The trial of Bill Hwang, the founder of Archegos Capital, has begun in Manhattan federal court, with prosecutors accusing him of running his family office as a criminal enterprise in a bid to become a “legend on Wall Street.” Hwang’s downfall in 2021 sent shockwaves through US equity markets and cost Wall Street banks billions of dollars.
Prosecutors allege that Hwang and his top deputy, Patrick Halligan, knowingly used derivatives to manipulate financial markets illegally while misleading their lenders. The trial is expected to shed light on the motivations behind one of the industry’s major blow-ups.
Hwang, who is facing charges of market manipulation, fraud, and racketeering, could potentially face decades behind bars if found guilty. Two former Archegos employees have already pleaded guilty to fraud and racketeering charges and are cooperating with the prosecution.
The collapse of Archegos in 2021 was a result of the fund’s disastrous use of total return swaps to magnify risk on US stock investments. When stock prices fell, the losses to Archegos’s lenders totaled more than $10 billion, with Credit Suisse, Nomura, Morgan Stanley, and UBS among the hardest hit.
Hwang, a devout Christian from South Korea, had previously worked for Tiger Management before founding Archegos in 2013. His strategy of using total return swaps to take outsized bets on certain stocks backfired in March 2021, leading to the fund’s collapse and significant losses for investment banks involved. The trial is expected to provide insight into the events leading up to Archegos’ downfall and the impact on the financial industry.