April 27 (UPI) — Federal regulators said on Wednesday that it’s charged a Wall Street investors with securities and wire fraud in a racketeering conspiracy that they say included lying to other Wall Street firms.
The Securities and Exchange Commission said the charges were filed against Archegos Capital owner Bill Hwang and Chief Financial Officer Patrick Halligan.
Prosecutors say Hwang used his personal finances to manipulate markets and commit fraud in a scheme that increased his wealth from about $1.5 billion to more than $35 billion.
“Hwang purchased on margin billions of dollars of total return swaps,” the SEC said in a statement. “These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front.
Also indicted were Archegos head trader William Tomita and Chief Risk Officer Scott Becker.
SEC Chair Gary Gensler said the case underscores the importance of updating the security-based swaps market to enhance the investor protections, integrity and transparency.
“As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices.”
Prosecutors say Archegos deliberately misled parties about the firm’s exposure, concentration and liquidity to get increased trading capacity so Archegos could continue buying swaps and driving up prices.
The scheme unraveled last year when prices declined in Archegos’ most concentrated positions, which drew sizable margin calls that overwhelmed Hwang. The result was billions of dollars in credit losses.
“Hwang and Archegos propped up a $36 billion house of cards by engaging in a constant cycle of manipulative trading, lying to banks to obtain additional capacity, and then using that capacity to engage in still more manipulative trading,” Gurbir Grewal, director of the SEC Division of Enforcement, said in a statement.
“But the house of cards could only be sustained if that cycle of deceptive trading, lies and buying power continued uninterrupted, and once Archegos’s buying power was exhausted and stock prices fell, the entire structure collapsed.”