Archegos defendants 'made fraud their business,' US prosecutor says as trial nears end

By Jody Godoy

NEW YORK (Reuters) -Archegos Capital Management founder Sung Kook "Bill" Hwang and a deputy "made fraud their business," a federal prosecutor told a Manhattan jury on Monday at their criminal trial over the 2021 collapse of the $36 billion private investment fund.

The trial, which began in March in Manhattan federal court, centers around the implosion of Hwang's family office Archegos. The spectacular collapse left global banks nursing $10 billion in losses and, according to prosecutors, caused more than $100 billion in shareholder losses at companies in its portfolio.

Assistant U.S. Attorney Andrew Thomas told jurors that Hwang manipulated stocks and worked with his deputy, Patrick Halligan, to lie to the banks they traded with.

"By 2021, the defendants' lies and manipulation had ensnared nearly a dozen stocks and half of Wall Street in a $100 billion fraud, a fraud that came crashing down in a matter of days," Thomas said during closing arguments on Monday.

Prosecutors have accused Hwang of secretly amassing outsized stakes in multiple companies without actually holding their stock. Hwang lied to banks about the size of Archegos' derivative positions to borrow billions of dollars that he and his deputies then used to inflate the underlying stocks, according to prosecutors.

"Bill Hwang was a billionaire and yet he risked nearly everything because he wanted more: more money, more success, more power," prosecutor Alexandra Rothman said during opening statements.

Hwang, 60, has pleaded not guilty to one count of racketeering conspiracy and 10 counts of fraud and market manipulation. His lawyers have said the case is the "most aggressive open market manipulation case ever" brought by prosecutors.

Halligan, 47, has pleaded not guilty to fraud and racketeering conspiracy.

If convicted, they face maximum sentences of 20 years in prison on each charge, though any sentence would likely be much lower and would be imposed by the judge based on a range of factors.

Robert Frenchman, an attorney who has defended clients in market manipulation cases, said that while the prosecution's theory is an "unorthodox" one, former Archegos insiders who testified during the trial "have been very effective in telling a troubling story about lying by Archegos."

Witnesses testified about Archegos lying about the positions it held, the concentration of its portfolio and the extent of its borrowings, Frenchman said.

Archegos head trader William Tomita and Chief Risk Officer Scott Becker testified after pleading guilty to related charges and agreeing to cooperate with prosecutors.

According to the U.S. Attorney's Office for the Southern District of New York, which brought the case, Hwang's positions eclipsed those of the companies' largest investors, driving up stock prices. At its peak, prosecutors said Archegos had $36 billion in assets and $160 billion of exposure to equities.

When stock prices in March 2021 fell, the banks demanded additional deposits, which Archegos could not do. The banks then sold the stocks backing Hwang's swaps, wiping out $100 million in value for shareholders and $40 billion at the banks, including $5.5 billion for Credit Suisse, now part of UBS, and $2.9 billion for Nomura Holdings.

Hwang's attorney Barry Berke told jurors during opening statements that his client staked his own cash on companies he believed in deeply, trading like he was prepared to lose it all.

"The reason he did it was because he had the courage of his convictions," Berke said.

Halligan's attorney, Mary Mulligan, said her client was not a risk-taker, but a bean counter who saw the firm's financial position as solid.

The banks that Archegos traded with knew the risks and kept trading with the firm anyway to chase profit, Mulligan said.

(Reporting by Jody Godoy in New York;Editing by Noeleen Walder, Matthew Lewis and Will Dunham)