Archegos founder Bill Huang and chief financial officer have been accused of securities fraud

They claimed Mr. Hwang’s fraud pumped Archegos’ portfolio from $1.5 billion to $35 billion in one year, and ended in March 2021 – and Inflated market size From $10 billion to $160 billion in that period, including its loans from Wall Street firms.

Federal prosecutors are expected to announce the charges at a morning news conference.

The indictment alleges that Messrs. Hwang, Halligan, and others used Archegos to perpetuate two interconnected criminal schemes that harm market participants, Archegos employees, and It burdened its lenders with billions in losses.

First, Mr. Hwang defrauded market participants by manipulating the market for some of the securities in the Archegos portfolio, then Led market participants to faith The plaintiffs claimed that the resulting stock prices were the result of supply and demand, not his deceptive behavior.

“The accused and their co-conspirators used Archegos, a family office which invested Hwang’s personal fortune, as a tool for market manipulation and fraud, with far-reaching consequences.” According to the indictment, more than $100 billion in market capitalization of more than 12 companies vanished within days.

Mr Hwang’s lawyer said his client was “completely innocent” and “there is absolutely no evidence that he committed any kind of crime”. Mr. Halligan’s lawyer said her client was “innocent and will be acquitted”.

The Securities and Exchange Commission, in a separate civil fraud complaint, sued Messrs. Huang and Halligan as well as William Tomita, Archegos’ principal trader, and Scott Baker, its chief risk officer. Lawyers for Messrs. Tomita and Baker did not immediately respond to a request for comment.

Archegos collapsed in March 2021, and collapsed Send shockwaves across Wall Street. Banks scrambled to liquidate Archegos-linked positions, rapidly slashing tens of billions from the market capitalization of large companies, and when the dust settled, they handled more than $10 billion in Losses to counterparties Including

Credit Suisse Group AG

And

Morgan Stanley

And

Nomura Holdings company

At Archegos, Mr. Hwang has built large, focused corporate positions and held some positions in a mix of cash and swaps with money borrowed from banks across Wall Street. Mr. Hwang Preferred total return swaps which granted Archegos profits and losses on the shares underlying the swap contracts while their lenders held the securities.

Their use allows investors to maintain their anonymity and avoid disclosure requirements that exceed a certain ownership limit because they do not technically own the shares.

When Archegos-owned stocks rose, Mr. Hwang added to the top-performing stocks, often using swaps.

Prosecutors said Archegos typically buys shares until it owns about 5% of the company’s outstanding shares, and that Mr. Hwang requires additional exposure through total return swaps.

Messrs. Halligan, Tomita, Becker and others, with Mr. Huang’s blessing, have repeatedly made false and materially misleading statements about Archegos’ portfolio to the firm’s counterparties across Wall Street in an attempt to get them to trade with, extend credit and conceal the grave risk of doing business with Archegos, allegedly plaintiffs.

Archegos has sought to dominate the market for its largest holdings, according to the Securities and Exchange Commission, placing increasingly higher-priced orders during trading days to raise prices. It also engaged in manipulative end-of-day trading, in an effort to drive up the closing price of securities it owned, according to the Securities and Exchange Commission.

The Securities and Exchange Commission said its trading in some securities at times exceeded 40% of the total daily trading volume in those stocks.

Chinese companies listed in the United States were among the largest Archegos centers, among which were the stocks that were manipulated

Viacom CBS company ,

Discovery Inc. , now known as

Warner Bros. Discovery company ,

GSX Techedu company ,

Now known as Gaotu Techedu Inc. , the Internet search giant in China

Baidu company

and online luxury retailer

Farfetch Ltd.

According to the indictment.

By late March 2021, the indictment said, Archegos had over $10 billion in positions at GSX, Baidu and

Tencent Music Entertainment GroupAnd

and more than $20 billion in ViacomCBS.

The Securities and Exchange Commission said Archegos actually owns more than 50% of ViacomCBS’s outstanding shares.

In a text message exchanged with an analyst in June 2020, Huang said the recent surge in ViacomCBS’s stock price was a “sign of my buying,” followed by a “tears of joy” emoji, according to the SEC’s complaint.

The SEC said shares of ViacomCBS rose about 150% in three months, during a period when Archegos was aggressively buying shares and swaps.

But the dynamics favoring Mr. Huang had shifted by March 2021, by which time his strategy had left Archegos “heavily exposed” to swings in a small number of stocks. Already under pressure from mounting losses at companies including Baidu and Farfetch, the announcement of additional funding by ViacomCBS in late March sent its share price down and effectively led to the breakup of Archegos.

Rather than selling positions to meet margin calls from lenders, prosecutors allege Mr Hwang told traders to “engage in a desperate buying spree in an effort to reverse the decline in stock prices that form the basis of Archegos’ core positions”. But the efforts could not stop the bleeding.

— Dave Michaels contributed to this article.

write to Corinne Ramey at [email protected], Susan Pulliam at [email protected] and Juliet Chung at [email protected]