Syosset Investors Charged in $10 Billion Stock Fraud

By Rupert Deedes

Syosset-based investment "advisors" Bill Hwang and Patrick Halligan of Archegos Capital Management were arrested and charged by the Securities and Exchange Commission (SEC) with multiple felony counts of fraud, after the collapse of a $35 billion investment fund.

The charges filed by the Securities and Exchange Commission (SEC) include eleven counts of racketeering conspiracy, wire fraud, and securities fraud.

Hwang and Halligan were arrested and taken to jail last week.

According to the indictment, Hwang and Halligan falsely inflated the portfolio of Archegos - from $1.5 billion to $35 billion - in one year, in order to attract and defraud new investors.

Additional charges involve their committing fraud by manipulating stock prices using fake total return swaps.

Lawrence S. Lustberg, an attorney for Hwang, and Mary Mulligan, a lawyer representing Halligan, both said their clients were "innocent."

Last March, Archegos defaulted on highly leveraged margin calls, resulting in a fire sale of some $30 billion in stocks -- including Viacom, CBS, Baidu, Tencent Music Entertainment and Discovery Communications -- as banks desperately tried to unwind their positions.

For some banks it was too late: Credit Suisse and Nomura posted huge losses of $5.5 billion and $2.3 billion, respectively, while Goldman Sachs and Morgan Stanley had to liquidate smaller positions they held for Archegos, resulting in considerable losses.

The collapse of Archegos has led the SEC to examine the "family office" reporting requirements. Analysts note that Archegos was holding public-company investments worth tens of billions of dollars, but it made only scant financial disclosures because of its status as a "family office," which is exempt from many SEC reporting requirements.

In December, the SEC proposed a rule change which would tighten the monitoring of family offices and their use of swaps positions to amass large stakes in public companies.