Prosecutors said Hwang and Halligan “repeatedly made materially false and misleading statements about Archegos’s portfolio of securities to numerous leading global investment banks and brokerages,” which encouraged them to trade with and extend credit to Archegos, the government said.
Among the securities allegedly manipulated by Hwang were ViacomCBS, Discovery Communications Inc., Tencent Music Group, Texas Capital Bancshares Inc. and Rocket Companies Inc.
The criminal conduct allegedly involved concealing and deceiving the true size of the fund’s positions, liquidity and concentration from counterparties, by spreading the trades around with several different banks. When the banks began asking the fund about the size of its positions, it typically claimed any single holding was no more than 35% of its capital; in truth, prosecutors said, its holdings in Viacom at one point were equivalent to 96% of its capital.
It also involved buying up shares purely to keep their price aloft, prosecutors charged.
The scheme began to unravel on March 23 of last year, prosecutors said, the day Viacom announced a secondary stock offering. Shares began to decline in anticipation of more stock coming onto the market; Viacom was such a key holding to Archegos that Hwang attempted to defend the price by engaging in “an extraordinary amount of trading” in an effort to overpower the market. Though Halligan questioned the strategy, Hwang told his traders to “just keep working the orders,” according to the indictment. The effort failed.
In addition to Hwang and Halligan, the U.S. named William Tomita and Scott Becker of Archegos as conspirators, though it did not charge them criminally. Tomita and Becker were named as defendants in the SEC suit.
Prosecutors said Hwang typically invested through cash equity purchases until the size of his positions approached 5% of the outstanding shares of a company. Once it neared that threshold, he would then switch to a new method of trading to avoid public disclosure of his holdings.
Using a so-called “total return swap,” he would then enter into contracts with banks that would pay out if share prices increased, but impose costs if they went down. In some cases his positions equated to more than 50% of the outstanding shares of the companies he invested in, according to the indictment.
According to the SEC complaint, Hwang was aware that Archegos could move the market.
In June 2020, when an Archegos analyst texted him whether the increase in ViacomCBS’s stock price that day was “a sign of strength,” Hwang responded, “No. It is a sign of me buying,” followed by a “tears of joy” emoji.