Archegos Owner, Charged With Manipulating ViacomCBS and Discovery Stock Prices, Pleads Not Guilty to Fraud Allegations

Archegos founder Bill Hwang pleaded not guilty Wednesday to racketeering and fraud charges related to the collapse of his private equity firm, which was allegedly behind a massive market manipulation scheme that jeopardized the entire financial system. He was released on $100 million bail.

In an indictment filed in the Southern District of New York, federal prosecutors accused Hwang and former Archegos chief financial officer Patrick Halligan of orchestrating a conspiracy to inflate the stocks of publicly traded companies to boost their returns, defrauding the major financial institutions that were left holding billions in losses when the scheme went south. Prosecutors claimed the plot pumped the firm’s portfolio, essentially Hwang’s personal fortune, from $1.5 billion to more than $35 billion in a single year.

More from The Hollywood Reporter

• Paramount+'s 'The Offer': TV Review

• Kenya Barris on Netflix Exit, BET Studios Launch: "Everything Has Worked Out"

• Paramount Makes Nickelodeon Content Available for Ukrainian Refugees in Europe

Hwang and Halligan were arrested at their homes on Wednesday morning. Halligan also pleaded not guilty.

Archegos’ implosion is regarded as one of the biggest debacles in Wall Street history. As the firm was falling apart due to its overexposure in a handful of stocks, its lenders were forced to sell Archegos’ positions, and the prices that had been artificially propped up by the trading allegedly directed by Hwang collapsed. More than $100 billion in market value at nearly a dozen companies evaporated in days.

One of those companies was ViacomCBS (now Paramount Global), which acted as the trigger for Archegos’ undoing. The firm had a $10 billion stake in ViacomCBS, whose stock was up more than eight times for the year. In March 2021, the media company announced a $3 billion secondary share sale to capitalize on its share price. This led to a selloff, putting massive pressure on Archegos’ portfolio and exposing to lenders its huge positions in certain stocks, taken using billions in borrowed money.

Archegos effectively controlled more than half of all freely traded ViacomCBS shares at one point, according to U.S. Attorney for the Southern District of New York Damian Williams. Its shares declined roughly 30 percent on March 26 last year. Discovery’s stock similarly dipped.

After collectively discovering the reach of the firm’s scheme, the financial institutions that funded Archegos’ trades raced to the exits, selling chunks of shares in companies Archegos had positions in. While Goldman Sachs escaped largely unscathed, Morgan Stanley, Nomura and Credit Suisse lost upward of $10 billion combined. Credit Suisse alone saw $5 billion disappear, almost overnight, leading to an overhaul in management.

Lawrence S. Lustberg, representing Hwang, said in a statement that the case has “absolutely no factual or legal basis” and that a “prosecution of this type, for open-market transactions, is unprecedented and threatens all investors.”

“As you will see when the facts unfold, Bill Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime, let alone the overblown allegations that pervade this indictment,” he continued.

Halligan’s lawyer Mary Mulligan said her client “is innocent and will be exonerated.”

The fiasco shined a spotlight on family offices, some of which have assets under management equivalent to hedge funds but operate with less oversight. The Securities and Exchange Commission also charged Archegos Wednesday in a civil complaint against Hwang, Halligan and two former traders.

According to the complaint from federal prosecutors, Archegos invested in stocks mostly through special contracts called “total return swaps,” a derivate instrument sold by banks that allows firms to buy shares using borrowed money. This allowed the firm to buy massive volumes of shares in a handful of companies, including Discovery, GSX and Farfetch, at carefully selected times to pump up their prices. By using various banks and brokerages for the swaps, no single institution knew that Archegos was behind all of the trading.

While Archegos’ portfolio was worth roughly $35 billion, its exposure was more than $100 billion.

“We allege that they lied. A lot,” Williams said at a news conference announcing the charges. “They lied about how big Archegos’ investments had become. They lied about how much cash Archegos had on hand. They lied about the nature of the stocks Archegos held. And we allege that they told those lies for a reason, so that the banks would have no idea Archegos was up to a big market manipulation scheme, how risky the portfolio was, and what would happen if the bubble burst one day.”

Williams called the scheme “historic in scope,” saying it “nearly jeopardized our financial system.”

Paramount Global didn’t respond to requests for comment.

In 2012, Hwang paid $44 million to settle charges by the SEC that he and his firm at the time, Tiger Asia Management, had committed insider trading by short-selling three Chinese bank stocks.

Click here to read the full article.