The US Securities and Exchange Commission (SEC) is investigating allegations that unknown insider traders made at least $100 million on options bets ahead of a Chinese regulatory crackdown on cross-border brokerages. This probe stems from a lawsuit filed by Susquehanna International Group in Manhattan federal court, where the market-making firm claims it lost over $70 million as the counterparty to most of these alleged insider trades. The lawsuit targets 100 "John Doe" defendants, as Susquehanna does not yet know their identities, but asserts that the "high risk, high reward" nature of these options bets strongly suggests insider trading.
According to Susquehanna's complaint, the alleged insider traders spent approximately $12 million to purchase US exchange-traded options in Chinese securities firms between May 7 and May 21. These firms, including Futu Holdings Ltd. and Up Fintech Holdings Ltd. (Tiger Brokers), were subsequently targeted by Chinese regulators on May 22 for operating unlicensed trading services for mainland residents. Shares of Futu and Up Fintech experienced sharp declines following the announcement. Susquehanna believes these traders were likely tipped off by Chinese regulatory staff or employees at Futu or Up.
A federal judge has granted Susquehanna's request to freeze accounts at Interactive Brokers Group Inc., Futu Holdings Ltd., and Up Fintech Holdings Ltd., which were allegedly used for these trades. Susquehanna has also been authorized to subpoena these firms to identify the account holders. A spokesperson for Interactive Brokers confirmed its cooperation, including freezing accounts and assisting with inquiries from regulators. The SEC's probe is in its early stages, and the regulator has declined to comment on the ongoing investigation. The market-making firm Susquehanna, whose co-founder Jeff Yass is one of the world's richest individuals, reported over $893 billion in equity positions in the first quarter.
