(Bloomberg) -- Archegos Capital Management founder Bill Hwang will be sentenced Wednesday for fraud and market manipulation tied to the stunning 2021 collapse of his $36 billion family office, capping a case that riveted Wall Street.
Prosecutors have recommended that Hwang, 60, spend more than two decades behind bars, while his lawyers have asked that he be given no prison time at all. The government also wants Hwang to pay $10 billion in restitution, though his lawyers said Monday that he is now worth only around $55 million.
US District Judge Alvin Hellerstein will hand down the sentence after a hearing at which both sides, and possibly Hwang himself, will speak.
Criminal Conviction of Archegos’s Hwang, Explained: QuickTake
The case pushed into the spotlight a relatively unknown trader who seemingly built a wildly successful firm, only to see it crash in spectacular fashion. Archegos’ implosion also contributed to the demise of one of the biggest names in finance, Credit Suisse Group AG, and caused significant losses at Morgan Stanley, UBS Group AG, Nomura Holdings and other banks.
Hwang was found guilty in July of orchestrating a scheme to mislead his counterparties into providing Archegos with billions of dollars in trading capacity. Though the banks were told the firm had large positions in tech giants like Apple Inc. and Microsoft Corp., Hwang actually poured its money into a small group of fairly illiquid stocks, most notably the company then known as ViacomCBS, that his trading could move.
To maximize his trades’ impact, Hwang typically bought swaps, knowing that his counterparty banks would hedge by directly buying shares. Archegos fell into a fatal spiral after a March 2021 selloff in Viacom shares prompted billions of dollars in margin calls.
That the victims were mainly Wall Street banks set Archegos apart from most big white collar cases. Hwang’s lawyers had planned to argue that the banks were sophisticated players who understood the risks of trading with Archegos but took them in order to earn lucrative fees. Hellerstein largely sided with prosecutors in barring a “blame the victim” defense, and that may be a major issue in a planned appeal of his conviction.
The defense did manage to occasionally highlight the banks’ profit motives in their dealings with Archegos. Goldman Sachs Group Inc. product specialist Nastassia Locasto testified at trial that her bank initially had questions about Archegos’ holdings but ultimately decided to trade with Hwang’s family office because it knew its Wall Street rivals were making millions in fees. “They were paying our peers,” she said.
But such testimony was overshadowed by that of two former Archegos executives who previously pleaded guilty and agreed to cooperate with the government. Former head trader William Tomita and risk head Scott Becker both said they were directed to lie to banks to persuade them to extend more credit to Archegos.
Tomita also vividly described how Hwang manipulated markets by directing his team to try to reach price targets that often changed minute by minute. Archegos used “very aggressive” algorithmic trading techniques to ensure it accounted for a very large percentage of the trading volume for the firm’s portfolio stocks, Tomita said.
When Goldman’s Locasto questioned him about why the main holders of one of Archegos’ portfolio stocks were other banks, Tomita said he lied.
“I painted this picture — this false picture — that other hedge funds were using the capacity and it wasn’t us,” he said.
Goldman was one of the few Archegos counterparties that emerged relatively unscathed, and it was revealed at trial that the bank benefited from a huge mistake Archegos made in its frantic final days. Tasked with withdrawing $470 million from its Goldman trading account, an Archegos employee actually wired that amount instead.
Former Archegos Chief Financial Officer Patrick Halligan was convicted alongside Hwang but will be sentenced separately in January.
The case is US v. Hwang, 22-cr-240, US District Court, Southern District of New York (Manhattan).
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