Bathroom bans part of toxic culture at Archegos, trial hears

In the months before Archegos Capital Management imploded in March 2021, trading was almost nonstop. One of Bill Hwang’s traders made the mistake of stepping away to use the bathroom when a stock he was watching began to move.

“Bill yelled at us,” former Archegos head trader William Tomita recalled on the witness stand Tuesday at Hwang’s fraud trial. “He raised his voice, and he yelled at us that we can’t just go to the bathroom.”

In his second day of testimony as a star prosecution witness against Hwang, Tomita depicted his former boss as not just a market manipulator but a micromanager who oversaw every detail of trading at his family office and frequently berated his team. 

Tomita was closer to Hwang than anybody who has taken the stand, including the other cooperating witness, former risk chief Scott Becker. His testimony, which is expected to continue for several days, is key to connecting the Archegos founder to the government’s charges of fraud, racketeering conspiracy and market manipulation. 

Prosecutor Matthew Podolsky on Tuesday walked Tomita through several allegedly manipulative trades. Tomita also offered testimony of how Hwang ran his traders. At the time, most of them were working from home due to the pandemic. But they spent their days in an ongoing Zoom call with Hwang, who dictated their buying and selling from a corporate apartment on Central Park South.

It was via this Zoom that Hwang noticed that trader Peter DeSanto wasn’t at his desk when a stock he was shorting, Rocket Cos., started to move in the wrong direction. DeSanto was in the bathroom.

Inopportune breaks weren’t the only reason Hwang yelled at his team, Tomita said. He also frequently criticized them when they failed to get the prices of targeted stocks to his limit price.

“I remember with the stock Viacom, getting yelled at because I wasn’t aggressive enough,” Tomita said. “I wasn’t buying it in a manner that was moving the stock price as high as he wanted.”

Traders could often tell when Hwang was about to berate them, he said. “Sometimes he didn’t even need to vocalize because on the Zoom he would just glare, and that glance alone meant we were about to get yelled at or he was annoyed,” Tomita testified.

On the Zoom, traders could also see Hwang, who was often studying a constantly updated spreadsheet showing Archegos’ profit and loss. “We saw him essentially looking or staring at the spreadsheet throughout the day,” Tomita said.

Hwang could also hand out praise. Tomita spent much of Tuesday morning testifying about what his boss called a “Herculean defense” of one of the biggest stocks in Archegos’ portfolio, the Chinese online educational company then called GSX Techedu Inc. in October 2020. At the time, GSX was being targeted by short-sellers like Muddy Waters Research.

Archegos burned through cash and liquidated its holdings of companies like Amazon.com Inc. and Microsoft Corp. to raise money to prop up GSX. Tomita said he traded GSX at a very high percentage of the volume, tweaking algorithms to keep the stock from falling lower.

GSX became something of a model for Archegos, and Tomita said he began trading in a way designed to manipulate stocks “on a daily basis.” To facilitate more trading, Tomita said he and Hwang talked about different ways to increase their capacity at counterparty banks. 

70% OF VOLUME

This matches with earlier testimony by Becker that Archegos’ nearly nonstop trading was growing constrained. By February 2021, the family office had reached its trading capacity for GSX at Credit Suisse Group AG, Nomura Holdings and Barclays Plc. This created an incentive to lie to the banks, Becker said, to get them to raise Archegos’ credit limits.

Tomita walked jurors through several text messages in which Hwang issued instructions to traders. A “firm trade” meant “trade the stock at that price and don’t let it trade below that,” Tomita testified. “Let’s step it up, please” meant to buy shares at that price.

In trading of online retailer Farfetch Ltd., Hwang guided one of his traders through the afternoon, asking him to raise the limit price 59 seconds before the close. The trader succeeded in getting the stock to Hwang’s $62 target, Tomita said. At that time, Archegos accounted for 70% of the volume with a total order size of $175 million.

“That was about $46 million that we generated in the last minute of trading,” Tomita said.

‘BECAUSE OF US”

Viacom also rose on Archegos trading, and Tomita said he and Hwang chatted about it after the media company’s March 8, 2021, first-quarter earnings call. Executives on the call had crowed about the stock rise, but Tomita said Hwang knew who was really responsible.

“He told me that was because of us,” Tomita testified.

Tomita said he joked with Hwang about Meghan Markle thinking her blockbuster March 7 interview with Oprah Winfrey drove up Viacom stock, when it was actually Archegos.

Two weeks later, a poorly received secondary offering by Viacom would send the shares down. As with GSX, Archegos would try to defend the stock, but this time it would fail, with the resulting rout dooming Archegos and costing its counterparty banks some $10 billion.

Tomita is set to return to the stand Friday for further questioning by the prosecution, with court on break for the next two days. The defense is likely to begin cross-examining him next week.

Related Topics: Archegos