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The firm’s former CFO, Long Island resident Patrick Halligan, age 45, of Syosset, and New Jersey resident of Bill Hwang of Tenafly, NJ — a Korean investor on Wall Street — have been arrested in connection with a racketeering scheme to manipulate the prices of publicly traded securities and to defraud global investment banks, US Attorney for the Southern District of New York Damian Williams said.
Also charged, according to the Department of Justice, are Orange County, New York resident Scott Becker, age 38, of Goshen, and Fairfield County, Connecticut resident William Tomita, age 38, of Greenwich.
“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,” FBI Director-in-Charge Michael Driscoll said in a statement.
“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.”
According to the court filing:
Prosecutors stated that the four lied to banks to obtain billions of dollars that were then used to artificially inflate the stock price of multiple publicly traded companies.
Williams said that Hwang and his co-conspirators invested in stocks mostly through special contracts with banks and brokers called “swaps.”
As alleged, those swaps allowed Hwang to cause massive buying of certain stocks, including at specifically selected days and times, to artificially pump up stock prices, prosecutors said.
The four reportedly lied to banks and used a series of manipulative trading techniques to keep those prices high and prevent them from falling, according to investigators.
The lies fed the inflation, and the inflation led to more lies, prosecutors said. In one year, Hwang turned a $1.5 billion portfolio and fraudulently pumped it up into a $35 billion portfolio, the complaint states.
When prices fell last year, Williams said that Hwang was unable to keep the prices propped up, and billions of dollars in capital was suddenly gone, “nearly overnight.”
Hwang had been at the helm of Archegos since 2014, which he ran as a private hedge fund, allowing him to avoid telling regulators information about the company’s holdings and debt that could have averted the crisis, prosecutors noted.
Williams said that when the prices began to fall, the companies at the center of Archegos’ 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 percent or more of their bonuses with Archegos as deferred compensation, lost millions of dollars,” prosecutors said.
Hwang and Halligan were arrested on Wednesday, April 27, Williams said. Becker and Tomita previously pleaded guilty to their roles in the scheme and are cooperating with the government’s investigation.
The former two were expected to appear in Manhattan federal court on Wednesday afternoon, where they will be charged with racketeering conspiracy, securities fraud, and wire fraud.
“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,” Williams said. “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,” he continued. “But last year, the music stopped. The bubble burst. The prices dropped. And when they did, billions of dollars of capital evaporated nearly overnight.”
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