Archegos Founder Loses Bid to Toss Billion-Dollar Fraud Charges

The founder of Archegos Capital Management lost his bid to dismiss an 11-count indictment over an alleged conspiracy to manipulate the market for seven publicly-traded securities.

Unless prosecutorial misconduct “substantially influenced the grand jury’s decision to indict, or if there is grave doubt that the decision to indict was free from the substantial influence of such violations,” it can’t be the basis for dismissal, the federal court in Manhattan said.

According to Sung Kook Hwang, his lawyers were advised that he was a “subject” of the investigation, leaving open “the possibility that he would not be charged.”

“The description was never, over the course of scores of communications with the Government, ever retracted or modified,” he said.

Hwang claims that he continued to participate in attorney and client proffers without realizing the government had made the decision to indict him and shared information that he wouldn’t have shared had he known is status.

But what “Hwang characterizes as indicia of deceit were in fact part of a good faith effort by the Government to arrive at a just outcome by affording Hwang and his lawyers an opportunity to be fully heard before making a charging decision,” prosecutors said.

Hwang is accused, along with Archegos’ Chief Financial Officer Patrick Halligan, of taking long positions on certain publicly traded securities in swap contracts—meaning that the value of its portfolio would increase if the prices of the underlying stock increased—and then manipulating trading to increase the price of those particular stocks.

Hwang allegedly amassed “extraordinary exposure” to the stocks through billions of dollars in purchases made with borrowed money.

The market wouldn’t have known that Archegos “had come to dominate the marketplace for those securities” because it avoided crossing the 5% ownership threshold that would have triggered public reporting, according to the indictment.

Those allegedly defrauded in the swaps include a number of major financial institutions, including Credit Suisse and UBS.

In the course of the the alleged fraud, which spans approximately one year, Hwang’s fortune increased from $1.5 billion to more than $35 billion, the government claims

The value of Archego’s market positions, including investments made with money borrowed from counterparties, grew from around $10 billion to more than $160 billion, according to the indictment.

Because the investment firm operated as a “family office"—essentially managing Hwang’s vast wealth—for purposes of SEC oversight, it wasn’t subject to the same scrutiny that a typical hedge fund would be, the indictment said.

Hwang is represented by Gibbons PC. Halligan is represented by Friedman Kaplan Seiler Adelman & Robbins LLP. Two additional Archegos Capital Management employees are being charged separately.

The case is United States v. Hwang, S.D.N.Y., No. 1:22-cr-00240, 3/23/23.