Wall Street Isn’t Ready for the Crackdown Coming Its Way

Federal investigations into questionable trading practices are on the rise and the fate of Bill Hwang and his firm, Archegos, may await others in the finance industry.

By Tom Schoenberg,Matt Robinson, andSridhar Natarajan May 3, 2022, 11:01 PM CDT

Bill Hwang’s lawyers couldn’t believe it.
The fallen billionaire investor was sitting in federal custody in Manhattan, less than 48 hours after his legal team had visited prosecutors to talk them out of criminal charges. The effort seemed to be going well until the feds scooped up Hwang at daybreak on April 27 to face 11 felony charges and potentially, the rest of his life in prison. In no event was an arrest necessary, his attorneys said in a statement expressing frustration that morning, noting Hwang had been voluntarily answering the government’s questions for months.

All of Wall Street should pay close attention. The Hwang case marks an upswing of federal investigations into a slew of suspected trading abuses. Three other broad inquiries have emerged in recent months to examine so-called block trades, short sales, and well-timed wagers. They all center on the same question: Are markets rigged? relates to Wall Street Isn’t Ready for the Crackdown Coming Its Way Hwang faces 11 felony charges. Photographer: Michael Nagle/Bloomberg

Biden administration officials have spent the past year laying groundwork to pursue white-collar crime more aggressively, rolling out policy changes some disclosed, some not that will make probes easier to start, faster to finish, and more punishing. The U.S. Department of Justice has quietly ratcheted up pressure on big banks to look for market abuses and then turn in staff and clients, and there’s growing willingness among prosecutors to use tough federal laws against Wall Streeters that were designed to target gangsters. Meanwhile, there are signs that the Securities and Exchange Commission is seeking larger civil penalties. Senior leaders at the agency have stopped accepting ad nauseam meetings with defense attorneys looking to talk their clients out of trouble.

There’s a perception that there are two sets of rules, says Gurbir Grewal, head of the SEC’s enforcement division. We want everyday Americans to have confidence when they invest in the market. They should have confidence knowing that there’s a dedicated group of professionals to deal with new threats, traditional frauds, making sure that their retirements are safe.
Many Wall Street denizens don’t seem to grasp what’s afoot, even as Hwang’s treatment underscores the shift. For months his legal team made the case that his family office, Archegos Capital Management, acted lawfully as it built massive positions on a small number of stocks, driving their prices to record highs before they crashed. Archegos and the banks that let it trade with borrowed money lost billions of dollars.

Then, on the very day Hwang’s lawyers thought they were to have a further productive meeting with U.S. investigators, prosecutors filed a sealed indictment against him and Archegos’s chief financial officer, Patrick Halligan, that included a charge under the Racketeer Influenced and Corrupt Organizations Act, known as RICO. Authorities alleged that the pair lied to banks and manipulated stock prices. When officers pulled up to their homes without warning two days later, Halligan was already on his train commute into Manhattan. His mobile rang: Agents were outside his front door, looking to arrest him. Halligan grabbed a taxi back to meet them. relates to Wall Street Isn’t Ready for the Crackdown Coming Its Way Halligan departing federal court in New York on April 27. Photographer: Michael Nagle/Bloomberg

Deputy Attorney General Lisa Monaco commended Manhattan investigators on the speed of their 13-month investigation unusually fast on Wall Street, where targets often have the best lawyers money can buy. This is exactly the kind of criminal case that the Department of Justice should prioritize, she said at a press conference. Then came a hint: And we will continue to do so.

Behind the scenes, the feds have been gathering information on dozens of banks, investment firms, and their executives as part of other sweeping probes. Many elements of these inquiries as well as the tactics the government is using were described by U.S. officials, industry professionals, and lawyers who asked not to be named because they weren’t authorized to talk publicly.

https://www.bloomberg.com/news/articles/2022-05-04/is-stock-market-rigged-bill-hwang-arrest-is-start-of-trading-crackdown