US regulator probes US$100 million insider trading linked to Chinese brokerages Futu, Tiger Brokers: sources
Traders bought US options in Chinese brokerages right before a May 22 crackdown
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[WASHINGTON] The US Securities and Exchange Commission (SEC) is looking into Susquehanna International Group’s allegations that unknown insider traders made US$100 million on options bets ahead of a recent Chinese regulatory crackdown on cross-border brokerages, including Futu Holdings and Tiger Brokers, according to a person familiar with the matter.
Susquehanna went public with its claims in a lawsuit filed on Monday (Jun 29) in Manhattan federal court. The US regulators are examining the trades described in the market-making firm’s complaint, said the person, who asked not to be identified discussing the confidential probe.
Pennsylvania-based Susquehanna said in its suit that it lost more than US$70 million as counterparty on most of the alleged insider trades. According to the complaint, the traders bought US exchange-traded options in Chinese securities firms that were subsequently targeted in a May 22 crackdown.
The scope and stage of the SEC’s probe were not immediately clear and the regulator’s reviews can end without any enforcement action being taken. The SEC declined to comment.
Susquehanna sued 100 John Doe defendants, acknowledging it did not know who made the trades, but it said “high risk, high reward” options bets could only be plausibly explained as insider trading.
A federal judge later on Monday granted Susquehanna’s request for an order freezing accounts at Interactive Brokers Group and the platforms of Futu Holdings and Up Fintech Holdings that the defendants allegedly used to make their trades. Susquehanna was also given permission to subpoena the firms for the account-holders’ identities.
Futu and Up Fintech’s Tiger Brokers were also two of the firms targeted by the Chinese government, which said they were operating unlicenced trading services for mainland residents. Shares in both fell sharply on the May 22 announcement. Futu was hit with a 1.85 billion yuan (US$272 million) regulatory penalty, and founder Leaf Li saw his fortune drop by US$1.7 billion in a single day on the stock drop.
A spokesperson for Interactive Brokers said it had been cooperating with Susquehanna, including freezing accounts, and would “cooperate with relevant regulators as we receive enquiries.” Up Fintech, Futu and China’s securities regulator did not respond to requests for comment on the case.
In its lawsuit, Susquehanna said the alleged insider traders were likely tipped off by Chinese regulatory staff or workers at Futu or Up. They were able to buy the options cheaply, spending around US$12 million to generate a profit of at least US$100 million, Susquehanna said.
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Susquehanna, which is active in options, stocks, energy, bonds and foreign exchange markets, said in an SEC filing that its equity positions in the first quarter totalled more than US$893 billion. The market-making firm has made its co-founder Jeff Yass one of the richest people in the world with a fortune estimated at US$93 billion, according to the Bloomberg Billionaires Index.
The Chinese government’s announcement that it would punish firms helping mainland Chinese clients illegally invest overseas was released by eight regulators, including the China Securities Regulatory Commission, the central bank and the public security ministry. BLOOMBERG
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