Archegos head trader reaches partial settlement with SEC
The Securities and Exchange Commission (SEC) has reached a partial settlement with William Tomita, the head trader of Archegos. This is made clear by documents filed by the regulator with the New York Southern District Court on May 27, 2022.
Tomita reported to Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, LP, and executed Hwang’s trading instructions. Tomita had no investment discretion himself.
Today, the SEC submitted a letter at the Court to seek approval of a partial consent judgment jointly proposed by the SEC and Tomita, one of five defendants in the Archegos action. The Commission and Tomita have reached a partial settlement that would resolve the non-monetary relief that the SEC seeks in this case against Tomita but leave open for later resolution by motion (or further settlement) the monetary relief sought.
Among other things, the judgment would permanently enjoin Tomita from committing violations of the federal securities laws that the SEC charges him with in this case, and would bar him from serving as an officer or director of a public company.
Tomita entered a guilty plea in a related criminal proceedings and a control date for sentencing has been set for October 28, 2022. The SEC anticipates that the parties will attempt to negotiate a resolution of the unresolved relief the SEC seeks after Tomita’s sentencing.
Earlier in May, the Court approved the SEC’s settlement with Scott Becker, the Chief Risk Officer of Archegos Capital Management, LP.
The SEC has charged Sung Kook (Bill) Hwang, the owner of family office Archegos Capital Management, LP, with orchestrating a fraudulent scheme that resulted in billions of dollars in losses. The SEC also charged Archegos’s Chief Financial Officer, Patrick Halligan; head trader, William Tomita; and Chief Risk Officer, Scott Becker for their roles in the fraudulent scheme.
The SEC’s complaint alleges that, from at least March 2020 to March 2021, Hwang purchased on margin billions of dollars of total return swaps. These security-based swaps allow investors to take on huge positions in equity securities of companies by posting limited funds up front. As alleged, Hwang frequently entered into certain of these swaps without any economic purpose other than to artificially and dramatically drive up the prices of the various companies’ securities, which induced other investors to purchase those securities at inflated prices.
As a result of Hwang’s trading, Archegos allegedly underwent a period of rapid growth, increasing in value from approximately $1.5 billion with $10 billion in exposure in March 2020 to a value of more than $36 billion with $160 billion in exposure at its peak in March 2021.
The complaint also alleges that, as part of the scheme, Archegos repeatedly and deliberately misled many of Archegos’s counterparties about Archegos’s exposure, concentration and liquidity, in order to get increased trading capacity so that Archegos could continue buying swaps in its most concentrated positions, thereby driving up the price of those stocks.
Ultimately in March 2021, price declines in Archegos’s most concentrated positions allegedly triggered significant margin calls that Archegos was unable to meet, and Archegos’s subsequent default and collapse resulted in billions of dollars in credit losses among Archegos’s counterparties.
The SEC’s complaint charges Hwang and the other defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also seeks to bar individual defendants from serving as a public company officer and director.