securities fraud, wire fraud and market manipulation, which attract a maximum sentence of 20 years in prison for each count.