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In a Complaint filed in the U.S. District Court for the District of New Jersey, the SEC alleged that two individuals placed orders on opposite sides of the market for the same put options using two accounts with two broker-dealers. The SEC specified that one of the broker-dealers passed to clients the "make" rebate when placing a sell order, while the other did not pass on the "take" fee when placing a buy order. The SEC stated that this scheme allowed the two individuals to collect the "make" rebate in one account and avoid the "take" fee in the other, and that the individuals further capitalized on this scheme by reversing the trade to collect additional rebates. As a result, the SEC determined that one of the individuals executed approximately 11,430 wash trades and received approximately $1.4 million in rebates, to gain a profit of at least $668,671, and the other individual executed approximately 2,360 wash trades, resulting in $174,000 in rebates, to gain a profit of at least $51,334.
The SEC charged the individuals with violations of Sections 17(a)(1) and (2) of the Securities Act, Section 10(b) of the Exchange Act and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices") thereunder.
The SEC is seeking against the individuals (i) permanent injunctions, (ii) disgorgement with prejudgment interest and (iii) civil monetary penalties. The SEC stated that the individual who made the lesser profit has already settled the charges by agreeing to (i) an injunction, (ii) pay disgorgement in the amount of $51,334, with prejudgment interest of $515, and (iii) pay a $25,000 civil monetary penalty.
Primary Sources
- SEC Press Release: SEC Charges Two Individuals for Wash Trading Scheme Involving Options of "Meme Stocks"
- SEC Complaint: Suyun Gu and Yong Lee
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