Archegos' Hwang lied to become Wall Street legend, prosecutors say as trial begins

By Jody Godoy

(Reuters) -Sung Kook "Bill" Hwang tried to trick all of Wall Street, a federal prosecutor told a Manhattan federal jury, as his trial on charges stemming from the 2021 collapse of Hwang's $36 billion fund Archegos Capital Management began on Monday.

Prosecutors say Hwang lied to Wall Street banks to secure billions of dollars of funding he used to inflate stock prices. Former Archegos Chief Financial Officer Patrick Halligan, who is also on trial, enabled the scheme, they claim.

Archegos' collapse caused more than $100 billion in shareholder losses at companies in its portfolio, harming investors who sold shares after their scheme collapsed, prosecutors also allege.

Hwang and Halligan have pleaded not guilty.

Assistant U.S. Attorney Alexandra Rothman told the jury that Hwang sought to become a Wall Street legend by pumping the value of his holdings through manipulative trading, turning Archegos into a criminal enterprise.

"Bill Hwang was a billionaire and yet he risked nearly everything because he wanted more: more money, more success, more power," she said.

"To those in the know he was a great investor. He had it all. But it wasn't enough," Rothman added.

The case has been closely watched on Wall Street as a test of prosecutors' ambitious market manipulation theory. It is expected to shed light on the inner workings of banks' dealings with profitable but risky clients.

Hwang's attorney Barry Berke told jurors that his client staked his own cash on companies he believed in deeply, trading like he was prepared to lose it all.

"The reason he did it was because he had the courage of his convictions," Berke said.

Halligan's attorney Mary Mulligan said her client was not a risk taker, but a bean counter who saw the firm's financial position as solid.

The banks Archegos traded with knew the risks and kept trading with the firm anyway to chase profits, Mulligan said.

Testimony in the trial, which could last up to eight weeks, will center on the implosion of Hwang's lightly regulated family investment office Archegos, which prosecutors allege caused more than $100 billion in shareholder losses at companies in its portfolio.

The case is one of several brought by U.S. Attorney Damian Williams alleging wrongdoing by powerful investors amid the wild market swings that occurred during the COVID-19 pandemic.

Prosecutors accuse Hwang of using financial contracts known as total return swaps to secretly amass outsize stakes in multiple companies without actually holding their stock.

His positions were so large they eclipsed that of the companies' largest investors, driving up stock prices, prosecutors say. At its peak, they say, Archegos had $36 billion in assets and $160 billion of exposure to equities.

Falling stock prices in March 2021 triggered margin calls that Archegos was unable to meet. That, in turn, led some banks to dump the stocks backing his swaps, causing billions in combined losses for Archegos and banks including Morgan Stanley, Credit Suisse, now part of UBS, and Nomura Holdings.

Hwang and Halligan are charged with racketeering conspiracy. Hwang faces an additional 10 counts of fraud and market manipulation, and Halligan an additional two counts of fraud. Each count carries a maximum potential sentence of 20 years.

Hwang's lawyers have described the case as the "most aggressive open market manipulation case ever" brought by prosecutors. Several attorneys told Reuters it may be a tough case for the government.

Archegos head trader William Tomita and Chief Risk Officer Scott Becker have pleaded guilty and are expected to testify at the trial.

Bryan Fairbanks, a former risk manager at UBS, testified on Monday that Archegos lied about metrics used to gauge the risk of trading with the fund, which led to the bank losing more than $860 million when Archegos collapsed.

"All the information they had shared with us was made up," he said.

(Reporting By Jody Godoy; Additional reporting by Brendan Pierson in New York; Editiong by Michael Erman)