Sung Kook “Bill” Hwang maintained a low profile on Wall Street as he managed his own wealth through his “family office,” known as Archegos Capital Management. But then Archegos suddenly melted down in March 2021, making headlines and all but erasing Hwang’s $36 billion fortune. The collapse also cost the firm’s lenders $10 billion, contributing to the downfall of Credit Suisse Group AG.

Now Hwang, 60, faces a criminal trial in New York on charges of fraud and racketeering conspiracy that could end with him behind bars for the rest of his life. He’ll be tried in Manhattan federal court beginning May 8, alongside former Archegos Chief Financial Officer Patrick Halligan, and will face witnesses including executives from top Wall Street banks and two former top Archegos executives.

1. What was Archegos?
Hwang set up his family office—a private firm devoted to managing his wealth—in 2013 with hundreds of millions of dollars he made from his former hedge fund. Hwang, a devout Christian, named his firm after a Greek word meaning “leader” or “prince” that’s often used to refer to Jesus.

Family offices are subjected to few of the disclosure requirements that apply to hedge funds, so Archegos flew under the regulatory radar as it bought up derivative investments linked to the shares of several companies. Those including ViacomCBS Inc. and Discovery Inc. in the U.S. and Baidu Inc. and GSX Techedu Inc. of China. After more than $40 billion of Archegos and bank money evaporated, regulators and prosecutors took notice. 

Archegos employed just a few dozen people to manage Hwang’s wealth, including William Tomita, the firm’s polo-playing head trader, and its former head risk manager, Scott Becker. Both men have pleaded guilty to felonies and are expected to testify against Hwang at trial.

2. Who is Bill Hwang?
Hwang, a son of a Christian pastor, was born in Korea and emigrated to the U.S. in 1982, later earning degrees from the University of California at Los Angeles and Carnegie Mellon University. 

He worked at Julian Robertson’s Tiger Management before founding Tiger Asia Management, one of several spinoffs known collectively as the “Tiger Cubs.” In 2012, while he was running Tiger Asia, Hwang agreed to pay $60 million to resolve criminal and civil claims that Tiger Asia used inside information to trade Chinese bank stocks. Tiger Asia pleaded guilty to a criminal wire fraud charge, and Hwang settled without admitting or denying wrongdoing. 

Even as he earned and lost billions, he eschewed the trappings of wealth and lived in an unassuming suburban New Jersey home. He held regular Bible readings and tended to the Grace and Mercy Foundation, a philanthropic organization founded by Hwang and his wife to “support the poor and oppressed” through grants to charities. Grace and Mercy had $528 million in assets at the end of 2022.

3. What caused Archegos to implode?
On March 22, 2021, ViacomCBS, which at the time was Archegos’s biggest holding, announced a $3 billion secondary stock offering, leading to a 10% drop in its shares. That same week, the U.S. Securities and Exchange Commission said it would increase regulation of companies based in China. That put pressure on Archegos’s holdings of Chinese ADRs, the American Depositary Receipts that simplify buying shares of foreign stocks in the U.S. 

Archegos’s losses set off a cascade of so-called margin calls, which occur when a borrower’s collateral falls too low. The situation was made worse in the days following the ViacomCBS drop, according to the government, as Hwang poured the firm’s remaining cash into frantic trading in a vain hope to prop up the value of Archegos’s holdings. At one point, the government claims, Halligan, the CFO, asked, “Are we going to be able to pay for these trades today? I don’t see how we can.”

4. What does the prosecution allege?
The indictment against Hwang and Halligan says the fraud at Archegos broke down into two main schemes. 

First, Hwang working with Tomita, his head trader, used manipulative trading tactics, such as heavy pre-market trading, bidding up prices during the trading day and trading at the market close to increase the value of stocks in the firm’s portfolio, according to the SEC, which has a civil suit against Archegos. Second, with the help of Halligan, Tomita and Becker, the risk manager, the firm allegedly lied to lenders about the risks contained in its portfolio to land even more credit, despite the fact that the holdings were highly leveraged, or borrowed against, and concentrated on a small number of companies.

In the year leading up to March 22, 2021, prosecutors say, Hwang increased the value of his personal fortune from $1.5 billion to about $36 billion, while Archegos’s positions grew to more than $160 billion with borrowed money. 

Prosecutors say Hwang concealed his trades from the market and avoided regulatory scrutiny by trading in derivatives known as swaps instead of trading the shares themselves. The swap trades with about a dozen different counterparties came to overwhelm the value of company shares and short positions. The use of swaps allowed Archegos to avoid disclosing when its stake exceeded 5%, as required by regulators, the indictment says. Using swaps also allowed Archegos to allegedly manipulate the market for a small number of stocks in which it covertly held a dominant position.

5. What’s expected from the defense?
Hwang and Halligan, who have both pleaded not guilty and are fighting the charges, have argued that they followed the law, which doesn’t require lengthy filings from family offices or disclosure of swap transactions. The firm used multiple counterparties to minimize risk, not to conceal the nature of their trading, they say. And they say they traded with big, sophisticated banks that made big profits from trading with Archegos. 

The defendants are likely to claim that Becker and Tomita, who are expected to testify against them, are motivated to shift blame onto them in hopes of avoiding prison time. And they will seek to poke holes in the government’s claims about how their swap trades allegedly gave them enough market power to manipulate share prices.

6. What happened to the banks that traded with Archegos?
Archegos’s failure left its lenders and counterparties holding the bag when its holdings plummeted in value and the firm was unable to pay. Credit Suisse lost $5.5 billion in the collapse. An outside report prepared for the bank later found that its prime services business, which provided financing and other broker services to Archegos, “failed to rein in and, indeed, enabled Archegos’s voracious risk-taking” in favor of short-term profits. 

The scandal helped push Credit Suisse into a crisis that ended in its sale to rival UBS AG last year. Nomura Holdings Inc. lost $2.9 billion. And the blowup cost Morgan Stanley $911 million.

Executives of those banks are likely witnesses in the Hwang-Halligan case. Hwang’s legal team said in a pretrial court filing that the government had identified 27 potential witnesses from counterparties of Archegos’s swaps.

7. What criminal charges do Hwang and Halligan face?
Hwang is charged with 11 criminal counts, including racketeering conspiracy. That’s part of the Racketeer Influenced and Corrupt Organizations Act, known as RICO, which has helped send numerous mafia figures, including former Gambino crime family boss John Gotti, to federal prison. The law was passed in 1970 to help prosecute organized crime rings, but U.S. prosecutors have also used RICO in white-collar fraud cases, like Hwang’s. 

In addition, Hwang is charged with securities fraud, wire fraud and market manipulation. Each of the counts carries a maximum sentence of 20 years in prison, if he’s convicted. Halligan faces trial on a single count each of racketeering conspiracy, securities fraud and wire fraud.

This article was provided by Bloomberg News.