Notorious short seller Bill Hwang now faces a painful testimony by his head trader who states the hedge fund manager encouraged illegal trading.
Bill Hwang’s top trader at Archegos Capital Management gave damning testimony against the boss, telling a jury Hwang told him to do “the opposite” of what a “normal fund” would.
William Tomita took the stand Monday for what’s expected to be several days of testimony as the prosecution’s star witnesses in a criminal case against Hwang over the spectacular implosion of Archegos in 2021, reports Bloomberg.
He immediately admitted committing “financial crimes, namely market manipulation and lying to banks,” then implicated Hwang.
“I was directed to do so by my former boss,” Tomita said, identifying Hwang in court.
Of the major witnesses, Tomita worked most directly with Hwang himself and is therefore key to connecting the Archegos founder to the charged conduct.
Tomita said Hwang told his traders to use tactics that would maximize the effect on share prices, rather than gradually building their positions at the lowest cost and trying to minimize the impact of their own trading on the market.
At Archegos, Tomita said, he could see the effect of the volume of the firm’s trades versus others and knew he was moving the market. “I could see that it was me that generated the stock price,” he testified.
Hwang and his co-defendant, former Chief Financial Officer Patrick Halligan, have pleaded not guilty and are in the fifth week of testimony against them in their trial in lower Manhattan.
Hwang’s legal team claims he used multiple counterparties to minimize risk, not to improperly maximize leverage or conceal the nature of their trading as the government contends.
Halligan, the CFO, had no role in trading but is charged in connection with Archegos’ alleged lies to bank counterparties.
However, another key government witness, former chief risk officer Scott Becker, has already told the jury he duped banks into believing the firm’s positions were far less risky than they were.
In the end, Archegos’ meltdown would cost banks including Morgan Stanley $10 billion and help bring down Credit Suisse Group AG.
Tomita, who handled the trading on which the case against his former boss turns, provided a window into the tactics that catapulted Hwang’s fortune from $1.5 billion to $36 billion in the year before the firm’s collapse.
Stock market manipulation on Wall Street has gained more attention since the ‘meme stock’ frenzy of 2021.
The question now is, what are our regulators going to do about it?
Also Read: Massive Banks Are Now Getting Fined For Illegal Short Selling
Other Stock Market News Today
South Korea now finds banks pursued an illegal shorting scheme, uncovering a whopping $211.2 billion won ($156m), in manipulative trades.
South Korea’s financial watchdog said it has so far uncovered 211.2 billion won ($156 million) worth of illegal short trades by nine global investment banks, providing its latest formal update on a probe that began late last year, per Bloomberg.
The nine banks, whose names weren’t disclosed, violated mostly procedural rules while collectively shorting 164 stocks, according to a briefing given by the Financial Supervisory Service.
It is continuing to probe five other banks in the matter.
Two of the nine banks are already facing penalties imposed by the financial authorities and have been referred to prosecutors for further investigation for allegedly violating the nation’s capital markets law, Hahm Yong-il, senior deputy governor at the FSS, told reporters Friday.
The watchdog plans to review penalties on the other seven banks.
Activities of global banks and hedge funds have come under increased scrutiny in recent months in South Korea, as authorities boost steps to weed out naked short selling — a practice of selling shares without even borrowing them first.
While short selling remains legal in many markets, it is a contentious political issue in the emerging Asian nation, with its powerful retail investors often blaming it for stock declines, reports Bloomberg.
“The FSS found that the violation rate exceeded 20% in some cases, which suggests that illegal transactions have a big impact on a certain stock,” the financial regulator said in a statement earlier this year.
“It’s necessary to consider the impact of illegal short sales on an individual stock as such trades hinder fair pricing and increase short-term volatility,” it said.
Bloomberg reports the South Korea’s financial watchdogs derived the 20% figure by dividing the amount of violated orders on a certain stock by its daily trading value.
The FSS did not identify the equities that saw illegal trades and declined to say how frequently the trades exceeded that ratio.
In November, South Korea imposed a ban on short selling through mid-2024, a decision that drew big celebration from retail investors in the country.
Investors in the AMC, MULN, GTII, FNGR, and MMTLP communities are just a few of many who have been raising awareness of the malpractice happening in the U.S stock market via X.
Also Read: SEC Commissioner Now Says Securities Lending Facilitates Illegal Trading
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