In its civil complaint, the S.E.C. said the attempts by Mr. Hwang and his firm to mask their buying power posed a risk not only to the banks that extended them credit but also to other investors, who may have bought stocks like ViacomCBS, Discovery and the Chinese education company GSX Techedu at inflated prices.
Mr. Hwang knew that Archegos could affect markets simply through the exercise of its buying power, the complaint said. In June 2020, an Archegos employee asked Mr. Hwang if the rising price of ViacomCBS shares was a “sign of strength.” Mr. Hwang responded: “No. It is a sign of me buying,” followed by a laughing emoji.
Archegos made swaps deals with a number of banks including Credit Suisse, Nomura, Morgan Stanley and UBS, and prosecutors said Mr. Hwang, Mr. Halligan and others at the firm had made “materially false and misleading statements” to conceal the extent of its bets.
The wagers quickly fell apart in March last year when sharp declines in a few stocks in Archegos’s portfolio led the banks to issue margin calls, demanding more money from Archegos to fund its bets. When Mr. Hwang could not pay, the banks sold off millions of shares that were backing the swaps and took control of collateral that Archegos had posted in exchange for its big borrowings.
The collapse led to billions in losses for a number of banks, but Credit Suisse incurred the most pain. It lost more than $5 billion, and the trading debacle led to a number of top-level management changes at the bank.
Over the past few months, federal authorities have demanded documents from the firm and banks and had meetings and interviews with a number of former employees at Archegos, including Mr. Hwang.
The indictment names two former Archegos employees, Scott Becker and William Tomita, as part of the scheme. Both have pleaded guilty and are cooperating with the federal prosecution, said Mr. Williams, who spoke next to a large graphic poster with the headline: “A cycle of lies and market manipulation.”