Bill Hwang’s Archegos demands end to SEC fraud lawsuit By Reuters

By Jonathan Stempel

NEW YORK (Reuters) – Archegos Capital Management LP, the private investment firm led by Bill Hwang that collapsed suddenly in March 2021, on Tuesday urged a federal judge to dismiss a U.S. Securities and Exchange Commission civil lawsuit accusing it of defrauding investors and banks.

In a court filing, Archegos said the SEC failed to show how the firm traded deceptively or how its swaps trades affected prices. That, it said, undermined the regulator’s claim that Archegos boosted assets to $36 billion from $4 billion in just six months through a “brazen” market manipulation scheme.

“The SEC’s theory of liability makes no economic sense,” and is based on “perfectly lawful investment activities” that are no different from transactions by “an enthusiastic investor with the means to pursue an investment opportunity,” Archegos said.

Archegos also said Supreme Court precedent meant the SEC could not pursue claims that the New York-based firm violated securities laws by lying to banks about its liquidity and portfolio concentration in order to borrow money for its trades.

The SEC did not immediately respond to requests for comment. Hwang and former Archegos chief financial officer Patrick Halligan are also expected to reject or seek dismissals of the SEC case.

Archegos imploded in March 2021 after failing to meet margin calls after being caught short on trades through so-called total return swaps.

Its demise stuck banks such as Credit Suisse Group AG and Nomura Holdings (NYSE:) Inc with about $10 billion of losses.

Hwang and Halligan have pleaded not guilty to Department of Justice criminal fraud and racketeering conspiracy charges over the collapse. Their trial is scheduled for Oct. 10, 2023.

Two former Archegos employees – chief risk officer Scott Becker and head trader William Tomita – pleaded guilty in the criminal case and agreed to cooperate with prosecutors.

The case is SEC v Hwang et al, U.S. District Court, Southern District of New York, No. 22-03402.