Archegos founder Hwang must face fraud charges, US judge says

10:50 pm Thursday, March 23rd, 2023

By Jonathan Stempel

NEW YORK (Reuters) -A U.S. judge on Thursday denied Archegos Capital Management LP founder Bill Hwang’s effort to dismiss an indictment accusing him of fraud in the collapse of his once-$36 billion firm.

U.S. District Judge Alvin Hellerstein in Manhattan rejected arguments that the 11-count indictment should be tossed because prosecutors deceived Hwang into cooperating with their probe and because Hwang’s trading activity had been lawful.

Hwang said federal prosecutors, long before his arrest last April, had viewed him as the mastermind of a vast market manipulation scheme, and induced him during several interviews and meetings over six months to divulge his defense strategy. But the judge said prosecutorial misconduct could justify a dismissal only if it substantially influenced the grand jury’s decision to indict, or there was “grave doubt” that there was no such influence.

“There is no support in the record for such a finding,” Hellerstein wrote.

He had said during a Tuesday hearing that prosecutors were free to change their minds in the course of a probe.

Hellerstein also rejected a dismissal request by Hwang’s co-defendant, former Archegos chief financial officer Patrick Halligan.

Hwang’s attorney did not immediately respond to requests for comment.

Halligan’s lawyer, Mary Mulligan, said in an email that her client “had no role in the trades charged in the indictment.”

“We disagree with the government’s unfounded theories which will be rejected at trial,” she said.

Archegos collapsed in March 2021, causing billions of dollars in losses for banks such as Credit Suisse Group AG and Nomura Holdings Inc.

Hwang was accused of having borrowed aggressively and using total return swaps, a type of financial contract, to boost the effective size of Archegos’ market positions in stocks such as ViacomCBS and Discovery to more than $160 billion.

Authorities said Hwang concealed the size and riskiness of his bets by spreading his borrowing among several banks.

When the prices of some stocks fell, Hwang was unable to meet margin calls, leading banks to dump stocks backing his swaps, and causing losses for Archegos and others.

The case is U.S. v. Hwang et al, U.S. District Court, Southern District of New York, No. 22-cr-00240.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler and Himani Sarkar)