Hwang’s top trader says he was told to do the opposite of ‘normal’

(Bloomberg) — Bill Hwang’s top trader at Archegos Capital Management gave damning testimony against the boss, telling a jury that Hwang told him to do “the opposite” of what a “normal fund would do.”

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William Tomita appeared Monday for what is expected to be several days of testimony as the prosecution’s star witness in a criminal case against Hwang over Archegos’ spectacular 2021 implosion.

He immediately admitted to committing “financial crimes, namely market manipulation and lying to banks,” and then implicated Hwang. “My old boss asked me to do it,” Tomita said, identifying Hwang in court. Among the key witnesses, Tomita worked most directly with Hwang himself and is therefore key to linking the Archegos founder to the charged conduct.

Tomita said Hwang instructed his traders to use tactics that would maximize the effect on stock prices, rather than gradually building their positions at the lowest cost and trying to minimize the impact of their own trades on the market.

At Archegos, Tomita said, he could see the effect of the company’s trading volume relative to others and knew it was moving the market. “I could see that it was me who was generating the share price,” he testified.

Another key government witness, former chief risk officer Scott Becker, previously told the jury he misled banks into believing the company’s positions were far less risky than they were in reality. Ultimately, the collapse of Archegos would cost banks, including Morgan Stanley, $10 billion and contribute to the downfall of Credit Suisse Group AG.

Hwang and his co-defendant, former CFO Patrick Halligan, have pleaded not guilty and are in the fifth week of testifying against them at their trial in lower Manhattan.

Hwang’s legal team says he used multiple counterparties to minimize risks, not to unduly maximize leverage or conceal the nature of their transactions as the government claims. Halligan, the chief financial officer, played no role in the transactions but is charged over Archegos’ alleged lies to banking counterparties.

Tomita, who handled the transactions underlying the case against his former boss, provided a window into the tactics that catapulted Hwang’s fortune from $1.5 billion to $36 billion the year before the collapse of the company.

The former head trader described a selloff in GSX Techedu Inc. in October 2020, one of the largest stocks in Archegos’ portfolio. Tomita said he was driving in Westchester when Hwang called him and told him to stop.

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Hwang wanted to find more capacity from his trading partners to buy more GSX and other Archegos securities, while selling highly liquid stocks like Amazon.com Inc. and Facebook, Tomita recalled. The goal was to use “capacity at the critical time of closing to move these securities back up,” Tomita testified.

Like Becker, Tomita agreed to plead guilty and testify against Hwang and Halligan in hopes of showing leniency. During cross-examination, the defense pressed Becker and other prosecution witnesses on the degree of direct interaction they had with Hwang. The general response was not great.

As head trader, Tomita told the jury he had a lot more. He’s already come across in other accounts as a heavier hitter than Becker, closer to the top of the company.

Tomita said he tried hard to hide from Archegos’ counterparties what the family office was doing. He said he lied to them on a “global” level, concealing the level of risk in the Archegos portfolio.

“If the banks knew a complete picture of the risk level and size of our positions, they would have immediately terminated us as a client and liquidated the entire portfolio,” Tomita testified.

Hwang gave practical instructions to his traders, saying things like “bring to this price” or “bring to this price.” Knowing he “needed to trade the stock at that price,” Tomita said he used “very aggressive” algorithmic trading techniques to ensure Archegos represented a very large percentage of the trading volume. After a while, Hwang’s instructions became more succinct. “You know what you have to do,” Tomita remembers telling her boss.

Tomita focused on economics and international studies at Northwestern University and graduated in 2006. He worked briefly at Lehman Brothers before the investment bank’s bankruptcy in 2008, but passed the major part of his career on Wall Street working for Hwang after joining him at age 24. he could be found playing polo. A player who trained with him said he seemed unusually polite and deferential for the demanding sport.

Like Halligan and Becker, Tomita joined Hwang’s inner circle at his previous hedge fund, Tiger Asia Management, which he established after working for Julian Robertson’s Tiger fund empire.

Then, in 2012, Tiger Asia pleaded guilty to wire fraud related to illegal trading in Chinese stocks, agreed to pay $60 million to resolve an insider trading investigation and closed its doors.

It was at Tiger Asia that the seeds of the Archegos debacle were sown, prosecutors say. In 2008 and 2009, Hwang taught his traders, including Tomita, how to “mark the close” by placing large orders just before the end of the trading session, according to the government.

Last minute trade

More than a decade later, at Archegos, Tomita used the same model under Hwang’s direction, the United States alleges.

He and his team allegedly marked the fence and deployed other deceptive business practices to increase the value of swap contracts that Archegos was purchasing for its concentrated, highly leveraged portfolio.

In addition to denouncing Archegos’ commercial practices, prosecutors took care to denounce a whole series of lies, according to them, that the company allegedly fed its counterparties to maintain or increase its negotiating capacity. They kept Becker, the risk chief, on the stand for more than four days, describing how Archegos lied to Credit Suisse, UBS Group AG, Jefferies Financial Group, Bank of Montreal, Nomura Holdings and others. other banks on the diversity and liquidity of its positions.

This is the case of US v. Hwang, 22-cr-00240, US District Court, Southern District of New York (Manhattan).

–With help from Ava Benny-Morrison.

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