Susquehanna Investment Group, a Pennsylvania-based market-making firm, has filed a lawsuit in Manhattan federal court against 100 unnamed defendants, alleging they engaged in an insider trading scheme that resulted in at least $100 million in profits. Susquehanna claims it lost over $70 million as the counterparty to most of these trades. The scheme involved purchasing short-dated put options on U.S. exchange-traded Chinese securities firms prior to a May 22 Chinese government crackdown on cross-border brokerages, which caused the value of these firms' shares to fall sharply.
The alleged insider traders spent approximately $12 million on these options, yielding a profit of over 900%. Susquehanna asserts that the timing, size, type, and pattern of the trades strongly indicate insider knowledge, likely tipped off by Chinese regulatory staff or employees of companies like Futu or Up Fintech. The firms targeted by the Chinese government, Futu and Up Fintech's Tiger Brokers, were accused of operating unlicensed trading services for mainland residents.
The U.S. Securities and Exchange Commission (SEC) is probing the alleged insider trades. A federal judge has granted Susquehanna's request to freeze accounts at Interactive Brokers Group Inc., Futu Holdings Ltd., and Up Fintech Holdings Ltd. that were allegedly used for these trades, and allowed Susquehanna to subpoena these firms for the account holders' identities. Interactive Brokers has stated its cooperation with Susquehanna and regulators.
Susquehanna's lawsuit highlights the significant scale of the alleged scheme, noting that the $100 million in illicit profits surpasses the estimated $53 million from the infamous Galleon insider trading case involving Raj Rajaratnam. The crackdown by the Chinese government involved eight regulatory bodies, including the China Securities Regulatory Commission, the central bank, and the public security ministry.
