Archegos Capital Administration founder Sung Kook “Invoice” Hwang has been convicted of fraud associated to the 2021 collapse of his personal fairness agency that was behind a large market manipulation scheme that inflated its portfolio by greater than $34 billion in a single yr.
After an eight-week trial, a New York federal jury on Wednesday discovered Hwang responsible on all however considered one of 11 counts accusing him and former Archegos chief monetary officer Patrick Halligan of orchestrating a conspiracy to inflate the shares of publicly traded firms, together with ViacomCBS (now Paramount International) and Discovery (now Warner Bros. Discovery), to spice up their returns, defrauding the foremost monetary establishments that have been left holding billions in losses when the scheme went south. Halligan was discovered responsible on all three counts he confronted.
Hwang, who pleaded not responsible and has maintained his innocence, will probably be sentenced on Oct. 28. He faces 20 years for every cost he was discovered responsible.
Archegos’ implosion is considered one of many largest debacles in Wall Avenue historical past. The scheme revolved round mendacity to funding banks to get them to offer capital, which was then used to inflate the shares of a number of publicly traded firms. Because the agency was collapsing attributable to its overexposure in a handful of shares, its lenders have been pressured to promote Archegos’ positions, and the costs that had been artificially propped up by the buying and selling collapsed. Greater than $100 billion in market worth evaporated in days.
ViacomCBS, which was among the many firms whose inventory costs have been inflated, acted because the set off for Archegos’ undoing. With its replenish greater than eight occasions for the yr, the media firm in 2021 introduced a $3 billion secondary share sale to capitalize on its share value. This, in flip, led to a selloff, placing immense stress on Archegos’ portfolio and exposing to lenders its enormous positions in sure shares, which have been purchased utilizing borrowed cash. Morgan Stanley, Nomura and Credit score Suisse misplaced upward of $10 billion mixed. Credit score Suisse alone noticed $5 billion disappear, nearly in a single day, resulting in an overhaul in administration.
At one level, Archegos owned greater than half of all freely traded shares of ViacomCBS, with a $10 billion stake. Its shares in 2021 plummeted by roughly 30 p.c, as did Discovery’s inventory.
In a press release, the U.S. Lawyer’s Workplace for the Southern District of New York, which introduced the case, stated, “This verdict ought to ship a powerful message that this Workplace will proceed to police the monetary markets with an eagle eye and swiftly maintain accountable those that assume they’ll cheat the system.”