The Securities and Exchange Commission (SEC) plans to file an amended complaint against Sung Kook (Bill) Hwang, Patrick Halligan, and Archegos Capital Management. The regulator has informed the Court regarding its plans several months after it charged the defendants with orchestrating a fraudulent scheme that resulted in billions of dollars in losses.

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 reached a partial settlement with William Tomita, the head trader of Archegos, and the Court has approved the proposed settlement.

Archegos and Hwang have opposed the SEC claims and are seeking to dismiss the complaint.

The SEC’s market manipulation theory fails on multiple levels, the defendants say, noting that the SEC alleges Archegos engaged in manipulation not by its own market trading, but rather based on the market activity of Archegos’ counterparties, who allegedly engaged in some form of hedge-related trading in response to its private transactions with Archegos.