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: Hwang’s Archegos deceived Wall Street firms, federal government says

One of the biggest Wall Street cases in years was brought Wednesday — essentially, over duping Wall Street firms.

The civil case brought by the Securities and Exchange Commission against Bill Hwang, the investor who lost billions of dollars, alleged that Hwang’s Archegos Capital Management was able to move the stocks of companies — including what was then ViacomCBS PARA, -0.92% and Baidu BIDU, +4.64% — by using swaps they only were able to receive by deceiving lenders.

By March 2021, Archegos controlled over 70% of GSX Techedu , over 60% of the class A shares of Discovery, and over 50% of IQIYI IQ, +1.86% and ViacomCBS.

“The margin and capacity extended by Archegos’s Counterparties served as the fuel for its manipulative trading. However, Archegos could not rely on its Counterparties to provide it with ever greater margin and capacity unabated, particularly given Archegos’s propensity to stretch its available trading capacity with Counterparties to its limits,” said the SEC.

What Hwang and his lieutants did was deliberately mislead firms to obtain increased trading capacity, the SEC said. “As Archegos intended, these deceptions fraudulently convinced its Counterparties that Archegos’s overall positioning was less concentrated and more liquid than it actually was,” the SEC said.

Archegos assets swelled from $4 billion to over $36 billion in just under six months, the SEC said. The firm was quickly undone by some $13 billion in margin calls, according to a related complaint by the Commodity Futures Trading Commission.

While no Wall Street firms were named in the case, banks including Credit Suisse CS, -2.66% and Nomura 8604, -4.54% have taken billions of dollars in losses over extending credit to Hwang. The CFTC put the total losses at over $10 billion.

Archegos engaged in what was dubbed a “brazen” scheme to manipulate the market through aggressive buying in the premarket and last 30 minutes of the day, the SEC said.

Hwang’s attorney, Lawrence S. Lustberg, said the government over-reached.

“We are extremely disappointed that the U.S. Attorney’s Office has seen fit to indict a case that has absolutely no factual or legal basis; a prosecution of this type, for open-market transactions, is unprecedented and threatens all investors. As you will see when the facts unfold, Bill Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime, let alone the overblown allegations that pervade this indictment,” said Lustberg in a statement.

Hwang and Patrick Halligan, the chief financial officer of Archegos, were arrested by federal prosecutors.

Lustberg criticized the arrests, noting there were already substantive discussions that were ongoing between the parties. “The US Attorney’s Office well knew Mr. Hwang would voluntarily surrender if asked to do so,” he added.

Halligan’s attorney, Mary Mulligan of Friedman Kaplan Seiler & Adelman, said he was innocent and will be exonerated.

Hwang, Halligan, William Tomita and Scott Becker were named in the SEC complaint.

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