Key Witness Testifies in Archegos Trial, Revealing Deception of Banks

Key Takeaway

• Archegos's former chief risk officer, Scott Becker, testified that he misled banks like UBS and Goldman Sachs to support Bill Hwang’s aggressive trading strategies.
• UBS lost $860 million and Jefferies Financial Group lost $40 million due to false assurances from Becker about Archegos's financial stability.
• The defense argues that Becker is a manipulative liar using his testimony to shift blame away from himself, complicating the prosecution’s case.

Key Witness Testifies

In the ongoing trial of Bill Hwang, founder of Archegos Capital Management, and Patrick Halligan, the firm's former chief financial officer, Scott Becker, Archegos's former chief risk officer, has emerged as a pivotal witness. Becker, who has already pleaded guilty to fraud and racketeering charges, is cooperating with the prosecution. Over two days of testimony in Manhattan federal court, Becker detailed how he and other employees at Archegos were pressured to lie to banks to support Hwang's aggressive trading strategies.

Becker testified that he repeatedly misled banks about the size and profile of Archegos's positions to secure more credit. "At Archegos, you did whatever you could to support Hwang’s trading strategy," Becker stated. He described how he was directed by Hwang and Halligan to manipulate numbers and deceive banks, including UBS, Goldman Sachs, and BMO Bank of Montreal, to facilitate more trades. Becker's testimony is crucial as it provides an insider's perspective on what prosecutors allege was a sophisticated scheme to defraud banks and manipulate markets.

Misleading Banks

Becker's testimony highlighted several instances where he misled banks about Archegos's financial stability. For example, he reassured UBS risk manager Bryan Fairbanks in a March 10, 2021, call that Archegos could liquidate its positions within 30 days if necessary. However, Archegos had similar positions with other banks, leading to a catastrophic liquidation by the end of March 2021 when margin calls were missed. UBS ended up losing about $860 million due to the collapse of Archegos.

Jennifer Miranda, a managing director at Jefferies Financial Group, also testified that Becker assured her in March 2021 that Archegos had billions in unencumbered cash and could liquidate its positions within a month if necessary. Based on this assurance, Miranda partially approved a $240 million withdrawal request from Archegos. Two days later, Archegos was insolvent, costing Jefferies $40 million. In his April 2022 guilty plea, Becker admitted to lying to financial institutions about Archegos’s holdings to get them to extend credit or participate in swap transactions.

Defense Strategy

The defense has portrayed Becker as a manipulative individual who is scapegoating others to mitigate his own culpability. Mary Mulligan, Halligan’s lawyer, described Becker as "a very, very convincing liar" during her opening statement. The defense argues that Becker is still lying and is using his testimony to shift blame away from himself. Evidence of personal rivalries within Archegos could also complicate the prosecution’s depiction of a tight "core" at the firm. Jesse Martz, a former junior member of Archegos’s operations team, testified that Becker did not get along with Halligan and often vented about him, suggesting that Becker had a "personal vendetta" against Halligan.

Management Quotes

• Scott Becker, Former Archegos Risk Management Chief:

  "Archegos had approximately a billion dollars less in its operating account at Bank of America because of this error."

• Mary Mulligan, Lawyer for Patrick Halligan (Former Archegos CFO):

  "You didn’t find Mr. Halligan to be an easy boss to work for did you?"

• Jennifer Miranda, Jefferies Financial Group Managing Director:

  "What’s the emergency? Why?"