Yahoo Finance Hwang’s Top Trader Says He Was Told to Do Opposite of ‘Normal’
(Bloomberg) -- 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.
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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.
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.
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.
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.
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.
The former head trader described an October 2020 selloff in GSX Techedu Inc., one of the biggest stocks in Archegos’ portfolio. Tomita said he was driving in Westchester when Hwang called him and told him to pull over.
QuickTake: The Criminal Case Against Bill Hwang Explained
Hwang wanted to find more capacity with trading partners to buy more GSX and other Archegos holdings, at the same time selling highly liquid stocks like Amazon.com Inc. and Facebook, Tomita recalled. The goal was to use “capacity at the critical time of the close to push these stocks back up,” Tomita testified.
Like Becker, Tomita agreed to plead guilty and testify against Hwang and Halligan in hopes of leniency. During cross-examination, the defense has pressed Becker and other prosecution witnesses on how much direct interaction they had with Hwang. The general answer has been not a lot.
As head trader, Tomita told the jury he had significantly more. He has already emerged in others’ testimony as a heavier hitter than Becker, closer to the top of the firm.
Tomita said he made efforts to conceal from Archegos’ counterparties what the family office was doing. He said he lied to them at a “big picture” level, concealing the level of risk of the Archegos portfolio.
“If the banks knew the full picture of the level of risk and the size of our positions, they would have essentially fired us as a client immediately and liquidated the entire portfolio,” Tomita testified.
Hwang was hands-on in instructing his traders, saying things like “take it to this price” or “move it to this price.” Knowing he “needed to get the stock trading at that price,” Tomita said he used “very aggressive” algorithmic trading techniques to ensure Archegos accounted for a very large percentage of the trading volume. After a while, Hwang’s instructions became more succinct. “You know what you need to do,” Tomita recalled his boss saying.
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 2008 failure but spent most of his Wall Street career working for Hwang after joining him at age 24. Away from the office, he could be found playing polo. One player who practiced with him said he came across as unusually polite and deferential for the hard-charging sport.
Like Halligan and Becker, Tomita joined Hwang’s inner circle at his previous hedge fund, Tiger Asia Management, which he set up 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 probe, and shut down.
It was at Tiger Asia that the seeds of the Archegos debacle were planted, prosecutors say. Back 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.
The Last-Minute Trade
More than a decade later at Archegos, Tomita used the same playbook under Hwang’s direction, the US claims.
He and his team allegedly marked the close and deployed other deceptive trading practices to pump up the value of the swaps contracts Archegos was buying for its concentrated and highly leveraged portfolio.
In addition to hammering at Archegos’ trading practices, prosecutors have taken pains to lay out the raft of lies they say the firm fed its counterparties to maintain or expand its trading 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 other banks about the diversity and liquidity of its positions.
The case is US v. Hwang, 22-cr-00240, US District Court, Southern District of New York (Manhattan).
--With assistance from Ava Benny-Morrison.
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