A federal judge on Tuesday rejected Bill Hwang’s request to dismiss a Securities and Exchange Commission lawsuit accusing him of fraud that led to the collapse of his $36 billion company, Archegos Capital Management, in March 2021.
U.S. District Judge Paul Oetken in Manhattan said the SEC plausibly alleged that Hwang and Archegos, also a defendant, took risks in their attempt to illegally manipulate markets and artificially inflated the value of their largest stock holdings to drive, had deliberately kept secret.
Oetken also dismissed some fraud-based claims against former Archegos chief financial officer Patrick Halligan, leaving the SEC to pursue allegations that Halligan aided and abetted the fraud of former Archegos risk management chief Scott Becker.
The judge also granted a Justice Department request to put the SEC’s civil case on hold while related criminal charges are filed against Hwang and Halligan.
In a separate ruling, Oetken dismissed a civil lawsuit brought by the U.S. Commodity Futures Trading Commission against Archegos and Halligan, saying the regulator did not have standing to sue over the swaps.
Becker and William Tomita, Archegos’ chief trader, have pleaded guilty in the criminal case. Hwang and Halligan’s trial is scheduled for February 20, 2024.
Lawyers for Hwang and Archegos did not immediately respond to requests for comment.
Mary Mulligan, an attorney for Halligan, said she was pleased with the dismissal of several lawsuits and would “continue to fight the deeply flawed allegations against our client.”
Archegos’ collapse in March 2021 was due to Hwang using total return swaps, a type of financial contract, to achieve what the SEC described as “dominant” positions in his top 10 holdings, including ViacomCBS and Discovery.
Authorities said Hwang borrowed aggressively to gain additional trading capacity and ended up with $160 billion in equity exposure.
But as prices began to fall, Hwang was unable to meet margin calls, prompting banks to dump the stocks that backed his swaps.
This led to big losses for Archegos and for banks like Credit Suisse, now part of UBS, and Nomura Holdings.
Hwang was arrested in April 2022 and U.S. District Judge Alvin Hellerstein in Manhattan refused to dismiss his 11 counts in March.
In seeking dismissal, Hwang argued that his dealings were legitimate and that prosecutors had effectively lured him into a trap by getting him to cooperate long after they had tacitly decided he was their target.