By Tatiana Bautzer and Michelle Value
NEW YORK (Reuters) – Attorneys for Sung Kook “Invoice” Hwang are anticipated to argue that prosecutors are pushing a novel and nonsensical market manipulation idea when the prison trial of the previous Archegos Capital Administration boss kicks off in New York this month.
Archegos, a $36 billion household workplace which invested Hwang’s private wealth, collapsed spectacularly in March 2021 after its extremely leveraged bets on a small variety of shares through complicated derivatives rapidly soured.
Prosecutors allege Hwang and his deputies lied to banks concerning the magnitude of Archegos’ spinoff positions to borrow billions of {dollars} that they then used to inflate the underlying shares by open market purchases.
When Archegos lastly ran out of cash in March 2021, Hwang’s “home of playing cards” collapsed, prosecutors for the Southern District of New York allege.
The fund’s blow up, one of many greatest in years, left international banks nursing $10 billion in losses, together with $5.5 billion at Credit score Suisse, contributing to the Swiss financial institution’s personal downfall final yr. Prosecutors additionally allege Archegos’ collapse triggered greater than $100 billion in shareholder losses at corporations in its portfolio.
The trial, which begins with jury choice on Wednesday, is predicted to elevate the lid on the internal workings of Wall Avenue and banks’ dealings with worthwhile however dangerous purchasers.
“This case has generated explicit consideration on Wall Avenue as a result of banks, together with Credit score Suisse, misplaced billions of {dollars} on account of Hwang’s alleged scheme,” mentioned Joshua Naftalis, a former prosecutor and now accomplice at legislation agency Pallas.
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Hwang, a former hedge fund supervisor who was recognized on Wall Avenue for his extremely dangerous investing type, has pleaded not responsible and denies all the costs. In a December courtroom submitting, his attorneys mentioned that it was the “most aggressive open market manipulation case ever” introduced by prosecutors.
A number of attorneys mentioned they imagine it could be a troublesome case for prosecutors to win as a result of the market manipulation idea is untested, and the Wall Avenue banks will not be typical victims.
“You would positively say the prosecutors are pushing the envelope right here,” mentioned Brian Klein, a former federal prosecutor who’s now a accomplice at legislation agency Waymaker.
Sometimes, market manipulation includes some form of trickery, however the inventory purchases Archegos made within the open market don’t seem to contain deception, mentioned Robert Frenchman, an legal professional who has defended purchasers in market manipulation circumstances.
“The protection will argue that these buys had been bona fide,” he added.
A spokesperson for the prosecution declined to remark.
The son of a Korean pastor, Hwang moved to the USA as a baby and earned a number of U.S. enterprise levels.
He honed his stock-picking abilities from 1996 to 2000 at Tiger Administration, the late billionaire Julian Robertson’s pioneering hedge fund. In 2001, Hwang launched his personal hedge fund enterprise, Tiger Asia Administration.
The fund grew rapidly, however then losses and regulatory points in Hong Kong and the USA led the agency to close in 2012. Hwang paid $44 million to settle U.S. insider buying and selling expenses.
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Hwang turned Tiger Asia right into a household workplace, renaming it Archegos Capital Administration in early 2013. Reuters reported in 2021 how Hwang rebuilt his connections on Wall Avenue.
His trial is predicted to last as long as eight weeks, suggesting many witnesses shall be referred to as. Amongst them will probably be former Archegos chief danger officer Scott Becker and head dealer William Tomita, who pleaded responsible to mendacity to the banks and are cooperating with prosecutors.
Executives from a number of the banks are additionally anticipated to seem.
Given the banks are refined monetary establishments, prosecutors might battle to characterize them as sympathetic victims, mentioned legal professionals.
“The protection will in all probability argue these information had been hiding in plain sight and the banks had been conscious of what Hwang was doing,” mentioned Naftalis.
