Archegos Trader’s Testimony Sets High Stakes for Hwang

(Bloomberg) — For most of his trial, Archegos Capital Management founder Bill Hwang hasn’t looked like a man potentially facing decades in prison. Both inside and outside the courtroom, Hwang is often seen with a placid smile on his face.

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That smile faded last week when former Archegos head trader William Tomita took the stand as one the prosecution’s star witnesses. When Tomita identified him in court, Hwang straightened in his chair with a rueful look.

In four days on the stand, Tomita has proved to be a highly damaging witness to Hwang. He’s given a painstaking account of how Hwang orchestrated trades to goose stocks to certain prices. He’s also vividly depicted his former boss as an overbearing micromanager who screamed at his traders when they got out of line.

Tomita’s withering testimony continued on Monday, when he described how Hwang directed him to lie to Goldman Sachs Group Inc. and other banks where Archegos was seeking trading capacity. Those banks would likely have rejected the firm as a client if they knew its true strategy of trying to manipulate a handful of relatively illiquid stocks like GSX Techedu Inc. and the firm then known as ViacomCBS, Tomita said.

“Throughout my training at the company, I had been taught by Bill when necessary to give misleading pictures about the fund and its positions,” Tomita testified.

Such testimony raises the stakes for Hwang’s defense team on cross-examination, which is expected to start Tuesday. Failing to dent Tomita’s credibility would make it very hard for Hwang to secure an acquittal.

But that may be difficult. Much of Tomita’s testimony about Hwang’s trading was backed up by written communications that were shown to the jury. In a number of chat message exchanges, Hwang is shown closely guiding his traders to hit certain prices, changing his target by the minute.

“These happened on a daily basis, these type of trades,” Tomita testified, adding that many trades were “the opposite” of what a “normal fund” would do. This matches with testimony by prosecution experts that many of Archegos trades made no economic sense except as a means of manipulating share prices.

On Monday, likely his last full day under questioning by the government, Tomita told jurors Archegos approached Goldman as a trading counterparty in the fall of 2020, when the family office was hitting credit limits at other banks.

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Tomita testified about an email sent to two Goldman partners seeking more trading capacity with the firm. He claimed Archegos was experiencing organic growth in its portfolio, which wasn’t true.

“Our trading activity, the orders that Bill was giving, were continuing to drive the stock prices higher and higher,” Tomita says. “It was actually us that were driving the prices up, not natural organic performance.”

On an individual level, Tomita has come across differently from other witnesses in the case, starting with his more relaxed style of dress. Rather than a suit, he has generally worn a blazer, T-shirt and New Balance sneakers. He’s also avoided market jargon in his testimony or explained financial terminology to the jury himself without prompting.

That could play well with jurors. US District Judge Alvin Hellerstein has frequently asked witnesses to explain things in common language for fear the panel will be overwhelmed by technical concepts.

‘How Dare You’

On Friday, Tomita showed a vulnerable side, wiping an eye as he described Hwang yelling at him for discussing parameters of a proposed trading algorithm with the compliance department.

“He started yelling at me, like, ‘How dare you go to compliance and do something so stupid,’” Tomita said.

Tomita described Hwang berating one of his traders for being in the bathroom when a stock began to move and discouraging them all from taking breaks. Tomita said Hwang also yelled at traders for failing to meet his price targets or for a variety of other reasons.

Such testimony could make Tomita appear more sympathetic to jurors, but it also highlights the control Hwang had over his traders. Many of these dressings-down took place on the ongoing Zoom call Hwang maintained with them throughout the trading day.

“Sometimes he didn’t even need to vocalize because on the Zoom he would just glare, and that glance alone meant we were about to get yelled at or he was annoyed,” Tomita said on the stand.

Cooperation Agreement

In his opening statement, Barry Berke, Hwang’s lead attorney, told jurors that Tomita agreed to testify for the prosecution not because he thought he and Hwang had done anything wrong, but to avoid the possibility of decades in prison.

Tomita has pleaded guilty and is testifying under a cooperation agreement. He testified he faces a maximum of 60 years but hopes he will be able to avoid prison. Defense lawyers frequently try to suggest cooperators will say whatever prosecutors want them to.

“Mr. Tomita did not believe he was doing anything improper in his trading, did not believe he was manipulating the market,” Berke said in his opening statement.

Hwang’s lawyers will also likely try to recast Tomita’s testimony about individual trades to fit with their contention that Archegos built massive positions in companies because Hwang truly believed in their long-term potential.

The prosecution has argued that Hwang changed his approach during the pandemic, and Tomita testified at length about firm’s reaction to an October 2020 selloff in GSX. Tomita said he burned through nearly $750 million in cash to prop up the GSX.

His efforts earned him Hwang’s praise for his “Herculean defense.” Tomita testified that the GSX trading became a model for the manipulative trading he says took place daily at Archegos before its spectacular collapse in March 2021.

‘Gigantic Red Flag’

Hwang was generally off stage during the first weeks of the trial, as witnesses recounted lies to banks including Credit Suisse Group AG, Jefferies Financial Group, Goldman and UBS Group AG. Former Archegos risk head Scott Becker, the prosecution’s other key cooperator, admitted telling many of those lies. But he had relatively little direct contact with Hwang and admitted that he couldn’t recall Hwang explicitly telling him to lie.

Tomita on Monday said Hwang trained him to lie and gave several examples of when he did.

In Archegos’ talks with Goldman, Tomita said swaps sales specialist Nastassia Locasto said the bank noticed the other major holders of GSX were all banks.

“Isn’t that weird?” she asked. “Do you know anything we don’t know?”

Tomita didn’t tell her that was because Archegos had bought swaps at those other banks.

“I painted this picture — this false picture — that other hedge funds were using the capacity and it wasn’t us.”

(Updates with testimony from Tomita about Goldman.)

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