By Jonathan Stempel
NEW YORK (Reuters) -Bill Hwang, whose Archegos Capital Management LP collapsed suddenly in March 2021, on Tuesday urged a federal judge to dismiss a U.S. Securities and Exchange Commission civil lawsuit accusing him and his once-$36 billion private investment firm of fraud.
In court filings, Hwang and Archegos said the SEC failed to show how the New York-based firm traded deceptively or how its swaps trades, which they called "lawful," affected prices.
They said that undermined the regulator's claim that Archegos boosted ninefold from $4 billion in just six months through a "brazen" market manipulation scheme.
"The SEC declares unlawful a number of practices that have long been accepted as entirely legitimate and commonplace in the market," Hwang said.
"No trader could have known that these kinds of actions would someday be deemed unlawful, simply because Mr. Hwang's trading backfired in the short term, costing him, but no other investors, billions of dollars in losses," he added.In its own court filing, Archegos said Hwang's trades were no different from transactions by "an enthusiastic investor with the means to pursue an investment opportunity."
Archegos also said Supreme Court precedent blocked the SEC from pursuing claims that it violated securities laws by lying to banks about its liquidity and portfolio concentration in order to borrow money for its trades.
An SEC spokesman declined to comment.
Archegos imploded when it failed to meet margin calls after being caught short on trades through so-called total return swaps.
Its demise stuck banks such as Credit Suisse Group AG and Nomura Holdings (NYSE:NMR) Inc with about $10 billion of losses.
Hwang and former Archegos Chief Financial Officer Patrick Halligan have pleaded not guilty to Department of Justice fraud and racketeering conspiracy charges over the collapse. Their criminal trial is scheduled for Oct. 10, 2023.
Archegos' former chief risk officer Scott Becker and former head trader William Tomita pleaded guilty in the criminal case and agreed to cooperate with prosecutors. They and Halligan are also defendants in the SEC case.
The case is SEC v Hwang et al, U.S. District Court, Southern District of New York, No. 22-03402.