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Convicted of Fraud Over Firm’s Collapse

Convicted of Fraud Over Firm’s Collapse

Archegos Capital Management founder Sung Kook “Bill” Hwang has been convicted of fraud related to the 2021 collapse of his private equity firm that was behind a massive market manipulation scheme that inflated its portfolio by more than $34 billion in a single year.

After an eight-week trial, a New York federal jury on Wednesday found Hwang guilty on all but one of 11 counts accusing him and former Archegos chief financial officer Patrick Halligan of orchestrating a conspiracy to inflate the stocks of publicly traded companies, including ViacomCBS (now Paramount Global) and Discovery (now Warner Bros. Discovery), to boost their returns, defrauding the major financial institutions that were left holding billions in losses when the scheme went south. Halligan was found guilty on all three counts he faced.

Hwang, who pleaded not guilty and has maintained his innocence, will be sentenced on Oct. 28. He faces 20 years for each charge he was found guilty.

Archegos’ implosion is regarded as one of the biggest debacles in Wall Street history. The scheme revolved around lying to investment banks to get them to provide capital, which was then used to inflate the stocks of several publicly traded companies. As the firm was collapsing due to its overexposure in a handful of stocks, its lenders were forced to sell Archegos’ positions, and the prices that had been artificially propped up by the trading collapsed. More than $100 billion in market value evaporated in days.

ViacomCBS, which was among the companies whose stock prices were inflated, acted as the trigger for Archegos’ undoing. With its stock up more than eight times for the year, the media company in 2021 announced a $3 billion secondary share sale to capitalize on its share price. This, in turn, led to a selloff, putting immense pressure on Archegos’ portfolio and exposing to lenders its huge positions in certain stocks, which were bought using borrowed money. Morgan Stanley, Nomura and Credit Suisse lost upward of $10 billion combined. Credit Suisse alone saw $5 billion disappear, almost overnight, leading to an overhaul in management.

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At one point, Archegos owned more than half of all freely traded shares of ViacomCBS, with a $10 billion stake. Its shares in 2021 plummeted by roughly 30 percent, as did Discovery’s stock.

In a statement, the U.S. Attorney’s Office for the Southern District of New York, which brought the case, said, “This verdict should send a resounding message that this Office will continue to police the financial markets with an eagle eye and swiftly hold accountable those who think they can cheat the system.”

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