Archegos Capital Management founder Sung Kook “Bill” Hwang “tried to trick all of Wall Street,” a federal prosecutor told a Manhattan federal jury Monday as his trial began on charges stemming from the 2021 collapse of the $36 billion fund.

The case has been closely watched on Wall Street as a test of prosecutors’ ambitious market manipulation theory. It is expected to shed light on the inner workings of banks’ dealings with profitable but risky clients.

Assistant U.S. Attorney Alexandra Rothman told the jury of twelve people that Hwang sought to become a Wall Street legend by pumping the value of his holdings through manipulative trading, turning Archegos into a criminal enterprise.

“Bill Hwang was a billionaire and yet he risked nearly everything because he wanted more: more money, more success, more power,” she said.

“To those in the know he was a great investor. He had it all. But it wasn’t enough,” Rothman added.

Prosecutors have alleged that Hwang and Archegos lied to Wall Street banks to secure billions of dollars of funding that they then used to inflate stock prices.

Archegos’ collapse caused more than $100 billion in shareholder losses at companies in its portfolio, harming investors who sold shares after their scheme collapsed, prosecutors also allege.

Hwang appeared in court wearing a grey suit and sat flanked by his lawyers as the trial began.

Testimony in the trial, which could last up to eight weeks, will center on the implosion of Hwang’s lightly regulated family investment office Archegos, which prosecutors allege caused more than $100 billion in shareholder losses at companies in its portfolio.

The case is one of several brought by U.S. Attorney Damian Williams alleging wrongdoing by powerful investors amid the wild market swings that occurred during the COVID-19 pandemic.

Prosecutors accuse Hwang of using financial contracts known as total return swaps to secretly amass outsize stakes in multiple companies without actually holding their stock.

His positions were so large they eclipsed that of the companies’ largest investors, driving up stock prices, prosecutors say. At its peak, they say, Archegos had $36 billion in assets and $160 billion of exposure to equities.

Falling stock prices in March 2021 triggered margin calls that Archegos was unable to meet. That, in turn, led some banks to dump the stocks backing his swaps, causing billions in combined losses for Archegos and banks including Morgan Stanley, Credit Suisse, now part of UBS, and Nomura Holdings .

Prosecutors claim Hwang and former Archegos Chief Financial Officer Patrick Halligan, who is also on trial, lied about their holdings to sustain their business relationship with global banks.

Hwang and Halligan are charged with racketeering conspiracy. Hwang faces an additional 10 counts of fraud and market manipulation, and Halligan an additional two counts of fraud. Each count carries a maximum potential sentence of 20 years.

The use of racketeering charges is ambitious. Department of Justice prosecutors in 2022 failed to prove racketeering charges against three former JP Morgan Chase & Co. employees in a commodities manipulation case, though two were convicted on other counts.

The two men have pleaded not guilty and are expected to argue prosecutors are pushing a novel and nonsensical market manipulation theory.

A jury of seven women and five men were chosen last week.

Hwang’s lawyers have described the case as the “most aggressive open market manipulation case ever” brought by prosecutors. Several attorneys told Reuters it may be a tough case for the government.

Archegos head trader William Tomita and Chief Risk Officer Scott Becker have pleaded guilty to related charges and are expected to testify at the trial. Some bank executives may also appear on the witness stand.

© 2024 Thomson/Reuters. All rights reserved.

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