Archegos chief Bill Hwang has been arrested a part of an alleged securities-fraud scheme that helped his doomed fund boost leverage to $160 billion

• Bill Hwang of Archegos Capital was arrested on Wednesday and charged with securities fraud.
• The investment manager had increased his fund's leverage to $160 billion by relying on various counterparties.
• A cascade of margin calls in March 2021 led to the ultimate collapse of Archegos and cost banks more than $10 billion in losses.

Archegos Capital Management founder Bill Hwang was arrested on Wednesday and charged by the Justice Department with securities fraud, wire fraud, and racketeering conspiracy.

He is alleged to have made false statements and manipulated stock prices through the use of extreme leverage that ultimately led to the family office's demise as a cascade of margin calls blew up the fund in March 2021.

The implosion of Archegos Capital Management led to more than $10 billion in losses for various banks that offered derivative products to Hwang, including Credit Suisse, Nomura, and Morgan Stanley, among others.

The CFO of Archegos, Patrick Halligan, was also arrested along with Hwang. Both are expected to appear in Manhattan federal court later today.

Bill Hwang's lawyer Lawrence Lustberg told Insider, "We are extremely disappointed that the U.S. Attorney's Office has seen fit to indict a case that has absolutely no factual or legal basis; a prosecution of this type, for open-market transactions, is unprecedented and threatens all investors. As you will see when the facts unfold, Bill Hwang is entirely innocent of any wrongdoing; there is no evidence whatsoever that he committed any kind of crime, let alone the overblown allegations that pervade this indictment."

Patrick Halligan's lawyer Mary Mulligan told Insider, "Pat Halligan is innocent and will be exonerated."

According to charging documents, Hwang was able to increase the leverage of Archegos to $160 billion from $10 billion by deceiving various banks. That increase in leverage ultimately boosted Archego's underlying portfolio value to $35 billion from $1.5 billion in a single year.

"The defendants and their co-conspirators used Archegos, a family office that invested Hwang's personal fortune, as an instrument of market manipulation and fraud, with far-reaching consequences for other participants in the United States securities markets, companies whose stock prices they manipulated, innocent employees of Archegos whose savings they gambled, and the financial institutions left holding billions of dollars in losses," prosecutors said, according to the charging documents.

The Justice Department opened its probe into Archegos in May, and the Securities and Exchange Commission opened an investigation into the firm for stock price manipulation in October.

Some stocks that were held by Hwang and saw extreme volatility once margin calls started to roll-in included Discovery and Viacom.

Prosecutors allege that in some cases he owned a bigger stake in certain companies than their publicly listed holders, without disclosing that exposure. Hwang allegedly used total return swaps to increase his exposure to the company without having to disclose his stake once it breached 5%.