May 13 (Reuters) -

Archegos Capital Management founder Sung Kook "Bill" Hwang

appeared in court on Monday to face charges stemming from the

2021 collapse of the $36 billion fund.

The case has been closely watched on Wall Street as a test

of prosecutors' ambitious market manipulation theory. It is

expected to shed light on the inner workings of banks' dealings

with profitable but risky clients.

Hwang appeared in court wearing a grey suit and sat flanked

by his lawyers waiting for the trial to begin.

Testimony in the trial, which could last up to eight weeks,

will center on the implosion of Hwang's lightly regulated family

investment office Archegos, which prosecutors allege caused more

than $100 billion in shareholder losses at companies in its

portfolio.

The case is one of several brought by U.S. Attorney Damian

Williams alleging wrongdoing by powerful investors amid the wild

market swings that occurred during the COVID-19 pandemic.

Prosecutors accuse Hwang of using financial contracts known

as total return swaps to secretly amass outsize stakes in

multiple companies without actually holding their stock.

His positions were so large they eclipsed that of the

companies' largest investors, driving up stock prices,

prosecutors say. At its peak, they say, Archegos had $36 billion

in assets and $160 billion of exposure to equities.

Falling stock prices in March 2021 triggered margin calls

that Archegos was unable to meet. That, in turn, led some banks

to dump the stocks backing his swaps, causing billions in

combined losses for Archegos and banks including Morgan Stanley,

Credit Suisse, now part of UBS, and Nomura Holdings ( NMR )

.

Prosecutors claim Hwang and former Archegos Chief Financial

Officer Patrick Halligan, who is also on trial, lied about their

holdings to sustain their business relationship with global

banks.

Hwang and Halligan are charged with racketeering conspiracy.

Hwang faces an additional 10 counts of fraud and market

manipulation, and Halligan an additional two counts of fraud.

Each count carries a maximum potential sentence of 20 years.

The use of racketeering charges is ambitious. Department of

Justice prosecutors in 2022 failed to prove racketeering charges

against three former JP Morgan Chase & Co. employees in a

commodities manipulation case, though two were convicted on

other counts.

The two men have pleaded not guilty and are expected to

argue prosecutors are pushing a novel and nonsensical market

manipulation theory.

A jury of seven women and five men were chosen last week.

Hwang's lawyers have described the case as the "most

aggressive open market manipulation case ever" brought by

prosecutors. Several attorneys told Reuters it may be a tough

case for the government.

Archegos head trader William Tomita and Chief Risk Officer

Scott Becker have pleaded guilty to related charges and are

expected to testify at the trial. Some bank executives may also

appear on the witness stand.

(Reporting By Brendan Pierson in New York)