One of Wall Street’s biggest cases in years was brought on Wednesday — essentially, to dupe Wall Street firms.

The civil case brought by the Securities and Exchange Commission against Bill Hwang, the investor who lost billions of dollars, alleged that Hwang’s Archegos Capital Management was able to move shares of companies – including what was then ViacomCBS PARA,
and Baidu BIDU,
— using swaps that they could only receive by deceiving the lenders.

As of March 2021, Archegos controlled over 70% of GSX Techedu, over 60% of Discovery’s Class A shares and over 50% of IQIYI IQ,
and ViacomCBS.

“The margin and capacity extended by Archegos counterparties served as fuel for its manipulative transactions. However, Archegos could not rely on its counterparties to provide it with ever-increasing margin and capacity, especially given Archegos’ propensity to expand its available trading capacity with counterparties to its limits,” said the DRY.

What Hwang and his lieutenants did was deliberately deceive companies to gain increased trading capacity, the SEC said. “As Archegos anticipated, these deceptions fraudulently convinced its counterparties that Archegos’ overall positioning was less concentrated and more liquid than it actually was,” the SEC said.

Archegos’ assets have grown from $4 billion to more than $36 billion in just under six months, the SEC said. The company was quickly defeated by some $13 billion in margin calls, according to a related Commodity Futures Trading Commission complaint.

Although no Wall Street firm has been named in the case, banks including Credit Suisse CS,
and Nomura 8604,
suffered billions of dollars in losses by extending credit to Hwang. The CFTC estimated total losses at more than $10 billion.

Archegos engaged in what has been called a “brazen” scheme to manipulate the market through aggressive pre-market buying and the final 30 minutes of the day, the SEC said.

Hwang’s attorney, Lawrence S. Lustberg, said the government had gone too far.

“We are extremely disappointed that the US Attorney’s office has seen fit to prosecute a case that has absolutely no factual or legal basis; a lawsuit of this type, for open market operations, 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 that he committed any crime, let alone the exaggerated allegations that permeate this indictment,” Lustberg said in a statement.

Hwang and Patrick Halligan, the chief financial officer of Archegos, have been arrested by federal prosecutors.

Lustberg criticized the arrests, noting that there were already substantive discussions underway between the parties. “The US Attorney’s Office knew full well that Mr. Hwang would surrender voluntarily if asked to do so,” he added.

Halligan’s attorney, Mary Mulligan of Friedman Kaplan Seiler & Adelman, said he was innocent and will be exonerated.

Hwang, Halligan, William Tomita and Scott Becker were named in the SEC complaint.


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