(Bloomberg) -- Credit Suisse Group AG took nearly a month to unwind its $25 billion position in Archegos Capital Management, highlighting the complexity of liquidating the mammoth stake amid the collapse of Bill Hwang’s family office more than three years ago.

Josh Lukeman, a former equity finance head at Credit Suisse, was the first witness at Hwang’s fraud case to describe the unfolding debacle from inside the Swiss bank, which was Archegos’ largest counterparty. His testimony on Tuesday highlights how the bank took pains to minimize the impact of its sales on the broader market. Credit Suisse’s position eventually ended up costing it $5.5 billion, the biggest loss among Archegos’ trading partners and a major factor in its own collapse last year.

“It was very clear that management wanted to move very slow and not have any market impact,” Lukeman recalled of his March 26 trading. Unbeknownst to him, other Archegos counterparties across Wall Street were also liquidating similar portfolios.

Lukeman’s efforts began with a $1.25 billion block trade with Goldman Sachs Group Inc. But that trade was “puny” relative to Credit Suisse’s entire exposure to Archegos - which was more than $25 billion and “highly concentrated” in a few positions, he testified.

“That was a fraction of the base volume,” he said. “That was on purpose because we were not looking to have market impact.”

But the stocks in Archegos’ portfolio were collapsing anyway, Lukeman said.

“They imploded,” he testified. “They went dramatically – the long positions down pretty substantially, depending on the stock, some more so than others. It was a tremendous amount of volume traded in those names that day.”

Lukeman said he stuck with his instructions though, and Credit Suisse was probably less than 3% of the March 26 volume. “It certainly wasn’t a fire sale from our perspective,” he testified.

It took nearly a month to unwind Archegos’ entire portfolio at Credit Suisse, which finally sold out of the last position on April 22, Lukeman testified.

“It took many weeks before we were out of these positions,” he said.

Moving Slow

Lukeman’s testimony, which came in the third week of trial, differed from what other bank witnesses told the jury. Most of them were risk managers who described being lied to about Archegos’ portfolio including a former UBS Group AG risk manager Bryan Fairbanks and a Jefferies managing director, Jennifer Miranda.  

As Delta One head, a position he was only promoted to about a month before the collapse of Archegos, Lukeman oversaw products with one-for-one tracking of other securities. This includes equity swaps like the ones Archegos traded. He testified that Credit Suisse hedged Archegos’ swaps on such a one-to-one basis.

“We’re not in the business of blindly taking on” balance-sheet risk or single-stock swap risk, Lukeman said. “Otherwise we would have wild swings every night.”

That’s a key part of the prosecution’s case against Hwang. They claim he knew he could manipulate the market because he could count on the banks buying the stocks underlying his swap orders on a one-to-one basis. The defense has said that wasn’t always true.

Black Swan’ Defense

“A client has the ability to customize quantity, the aggressiveness, meaning what kind of limit orders they want to place in the marketplace,” Lukeman said.

On cross-examination, Hwang defense lawyer Jordan Estes raised some of this testimony to try to suggest that Archegos was trading within the broad parameters set by Credit Suisse. She elicited testimony from Lukeman that Credit Suisse’s algorithmic tools allowed clients to place so-called “iceberg” orders. These limited the exposure of large trades in order to prevent them from impacting prices.

“You don’t want to put that order in the market because it would spook the whole marketplace,” he said.

Estes showed Lukeman an email he sent out to clients on March 25, 2021, about the performance of ETFs, or exchange-traded funds, that week. She noted that he highlighted that American depositary receipts, or ADRs, for Chinese tech companies “were taking a beating.” 

Hwang’s defense team has argued he and Archegos were victims of a rare “black swan” event affecting its major holdings, which included several ADRs of Chinese companies.

Credit Suisse Witnesses

It’s unclear if there will be other Credit Suisse witnesses. In her cross-examination, Estes suggested that Lukeman, who’s now a managing director at Nomura Holdings, might be the only witness from the failed bank called by the prosecution. She noted that he had no involvement in the relationship between Archegos and Credit Suisse before February 2021. 

Former prime risk services head Parshu Shah is on the prosecution’s list of potential witnesses, but he figures heavily in the bank’s internal report on its Archegos missteps. Putting him on the stand could open the door to the defense bringing up that report to try to cast blame for Credit Suisse’s losses back on the bank itself.

So far, the highlight of the trial has been the testimony of former chief risk officer Scott Becker, one of the star cooperating witnesses, who said he lied to the banks about Archegos’ financial stability. Another main cooperator William Tomita, former head trader Archegos, is expected to testify later in the trial.

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