Multibillion-Dollar Fraud Trial Against Archegos Founder Nears Its End

The collapse of Archegos Capital Management in spring 2021, which caused billions in losses for a handful of Wall Street banks, was the result of “lies and manipulation” by Bill Hwang, the firm’s founder, a federal prosecutor told a jury in Manhattan on Monday.

During closing arguments, Andrew Thomas, the prosecutor, said that Mr. Hwang had defrauded the banks and other traders in the market by artificially inflating stock prices to pump up the size of Archegos.

Barry Berke, a lawyer for Mr. Hwang, said the government was criminalizing his client’s high-risk trading only because it caused losses for the banks that had lent him billions of dollars.

“Mr. Hwang bet on companies he believed in,” Mr. Berke said. “That is not manipulative.”

Mr. Hwang, 60, is charged with 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation. If convicted on all counts, he could spend the rest of his life in prison.

The sudden collapse of Archegos not only caused nearly $10 billion in losses for Wall Street banks, but also wiped out much of Mr. Hwang’s personal fortune. The firm, which Mr. Hwang had set up in 2013 as a family office, was little-known on Wall Street at the time, even though it employed a few dozen people and invested tens of billions of dollars in the stock market.

At its peak, Archegos managed $36 billion for Mr. Hwang and his family and controlled stocks worth more than $100 billion. The firm, which operated like a hedge fund but with limited regulatory oversight, amassed such large stock positions by using sophisticated derivatives and borrowed money provided by Wall Street banks to inflate its holdings.

But in the span of three days in March 2021, it all came crashing down when the prices of some of those stocks began to tumble and the banks demanded to be repaid by Archegos.

The courtroom in Manhattan federal court was packed for the closing arguments, with many supporters of Mr. Hwang in attendance. Damian Williams, the U.S. attorney for the Southern District of New York in Manhattan, was present for part of the proceeding.

The trial, which began in early May, featured testimony from 21 prosecution witnesses. Prosecutors introduced numerous internal email communications and text messages among Archegos employees as evidence. They also played several recorded conversations between Archegos traders and employees of the Wall Street banks that had provided the firm access to billions of dollars to make trades.

In his closing argument, Mr. Thomas displayed for the jury key parts of witness testimony and some of Mr. Hwang’s text messages and emails. He told the jury that Mr. Hwang’s many text messages “were like leaving fingerprints at the scene of the crime.”

Mr. Hwang, whose legal name is Sung Kook Hwang, did not testify at the trial, nor did Mr. Hwang’s co-defendant, Patrick Halligan, the former chief financial officer of Archegos.

The prosecution’s case centered on allegations that Mr. Hwang and Mr. Halligan misled banks including Credit Suisse, UBS, Morgan Stanley and Goldman Sachs about the firm’s overall footprint in the market. Mr. Thomas told the jury that Mr. Hwang had “artificially tried to rig prices” of the portfolio of stocks the firm held.

“Hwang ran Archegos through fraud and Halligan helped him do it,” Mr. Thomas told the jury.

Two former Archegos employees who had pleaded guilty and cooperated with the authorities were key witnesses.

Scott Becker, the firm’s former chief risk officer, testified that it was his job to lie to the banks about the size of Archegos’s stock holdings and borrowings so that the banks would keep lending to the firm. On cross-examination, Mr. Becker said Mr. Hwang never specifically told him to lie.

But William Tomita, a former top trader for Archegos and the government’s other star witness, testified that Mr. Hwang had instructed him on how to give a misleading picture to banks about the firm’s stock holdings.

Mr. Tomita also testified that Mr. Hwang had put in big buy orders at the end of the day to drive up stock prices. He said Wall Street banks had used the closing price of those stocks to determine how much money the firm could borrow.

Mr. Hwang’s legal team sought to undermine the two key cooperators on cross-examination and with expert testimony that tried to offer a more benign explanation for Archegos’s outsized buying of stocks. Mr. Hwang’s team called only two witnesses.

In his closing argument, Mr. Berke said a weakness with the prosecution’s case was that Mr. Hwang and Archegos never “cashed out” after building up big positions in stocks.

“Mr. Hwang believed in his investments,” he said. He believed in these stocks.”

In the end, the impact of Archegos’s failure on the broader stock market was limited. But the firm’s collapse shed light on Wall Street’s practice of unrestrained lending to hedge funds and big family offices and the risk it could entail.

Speaking last month to a group of reporters at The New York Times, Gary Gensler, the Securities and Exchange Commission chair, said he was concerned about the level of borrowing by hedge funds to make trades. He did not comment specifically on Archegos or Mr. Hwang’s trial.

The federal judge overseeing the case, Alvin K. Hellerstein, intends to instruct the jury on the law on Tuesday, and will then turn over the case to them to decide.

The long trial focused largely on arcane subject matter but did include a few lighter moments. Early in the proceedings, Judge Hellerstein, 90, interrupted testimony from a witness to announce that he had just learned he had become a great-grandfather. Everyone applauded, including the lawyers and the jury.