Trial Kicks Off for Christian Billionaire Bill Hwang’s Fraud Scheme
Earlier this month, billionaire trader and philanthropist Bill Hwang appeared in court to answer for his role in a high-stakes Wall Street meltdown that saw several large banks lose billions in days.
Jury selection began last week, followed by opening statements and the first witness testimony on Monday. The trial is expected to last eight weeks.
Hwang faces charges of racketeering, securities fraud, wire fraud and market manipulation, with each count carrying a potential 20-year prison sentence. He pleaded not guilty.
The case centers around Archegos Capital Management, a private hedge fund Hwang started in 2013 to invest his personal fortune. The firm was structured as a family office, a category less regulated than traditional hedge funds. This meant Archegos could skirt disclosures that would have otherwise flagged its trading practices early on.
Archegos’ capital grew from $1.5 billion to over $35 billion between March 2020 and early 2021. In the indictment, prosecutors said its positions outsized the disclosed shareholders of several public companies.
The firm had hefty stakes in a small selection of industry leaders like Paramount Global (then ViacomCBS) and Baidu. To leverage this immense exposure, Archegos drove up prices by making large purchases with funds borrowed from banks. The demand for those stocks rose as freely trading shares declined, creating a significant artificial appreciation of prices.
Archegos’ market positions, including investments made with borrowed money, skyrocketed from $10 billion to $160 billion. Its holdings were primarily total return swaps held by banks. This type of derivative contract allows one party to simulate an investment in an underlying asset without owning it, while the other is protected if the asset’s value falls. Through the arrangement, Archegos evaded disclosing its extensive holdings as otherwise required.
Prosecutors highlighted two schemes at play: First, Archegos defrauded investors by manipulating, controlling and artificially inflating the prices of securities in its portfolio, which was highly susceptible to the fluctuations of a handful of investments.
The indictment alleged that Hwang led investors to believe prices were natural forces of supply and demand when, in reality, they had been artificially propped up in a “pump and brag scheme.” Secondly, Hwang’s business partners made false and misleading statements about its securities portfolio to secure credit from investment banks and brokerages.
These risky practices came to a head in late March 2021 when stocks in Archegos’ portfolio began to plummet, triggering margin calls from global banks serving as brokers for the firm. When Archegos failed to present the cash, banks liquidated billions in stocks. The firm’s brokers lost over $10 billion, mostly spread among Credit Suisse, Nomura, Morgan Stanley,and UBS. Nearly a dozen companies in Archegos’ portfolio shed over $100 billion in market cap within days.
The prosecution’s first witness, former UBS risk manager Bryan Fairbanks, testified that Hwang lied about Archegos’s ability to meet margin calls. Before the March 2021 collapse, UBS raised its exposure by $2 billion after Archegos claimed it had 30-40% of its equity in free cash. UBS approved the raise because Archegos said it could liquidate its portfolio in days. If UBS had known that the company concentrated 67% in one position, it would have rejected the move.
Now, the challenge for prosecutors is pinning a criminal motive on Hwang’s activities. His defense lawyers argue that his investment strategy was standard, based on a value-investing model favoring companies he believed in.
Hwang often discusses his faith in the context of his investing philosophy. At a 2018 conference, he stated, “I invest with God’s perspective, according to His timing.” He later added, “I try to invest according to the word of God and by the power of the Holy Spirit. In a way, it’s a fearless way to invest. I’m not afraid of death or money.”
Several Archegos employees were Christians, including ex-CEO Andy Mills, the former president of The King’s College, who is expected to testify for the defense, per Christianity Today reporting.
Mills is also a chairman of the Grace & Mercy Foundation, a private grant-making organization Hwang co-founded to support Christian ministries. Beneficiaries include Young Life, Prison Fellowship International, the Salvation Army and several seminaries. The New York City-based foundation topped $500 million in assets in 2022, according to its latest tax filing.
This story originally appeared at MinistryWatch.
Shannon Cuthrell is a journalist with a background covering business, technology and economic development. She has written for Business North Carolina magazine, WRAL TechWire, Charlotte Inno and EE Power, among other publications.