By Michelle Price
WASHINGTON (Reuters) - Bill Hwang spent 25 years building his career, but his downfall took just four days.
The now-notorious owner of Archegos Capital Management took extraordinary risks by leveraging stock positions and artificially inflating their prices, prosecutors alleged on Wednesday. When the private fund ran out of borrowed money a year ago, it imploded and left global banks with losses of $10 billion.
"Over the course of less than a week in late March 2021, the house of cards collapsed," the Securities and Exchange Commission said in a complaint against Hwang.
Hwang was arrested early on Wednesday and was hit with 11 criminal charges including racketeering, market manipulation and fraud.
Wearing a green turtleneck and beige slacks, Hwang later pleaded not guilty in a Manhattan court and was released on a $100 million bail bond. His lawyer said he was "entirely innocent."
It was the second fall from grace for Hwang, who was punished by U.S. and Asian regulators in 2012 for violations at his former hedge fund, Tiger Asia.
Hwang, who has said he is inspired by his Christian faith, later restored his fortunes, revived his Wall Street relationships and had been making big money.
But in March 2020 he embarked on an aggressive investment strategy that would ultimately destroy everything he had worked to rebuild, according to the indictment.
Operating from his Manhattan apartment as COVID-19 swept New York, Hwang began amassing huge positions in a handful of securities using a derivative known as a total return swap.
In these trades, banks promised Archegos a return based on the performance of a handful of stocks. The strategy allowed Hwang to accumulate leveraged positions in the stocks without owning them and without having to disclose his stakes.
By late March 2021, Archegos had positions exceeding $10 billion in Baidu Inc and Tencent Music Entertainment Group and more than $20 billion in ViacomCBS Inc. Archegos derivatives' position was equal to more than 50% of ViacomCBS.
The fund used as many as nine banks, making it appear that different parties were behind the activity. This allowed Archegos to accumulate leverage of as much as 1,000%.
When asked by banks about Archegos' positions with other dealers, the fund misled them, obscuring its true exposure and enabling it to borrow and trade more, prosecutors said.
Viacom "held up pretty well today...Would you say that is a sign of strength?," one analyst texted Hwang after he had loaded up on shares to avert a major sell-off, the indictment noted.