NEW YORK: A former UBS Group AG risk manager slammed Archegos Capital Management for its “lies” when he took the stand as the first witness at the fraud and market manipulation trial of Bill Hwang.
Bryan Fairbanks, now head of prime risk services at BMO Bank of Montreal, on Monday described the internal debate at UBS over Archegos as a client and how Hwang’s family office allegedly deceived the bank about its investments.
He’s expected to return to the stand in Manhattan federal court to discuss a recorded March 2021 call during which Hwang allegedly promised banks he could meet their margin calls and unwind his positions in a few weeks.
On the stand on Monday, Fairbanks said he “probably would have hit the panic button” if he’d known that Archegos’ positions were as concentrated as they actually were.
“We would have been very concerned,” he said.
Hwang is accused of lying to his counterparty banks as part of a scheme to inflate the value of stocks on which Archegos had placed highly leveraged derivative bets.
The banks, Credit Suisse Group AG, UBS, Morgan Stanley and others, lost some US$10bil when Archegos imploded in March 2021.
The debacle was cited as one of the major factors in Credit Suisse’s collapse last year.
Fairbanks’ testimony offers a preview of what some of the 26 other potential bank witnesses on the prosecution’s list may say.
Some of his statements also suggest the government isn’t running away from the warts on the bank’s own behaviour – that they knew Archegos was risky but decided to trade with it anyway.
During the opening statements that preceded Fairbanks’ testimony, defence lawyers took several shots at the banks.
Hwang’s lawyer, Barry Berke, said the banks were “falling over themselves” to do business with Archegos.
Mary Mulligan, the lawyer for Hwang’s chief financial officer and co-defendant, Patrick Halligan, was even more blunt.
“The evidence will show banks made sizeable fees for dealing with Archegos,” she said. “Everyone had a big slice of the Archegos. Everyone wanted a slice.”
It was “all about the Benjamins,” Mulligan added.
Fairbanks testified that one of his first assignments after joining UBS in 2010 was to close the account of Hwang’s previous hedge fund, Tiger Asia Management.
Hwang launched Archegos as a family office in 2013 after Tiger Asia pleaded guilty in an insider trading case.
When Archegos sought to trade at UBS, Fairbanks said he thought the account had “hair on it”, meaning it would have a hard time being accepted as a client because of Tiger Asia’s history.
But he said UBS decided to do business with Archegos anyway.
The defence is likely to seize on that statement during cross-examination to highlight how the bank’s own decisions contributed to its losses.
Berke spent most of his opening statement trying to normalise Hwang’s trading behaviour by calling to mind the most “normal” investors jurors might recognise – value investors in the mould of Warren Buffett.
In his lawyer Barry Burke’s telling, Hwang, 60, was investing in companies he believed in for the long term, and that he was willing to “lose it all” for those beliefs. — Bloomberg