Security News: Four Charged in Connection with Multibillion-Dollar Collapse of Archegos Capital Management

An indictment was unsealed today charging Sung Kook (Bill) Hwang, the founder and head of a private investment firm known as Archegos, and Patrick Halligan, Archegos’s Chief Financial Officer, with racketeering conspiracy, securities fraud, and wire fraud offenses in connection with interrelated schemes to unlawfully manipulate the prices of publicly traded securities in Archegos’s portfolio and to defraud many leading global investment banks and brokerages. Deputy Attorney General Lisa O. Monaco, U.S. Attorney Damian Williams for the Southern District of New York and Assistant Director-in-Charge Michael J. Driscoll of the FBI’s New York Field Office made the announcement. Both defendants were arrested earlier today and will be presented this afternoon before U.S. Magistrate Judge Jennifer E. Willis. The case has been assigned to U.S. District Judge Andrew L. Carter, Jr.

Also unsealed today are the guilty pleas of Scott Becker and William Tomita in connection with their participation in the conspiracy. Becker pleaded guilty pursuant to an information before U.S. District Judge Laura Taylor Swain on April 21. Tomita pleaded guilty pursuant to an information before Judge Swain on April 21. Both are cooperating with the government.

“Today’s announcement demonstrates the department’s unwavering commitment to hold accountable individuals who distort and defraud our financial markets, including those who occupy the C-Suite,” said Deputy Attorney General Monaco. “That is especially true for this kind of crime — the kind that leaves a financial crater in its wake.”

“We allege that these defendants and their co-conspirators lied to banks to obtain billions of dollars that they then used to inflate the stock price of a number of publicly-traded companies,” said U.S. Attorney Williams. “The lies fed the inflation, and the inflation led to more lies. Round and round it went. In one year, Hwang allegedly turned a $1.5 billion portfolio and pumped it up into a $35 billion portfolio. But last year, the music stopped. The bubble burst. The prices dropped. And when they did, billions of dollars of capital evaporated nearly overnight.”

“As alleged, Hwang and his co-conspirators convinced major financial institutions to enter into agreements with them based on lies, the result of which ultimately led to a massive market manipulation scheme,” said FBI Assistant Director-in-Charge Michael J. Driscoll. “We allege the defendants caused harm to U.S. financial markets and ordinary investors alike, causing significant losses to banks, market participants and Archegos employees. Today’s charges highlight our commitment to making sure the investment arena remains free from fraudulent activity of all kinds.”  

According to the allegations in the indictment unsealed today in Manhattan federal court:

Sung Kook (Bill) Hwang is the founder and owner of Archegos Capital Management and its related business entities, which are collectively known as Archegos. As alleged, Hwang, along with Patrick Halligan, Scott Becker and William Tomita lied to banks to obtain billions of dollars that they then used to artificially inflate the stock price of a number of publicly traded companies.

Hwang and his co-conspirators invested in stocks mostly through special contracts with banks and brokers called “swaps.” As alleged, these swaps allowed Hwang to cause massive buying of certain stocks, including at carefully selected days and times, to artificially pump up stock prices. Hwang, Halligan and their co-conspirators lied to banks and used a series of manipulative trading techniques to keep those prices high and prevent them from falling. This led to inflation of these stock prices. In one year, Hwang turned a $1.5 billion portfolio and fraudulently pumped it up into a $35 billion portfolio.

Last year, when the prices fell, Hwang’s positions were sold off and he could no longer manipulate the prices, and billions of dollars of capital evaporated nearly overnight.

As alleged, the defendants committed this fraud in secret. Since 2014, Hwang has run Archegos as a private hedge fund or “family office,” meaning that Archegos, unlike other large hedge funds, was not required to tell regulators information about its holdings and debt that might have shined a light on the fraud and allowed the crisis to be averted.

And because Hwang traded mostly through swaps, he was able to do the buying alleged in the indictment without anyone knowing that Archegos was actually behind all the trading. Regular market participants, and even the companies themselves, were duped into thinking the price increases were caused by the normal interplay of supply and demand when, instead, as alleged, they were the artificial result of Hwang’s manipulative trading.

For example, as alleged, by March 24, 2021, Hwang effectively controlled more than 50% of the freely trading shares of Viacom – and no one outside of Archegos knew about it — not investors purchasing Viacom in the market, or the executives at Viacom itself, or even the banks and brokerages who held the stock as part of the swaps. Because, as alleged, by using various banks and brokerages for his swaps, Hwang made sure that no single institution would have any idea that he was behind all of this trading.

The indictment further alleges that in order to get the billions of dollars Archegos needed to sustain this market manipulation scheme, Hwang and his co-conspirators lied to and misled some of Wall Street’s leading banks about how big Archegos’s investments had become, how much cash Archegos had on hand and the nature of the stocks that Archegos held. As alleged, they told those lies so that the banks would have no idea what Archegos was really up to, how risky the portfolio was, and what would happen if the market turned.

As alleged, just over a year ago, the market turned and the stock prices Hwang and his co-conspirators had artificially inflated crashed, causing immense damage to U.S. financial markets and ordinary investors. In a matter of days, the companies at the center of Archegos’s trading scheme lost more than $100 billion in market capitalization, Archegos owed billions of dollars more than it had on hand, and Archegos collapsed. Market participants who purchased the relevant stocks at artificial prices lost the value they believed their investments held, the banks lost billions of dollars, and Archegos employees, many of whom were required to invest 25% or more of their bonuses with Archegos as deferred compensation, lost millions of dollars.

*                *                *

A chart containing the names, ages, residences, charges and maximum penalties for the defendants is attached. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

This case was investigated by the U.S. Attorney’s Office for the Southern District of New York and the FBI. The Justice Department’s Organized Crime and Gang Section provided valuable assistance. The U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission, each of which today filed a parallel civil action, assisted and cooperated in this investigation.

If you think you are a victim of the scheme alleged in this press release, you are encouraged to contact law enforcement at USANYS.ARCHEGOS@USDOJ.GOV.

This case is being handled by the office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Andrew Thomas, Matthew Podolsky and Alex Rossmiller are in charge of the prosecution.

An indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Defendant	Age	Residence	Charges	Maximum Potential Sentence(s)
United States v. Sung Kook (Bill) Hwang and Patrick Halligan, 22 Cr. 240
HWANG	58	Tenafly, NJ	Racketeering Conspiracy, 18 U.S.C. § 1962(d) (Count One) Securities Fraud, 15 U.S.C. §§ 78j(b) & 78ff (Counts Two and Ten) Market Manipulation, 15 U.S.C. §§ 78i & 78ff (Counts Two through Nine) Wire Fraud, 18 U.S.C. § 1343 (Count Eleven)	20 years 20 years (on each count) 20 years (on each count) 20 years
HALLIGAN	45	Syosset, NY	Racketeering Conspiracy, 18 U.S.C. § 1962(d) (Count One) Securities Fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Ten) Wire Fraud, 18 U.S.C. § 1343 (Count Eleven)	20 years 20 years 20 years
United States v. Scott Becker and William Tomita, 22 Cr. 231 (LTS)
BECKER	38	Goshen, NY	Conspiracy to Commit Racketeering Conspiracy, 18 U.S.C. § 1962(d) (Count One) Securities Fraud, 15 U.S.C. §§ 78j(b) & 78ff (Count Two) Wire Fraud, 18 U.S.C. § 1343 (Count Three)	20 years 20 years 20 years
TOMITA	38	Greenwich, CT	Racketeering Conspiracy, 18 U.S.C. § 1962(d) (Count One) Securities Fraud, 15 U.S.C. §§ 78j(b) & 78ff (Counts Two and Four) Market Manipulation, 15 U.S.C. §§ 78i & 78ff (Count Three) Wire Fraud, 18 U.S.C. § 1343 (Count Five)	20 years 20 years (on each count) 20 years 20 years