Hwang's Archegos Defense Battles $160B Bubble Charges

Key Takeaway

• Bill Hwang of Archegos faces fraud and market manipulation charges, with potential 20-year sentences per count.
• Defense argues banks independently decided on trades, challenging the $160 billion market bubble blame.
• Trial to examine banks' roles and decisions, amidst cooperating witnesses against Hwang.

Legal Battle Unfolds

Bill Hwang, founder of Archegos Capital Management, is set to defend himself in a Manhattan federal court against charges of fraud and market manipulation. The prosecution alleges that Hwang and his chief financial officer, Patrick Halligan, misled Wall Street banks, leading to a $160 billion market bubble that popped when Archegos collapsed in March 2021. The defense, however, plans to argue that Archegos' trading strategies were legal and that the banks made their own decisions independently. Barry Berke, Hwang’s lawyer, emphasized that Archegos could not control the actions of these sophisticated financial institutions.

The Defense's Challenge

Hwang and Halligan face significant legal challenges, including racketeering conspiracy and fraud counts, with Hwang also charged with market manipulation. They could face up to 20 years in prison for each count if convicted. The defense argues that the banks did not always hedge Archegos' positions on a one-to-one basis, which they believe undermines the prosecution's case. However, similar defenses have failed in past Wall Street trials, and the cooperation of Hwang's former top associates with the prosecution could pose a substantial hurdle.

Prosecution's Perspective

The government claims that Hwang schemed to inflate the share prices of several stocks, notably ViacomCBS, through highly leveraged derivative bets. Prosecutors argue that Hwang knew the banks would hedge his trades by buying the underlying stocks, thereby driving up their prices. This strategy backfired when the banks liquidated their positions simultaneously after Archegos missed margin calls, leading to significant losses.

Counterparty Dynamics

The trial will also spotlight the role of the banks that acted as prime brokers for Archegos. Defense lawyers have indicated they may focus on the banks' own actions and decisions, including potential mismanagement of risk. This approach, however, is limited by the court's stance on blaming the banks, as they are considered sophisticated entities. The involvement of cooperating witnesses from Archegos, who are expected to testify against Hwang, adds another layer of complexity to the defense's strategy.

Management Quotes

• Barry Berke, lawyer for Bill Hwang:

  "Archegos could not control what these very sophisticated financial institutions did."