(Bloomberg) -- After seven weeks of testimony, the jury in Bill Hwang’s market manipulation trial found the Archegos Capital Management chief guilty on Wednesday, in a federal case that challenged the notion of normal on Wall Street.
The 12 jurors in lower Manhattan heard from a cavalcade of bank insiders who relived the infamous March 2021 meltdown that wiped out Hwang’s $36 billion fortune. The bankers described how Archegos lied to its trading counterparties — including Morgan Stanley, Goldman Sachs Group Inc. and UBS Group AG — about the concentration and risk of its investments, and how the most sophisticated players on the Street lost $10 billion when Archegos blew up.
Amid a procession of mind-numbing stock charts and technical slides, the jury, with little financial background, also saw a good deal of drama as two top Hwang lieutenants from the Archegos days testified against their old boss, and defense lawyers grilled them on cross-examination.
Here are some of the most memorable moments of the trial.
‘Panic Button’
Former UBS risk manager Bryan Fairbanks was the first bank insider to testify, and was one of the most powerful. Fairbanks, who now works at Bank of Montreal, told the jury how he was led to believe UBS had a unique portfolio with Archegos and that if he had known the family office’s positions were as concentrated as they actually were, he “probably would have hit the panic button.”
Fairbanks’ testimony about the firm’s final days stood apart from that of many other witnesses as prosecutors played recorded calls between him and key Archegos staff. The jurors were able to hear for themselves the delicate questions Fairbanks asked a prized client as he tried to determine just how concentrated its positions were.
It was a glimpse into the secretive nature of Archegos, which was a contested point at trial. The government argued Hwang’s staff was lying, while the defense said it was all about confidentiality and protecting the firm from front-running.
Fairbanks recalled the moment he learned UBS was going to lose a lot of money because of its exposure to Archegos.
“My gut sunk,” he told the court.
‘This Is Bill’
Recorded phone calls between Archegos employees and increasingly panicked banks were some of the most captivating pieces of evidence presented at the trial. But the standout was Hwang’s conference call with some of the biggest investment banks in the world on the night of March 25, 2021.
Archegos’ portfolio was being battered, and the firm wasn’t going to meet margin calls. The jurors heard that the banks were mostly dealing with Archegos head trader William Tomita, chief risk officer Scott Becker and co-president Brian Jones, and that they weren’t always available.
With concern mounting, Hwang decided to get on a call with Goldman Sachs, Morgan Stanley, UBS, Deutsche Bank AG, Nomura Holdings and Credit Suisse Group AG to answer their questions.
“This is Bill, Bill Hwang,” he began, before assuring the counterparties that Archegos had a strong capital base of $9 billion to $10 billion despite three days of losses. This was the first time the jury had heard Hwang’s voice and his description of his financial predicament.
UBS risk manager Fairbanks testified that he didn’t speak on the call.
“At this point, UBS was fairly certain that the information we received was false,” he said, “and there was no value in asking a lot of questions, because it was clear we were going to default.”
Sure enough, Hwang’s reassurances didn’t work, and Archegos was left facing default notices.
Tomita and Becker were the government’s star witnesses, having pleaded guilty and agreed to cooperate with prosecutors in hopes of leniency.
Mad Dash
When Jones, the co-president, took the stand as a prosecution witness, he described the family office’s chaotic collapse. He told the jury he was in Texas on March 24 and 25, 2021, when he spoke to his Archegos colleagues and realized the firm was facing a crisis. He made a mad dash back to New York on the last flight out of Dallas, dialing in to the conference call with Hwang from the airport security line.
Jones described touching down at LaGuardia airport just before midnight and taking a Lyft to Archegos’ Midtown offices. He found the office still buzzing with activity and his colleagues gathered around a desk phone talking to a prime broker as they tried to stave off disaster with a standstill agreement. No luck.
Hate Mail
Becker was one of the prosecution’s most highly anticipated witnesses. He was central to the government’s case that Hwang and his co-defendant, former chief financial officer Patrick Halligan, encouraged lying to the banks to get more money to trade with. On the witness stand, Becker described misleading the firm’s counterparties again and again about Archegos’ portfolio concentration and its ability to liquidate its positions quickly.
Becker claimed that Halligan, who was also convicted on Wednesday, had taught him how to lie to the banks, and instructed him that he should never tell the counterparties that any of Archegos’ positions were more than 35% of equity, even if they were. The defense tried to suggest Becker was lying due to personal animosity toward Halligan and Hwang.
In one of the more dramatic moments of the trial, Halligan’s lawyer Mary Mulligan asked Becker about text messages he had sent years earlier. In 2018, Becker wrote that he wished Halligan would die in a plane crash and, in 2020, that both his bosses would “die painful, slow deaths” from Covid, according to the messages. Becker said on the stand that he regretted the texts, but their airing didn’t do him any favors in front of the jury.
Tomita’s Tears
Tomita, the head trader, had worked for Hwang for years. He told the jurors how Hwang closely guided his traders to hit certain prices and that many of the trades were the opposite of what a normal fund would do.
Through late 2020 and into 2021, Hwang and his traders were on Zoom calls with each other all day long. Hwang once barked at a staffer for taking a bathroom break, Tomita testified. Like Becker, Tomita said he was directed to lie to the banks to secure more trading capacity. The banks would likely have rejected the firm as a client if they knew its true strategy of trying to manipulate a handful of relatively illiquid stocks, like Chinese online education company GSX Techedu Inc. and ViacomCBS, Tomita said.
At least twice in his time on the stand, Tomita broke down in tears, including while recounting his decision to cooperate with the government against Hwang. He also choked up in telling how Hwang yelled at him for asking the firm’s compliance department about trading strategy.
Archegos’ Goldman Bungle
As Archegos’ counterparties were waiting patiently for their margin calls to be met on March 24, 2021, a junior Archegos staffer accidentally sent almost half a billion dollars to Goldman Sachs rather than requesting that much from the bank for trading. The epic blunder came to light during the cross-examination of Becker, who said it meant Archegos had almost $1 billion less than it should have.
Despite Archegos’ pleas to return the funds, Goldman – which was planning to issue its own, $1.5 billion margin call the next day – opted to hang on to it.
Goldman was a relatively new counterparty for Archegos, after early conversations between the firms fizzled out in 2019. After hearing about the millions in annual fees other banks were generating off Archegos, it changed its mind, according to testimony at the trial.
Goldman vice president Nastassia Locasto testified about Tomita dangling the prospect of a $2.8 billion portfolio with the bank in 2020. But the offer was time-sensitive, and he pushed Goldman to open an account by Thanksgiving of that year. At the time, Archegos was hitting credit limits with other banks and in the hunt for fresh sources.
Locasto’s testimony hit on two key themes in the case: Archegos’ aggressive pursuit of capacity to further its high-risk trading — and FOMO on Wall Street.
--With assistance from Bob Van Voris.
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