New York Jury Deliberates Investor’s Role in Near-Market Collapse

Last updated: July 10, 2024
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In the heart of lower Manhattan, a New York jury is deliberating the fate of Bill Hwang, an obscure investor whose meteoric rise and catastrophic fall briefly shook Wall Street to its core.

Hwang’s tale isn’t just a classic rags-to-riches-to-rags story; it’s a stark reminder of the lingering vulnerabilities in our financial system, more than 15 years after Wall Street’s darkest days.

The Implosion

In March 2021, as the world queued for Covid vaccines, Hwang’s Archegos Capital Management, an unregulated family office acting like a hedge fund, imploded spectacularly.

Hwang had secretly built massive positions in companies like ViacomCBS, Tencent, and Discovery (now Warner Bros. Discovery), so large that their sudden drop caused a market tremor.

Prosecutors argue that Archegos’ collapse wiped out $100 billion in shareholder value and left banks with $10 billion in losses.

Hwang and his CFO, Patrick Halligan, now face charges of racketeering conspiracy and securities fraud. After a two-month trial, the jury must now decide their fate.

Two Narratives

The courtroom battle offered two starkly different stories. Prosecutors claim Hwang used total return swaps to gain exposure to stocks without owning them, misleading banks to conceal his firm’s massive positions and inflate stock values.

Hwang’s defense counters that his trades were aggressive but legal, driven by genuine belief in the stocks. They argue that a perfect storm of market conditions led to Archegos’ downfall, not fraud.

The jury’s verdict will determine if Hwang and Halligan could face up to 20 years in prison under federal guidelines.

Broader Implications

To outsiders, the details may seem esoteric, even tedious—so much so that the judge reportedly admonished prosecutors for “boring the jury to tears.” Yet, the Archegos debacle is a significant white-collar case, highlighting systemic risks.

Josh Naftalis, a former prosecutor, noted that the case revealed a deadly combination of unregulated family offices and unreported swaps.

“But I don’t think anyone put two and two together to say you could just use these two and light a dumpster on fire,” said Naftalis, now with the law firm Pallas Partners.

Dennis Kelleher, CEO of Better Markets, emphasized that the saga underscores ongoing risks posed by Wall Street megabanks.

“Fifteen years after the global financial crash, we still have gross under-regulation of non-banks, and we have Wall Street megabanks engaged in high-risk activities that aren’t properly regulated,” Kelleher said. “We still have a long, long way to go.”

As the jury deliberates, the outcome of Hwang’s case will resonate beyond the courtroom, serving as a cautionary tale of unchecked financial risk and the enduring need for robust business regulation.

The saga of Bill Hwang and Archegos is a potent symbol of the perils still lurking in the shadows of Wall Street.

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About The Author

Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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