Experts say it may be difficult for U.S. authorities to prove that the protagonist of this "big blow of the century" manipulated the market and pushed up stock prices.
Before Bill Hwang and Archegos' former chief financial officer Patrick Halligan were arrested by federal police on Wednesday, U.S. authorities had spent months gathering evidence in support of their allegations. The charges were that they had plotted to manipulate the stock prices of listed companies in order to boost earnings, causing a huge shock in the US stock market.
Archgos' blowout caused billions of dollars in losses to Wall Street's top investment banks and wiped out more than $100 billion in valuations for nearly 12 companies. But legal experts say prosecutors may still struggle to prove that defendants manipulated stock prices. This will require convincing the jury to prove that Bill Hwang's artificially inflated stock prices has left the normal supply-demand relationship in the securities market out of balance.
Bill Hwang's lawyer insisted that his client had "completely failed to commit any wrongdoing" and that the allegations were exaggerated. He is innocent and will be proven innocent.
Can stock price manipulation constitute a criminal case?
The U.S. Securities and Exchange Commission (SEC) said in its indictment:
The two and others in the company made "materially false and misleading statements" to the big banks that arranged the derivatives transactions.
None of these transactions are based on principled behaviors based on true value to a particular issuer, but rather deliberately artificially inflate stock prices.
Experts say the stock purchases alone do not necessarily constitute illegal activity, which could make Bill Hwang's allegations of market manipulation difficult to prove.
A veteran crime lawyer asked:
If its purpose is simply to boost the stock price, can this constitute a criminal case?
This is a very delicate and complex issue, and this case is an excellent example for us to think about it.
Market manipulation is one of 11 criminal charges brought by U.S. prosecutors against Bill Hwang. He was also charged with extortion and fraud. His deputy, former chief financial officer Patrick Halligan, was also arrested and charged, but was not involved in market manipulation. Both said they did not plead guilty.
Allegations of market manipulation often appear in civil cases filed by agencies such as the U.S. Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). Compared with criminal proceedings, the burden of proof is less on civil cases. But even so, it is difficult for lawyers to establish these allegations.
A case involving John Mulheren, a popular Wall Street trader 30 years ago, is seen as a rare criminal case of stock manipulation. His charges were eventually overturned on the grounds that the jury's decision was based on speculation and there was insufficient evidence.
James Cox, a professor of corporate and securities law at Duke University, said the Mooglen case "greatly illustrates the problems that exist in the manipulation allegations case," according to the Financial Times.
The SEC also accused Bill Hwang of ignoring his research analysts by ordering Archegos to trade before the opening or the last 30 minutes of the trading day to maximize market impact.
The manipulation target is a listed company giant The case is even more confusing
Cox said this is a "gut check moment" for U.S. authorities, and the case will not be certain because of the "enormous challenge" of distilling the vast amount of evidence and transaction data into a form that jurors can understand.
He added that the case would be more complicated as Archegos' capital ballooned from $1.5 billion in March 2020 to $35 billion a year later, and the alleged manipulation involved corporate giants listed on the largest U.S. exchanges, rather than other, more typical smaller companies.
According to reports, bill Hwang's alleged manipulation of the company's stocks include US media companies ViacomCBS, Discovery Communications Inc, Texas Capital Bancshares, Rocket Companies, etc., as well as Chinese stocks such as Tencent Music and iQiyi.
However, Cox also added: "Although the target of manipulation is unusual, the volume of volume made by traders is also very unusual. In some ways, this unusual situation could help the government. ”
According to the Financial Times, Jacob Frenkel, a partner at Dickinson Wright, said:
The burden of proof falls squarely on the Government. But prosecutors usually don't file charges unless they expect a big win based on the evidence.
The scale of the blowout and the description of his behavior suggest that it will be an uphill battle for the defendants.
U.S. prosecutors also had the cooperation of Archegos' director of risk management and chief traders, who have pleaded guilty. If the case moves to trial, their potential testimony could be crucial to the outcome of the proceedings. They are accused of lying to banks along with Hwang and Halligan to get billions of dollars used to inflate the company's stock price.
At trial, prosecutors are likely to focus on the huge lies that defendants weave rather than delving into complex financial transactions to win the support of a jury. But court observers said that in the eyes of jurors, the top investment banks were "unwelcome" victims and it was difficult to arouse sympathy from everyone.
Frenkel noted that this could also explain why prosecutors did not accuse the defendant of fraud against the bank. He added: "The government does not charge bank fraud, which in turn can weaken the defendant's excuse for exonerating himself – that the bank is some form of complicity with itself." ”
Prosecutors allege that the defendants' misrepresentations to banks and brokerage firms constitute extortion. This came as a surprise to legal experts, as the allegation is often directed against organized crime.
John Coffee, a professor at Columbia Law School, said the harsh confiscation penalties associated with extortion charges in the United States may have been the primary reason authorities included the allegations.
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