SEC levies charges against alleged 'meme stock' wash traders
September 27, 2021, 2:02PM EDT
1 min read
The Securities and Exchange Commission (SEC) has charged two men with allegedly wash trading meme stocks to take advantage of rebate programs.
At the start of 2021, certain unlikely stocks went gangbusters when online communities identified that Wall Street short-sellers were taking on large positions in thought-to-be-failing businesses like GameStop and AMC. Retail traders piled in, driving the stock price higher, and eventually support for so-called meme stocks became widespread.
In an announcement today, the SEC alleges that Suyun Gu identified an opportunity to scheme exchanges' "maker-taker" programs of certain stocks promoted on social media. He traded options of these stocks with himself using broker-dealer accounts that passed rebates to customers on one side of the transaction and broker-dealer accounts that did not charge fees for taking liquidity of the orders on the other.
Gu brought in about $668,671 in liquidity rebates, according to a statement from the SEC. His partner also charged in the case, Yong Lee, netted $51,334. The SEC claims that the trading activity "skewed the volume in certain option contracts and induced other traders to place trades in otherwise illiquid option contracts," in addition to the ill-gotten gains.
The pair selected meme stocks because they thought the volatility would make options trading on these stocks less attractive, according to the SEC. They had their accounts shut down by some platforms in March, but they continued by using accounts in the names of other people through the use of virtual private networks to further obscure their identities.
Lee will be disgorging the sum gained in rebates with a civil monetary penalty of $25,000, pending court approval of a final judgment. Though, the deal doesn't require Lee to admit to wrongdoing. The case against Gu is ongoing.
Post-trade in capital markets today operates primarily based on provision of balance-sheet to off-set counterparty risk, either directly or indirectly, via settlement agents, CCPs and CSDs etc. The issues with this ‘hub and spoke’ model are well known, including the resulting massive duplication of data, bifurcated processes, concentration of risk and subsequent deployment of capital and resources that could be better utilized.
On this episode of The Scoop, eToro's newly appointed US lead Lule Demmissie explained why she doesn't see retail's newfound presence in the market subsiding anytime soon and how eToro plans to capitalize on growing the business across cryptocurrencies and stock trading.