`
`James P. Connor
`Andrew R. McFall
`U.S. SECURITIES AND EXCHANGE COMMISSION
`100 F Street, NE
`Washington, DC 20549
`202-551-8394 (Connor)
`connorja@sec.gov
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
`
`UNITED STATES SECURITIES AND
`EXCHANGE COMMISSION,
`
`v.
`
`Plaintiff,
`
`SUYUN GU and YONG LEE,
`
`21-cv-17578
`
`JURY TRIAL DEMANDED
`
`Defendants.
`
`COMPLAINT
`
` Plaintiff United States Securities and Exchange Commission (the “SEC” or
`
`“Commission”), 100 F Street, N.E., Washington, DC 20549, for its Complaint against
`
`Defendants Suyun Gu (“Gu”), whose last known address is 220 21st Street, Miami Beach,
`
`Florida 33139, and Yong Lee (“Lee”), whose last known address is 5409 Calle Mayor, Torrance,
`
`California 90505 (collectively “Defendants”), alleges as follows:
`
`SUMMARY
`
`1.
`
`From February to April 2021, Gu and Lee perpetrated a fraudulent options-trading
`
`scheme to collectively obtain over $1 million in rebates from U.S. national security exchanges
`
`through thousands of “wash trades” – simultaneous or near-simultaneous purchases and sales of
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`securities without an actual change in beneficial ownership.
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`
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`2.
`
` Gu’s and Lee’s scheme involved trading options – contracts that give the holder
`
`the right, but not the obligation to buy or sell shares of an underlying security at a specified price
`
`on or before a given date – to take advantage of the “maker-taker” fee model that options
`
`exchanges use to attract order flow and increase liquidity. Under the model, non-marketable
`
`orders are eligible for a rebate paid by the options exchange (“make rebate”). Marketable orders
`
`that execute against those pre-existing orders then pay a fee when they are executed (a “take
`
`fee”). The rebates are based on the number of option contracts traded by the order. Under most
`
`maker-taker fee models, the take fee is slightly larger than the make rebate, with the options
`
`exchange keeping the difference between the two amounts.
`
`3.
`
`Broker-dealers that direct orders to exchanges pay the take fees and collect the
`
`make rebates. Some retail broker-dealers connect directly or indirectly to exchanges and pass
`
`take fees and make rebates back to their underlying customer accounts. Other broker-dealers
`
`have order flow arrangements whereby they send their order flow to wholesale market makers
`
`rather than routing orders directly to exchanges. If the wholesale market makers route the
`
`underlying orders to exchanges, they will pay take fees or collects make rebates for the
`
`underlying orders. The wholesale market makers usually do not pass the take fees or make
`
`rebates back to the retail broker-dealers, which in turn do not pass anything back to their
`
`underlying customers. In other words, retail customers using some brokerage accounts collect
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`make rebates and pay take fees, while retail customers using other broker-dealers do not.
`
`4.
`
`To effectuate their scheme, Gu and Lee used accounts at a broker-dealer that
`
`passes back to clients make rebates collected for providing liquidity by placing non-marketable
`
`limit orders for out-of-the-money options – options that would be unprofitable to exercise at the
`
`time of the trading. Gu and Lee then used accounts at a different brokerage firm that does not
`
`pass along take fees to place orders on the opposite side of the market for the same put options,
`
`
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`2
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`completing the wash trade. For example, if they used one account that passes back make rebates
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`to place a sell order, they would use a second account that does not pass back take fees to place a
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`buy order for the same put options. These two orders would be routed to the same exchange and
`
`execute against each other. Gu and Lee would then collect the make rebate for that trade in the
`
`first account and avoid paying the take fee in the second account.
`
`5.
`
`Gu and Lee would then often reverse the trade using the same placement strategy
`
`to collect additional rebates. For example, if they first sold the options from the account that
`
`passed back make rebates to the account that does not charge take fees, they would then buy
`
`back the same options by first placing an order in the account that passes back rebates,
`
`completing another wash trade. Placing the trades in that order ensured Gu and Lee would
`
`receive rebates in one account and avoid fees in the other.
`
`6.
`
`Defendants first focused their wash-trading scheme on trading out-of-the-money
`
`put options in so-called “meme stocks” – a group of stocks that were actively promoted on
`
`internet-based social media platforms and message boards and experienced significant increases
`
`in trading volume and price in early 2021. Gu and Lee believed that other market participants’
`
`interest in buying “meme stocks” and related price increases would make put options on those
`
`stocks less attractive, making it easier for Gu and Lee to trade with themselves.
`
`7.
`
`To conceal the scheme, Gu – the mastermind of the scheme who executed the vast
`
`majority of the wash trades and collected the bulk of the rebates – traded in the brokerage
`
`accounts of friends and family, used virtual private servers to mask his identity, and
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`misrepresented his trading strategy to the broker-dealers through which he executed the wash
`
`trades.
`
`8.
`
`Gu and Lee effectuated this scheme during two time periods. The first round of
`
`trading occurred between February 19, 2021 and March 4, 2021, when the broker-dealers they
`
`
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`3
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`used for this trading detected the conduct and froze their accounts. Lee stopped trading at this
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`point. Gu, however, shifted his activity to different accounts and did a second round of trading
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`from March 25, 2021 through April 15, 2021.
`
`9.
`
`Over the course of the scheme, Gu executed approximately 11,430 wash trades,
`
`which represented approximately 2.9 million option contracts traded in numerous underlying
`
`securities. Gu received at least $1,370,000 in rebates as a result of the scheme, resulting in a net
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`gain of at least $668,671 after commissions and fees.
`
`10.
`
`Lee executed approximately 2,360 wash trades, which represented approximately
`
`405,000 options contracts traded in numerous underlying securities. Lee received at least
`
`$174,000 in rebates as a result of the scheme, resulting in a net gain of at least $51,334 after
`
`commissions and fees.
`
`11.
`
`As a result of the conduct alleged herein, Defendants violated, and unless
`
`restrained and enjoined will continue to violate, Section 17(a) of the Securities Act of 1933
`
`(“Securities Act”) [15 U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934
`
`(“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
`
`Indeed, Gu has informed the SEC staff that he may continue his wash trading scheme in the
`
`future.
`
`12.
`
`The Commission seeks a permanent injunction against Defendants, enjoining
`
`them from engaging in the transactions, acts, practices, and courses of business alleged in this
`
`Complaint, disgorgement of all ill-gotten gains from the unlawful conduct set forth in this
`
`Complaint, together with prejudgment interest, civil penalties pursuant to Section 20(d) of the
`
`Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)],
`
`and such other relief as the Court may deem appropriate.
`
`
`
`
`
`4
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`JURISDICTION AND VENUE
`
`13.
`
`The Commission brings this action pursuant to authority conferred upon it by
`
`Sections 20(b) and 20(d) of the Securities Act [15 U.S.C. §§ 77t(b) and 77t(d)] and Sections
`
`21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)].
`
`14.
`
`This Court has jurisdiction over this action pursuant to Section 22(a) of the
`
`Securities Act [15 U.S.C. § 77v(a)] and Sections 21(d), 21(e), and 27 of the Exchange Act [15
`
`U.S.C. §§ 78u(d), (e), and 78aa].
`
`15.
`
`In connection with the conduct described in this Complaint, Gu and Lee, directly
`
`or indirectly, made use of the mails or means or instruments of transportation or communication,
`
`or of facilities of a national securities exchange, in interstate commerce.
`
`16.
`
`Venue is proper in this District pursuant to Section 22(a) of the Securities Act [15
`
`U.S.C. § 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Gu and Lee transacted
`
`business in this District, and certain of the acts, practices, transactions, and courses of business
`
`constituting violations of the securities laws alleged in this Complaint occurred within this
`
`District. For example, most of the wash trades occurred on Exchange A, which is owned by a
`
`company located in New Jersey and which has its production servers located in New Jersey. In
`
`addition, Gu used an account at Broker-dealer C, which is located in New Jersey.
`
`RELEVANT SECURITIES TRADING TERMS AND CONCEPTS
`
`17.
`
`A “put option” is a type of contract that gives the owner the right, but not the
`
`obligation, to sell 100 shares of an underlying security at a specified price within a specified
`
`time. The “strike price” is the price per share at which the option owner can sell the underlying
`
`securities if he chooses to exercise the option. The “expiration date” is the last day that an option
`
`contract is valid. If the option owner chooses not to exercise the option (in other words, to not
`
`sell 100 shares of the underlying stock), the option expires and becomes worthless, and the
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`
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`5
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`owner loses the money he paid to buy the option. A put option becomes more valuable as the
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`price of the underlying security decreases relative to the strike price. Therefore, a buyer of a put
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`option is betting that the price of the underlying security will decline.
`
`18.
`
`If, at the time of purchase, the strike price of a put option is below the price at
`
`which the underlying stock is then trading, the put option is “out-of-the-money” because it would
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`be unprofitable to exercise the put option and sell the underlying stock at the strike price rather
`
`than to sell the stock directly at the prevailing market price. Conversely, if at the time of
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`purchase, the strike price is above the then-current trading price, the put option is considered “in-
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`the-money.”
`
`20.
`
`A wholesale market maker is a registered broker-dealer that, among other things,
`
`receives order flow from retail broker-dealers. Wholesale markets makers sometimes trade
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`against retail orders in a principal capacity and other times route the retail orders to other trading
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`venues or exchanges. For the put options traded by Gu and Lee, the wholesale market makers
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`generally were not interested in trading against those orders on a principal basis given that the
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`contracts were illiquid and far out-of-the-money. They instead routed Defendants’ orders to an
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`exchange.
`
`21.
`
`The “National Best Bid” (“NBB”) is the best available price at which there is a
`
`displayed order to buy an options contract. The “National Best Offer” (“NBO”) is the best
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`available price at which there is a displayed order to sell a contract.
`
`22.
`
`A “non-marketable limit order” is an order that does not execute immediately
`
`because the limit price is above the NBB if a sell order or below the NBO if a buy order.
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`Because a non-marketable limit order does not execute immediately, it instead is added to or
`
`“rests on” the order book of the exchange to which it was routed. Under maker-taker fee models,
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`6
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`non-marketable limit orders typically receive a make rebate when they are executed because they
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`add liquidity to the exchange.
`
`23.
`
`A “marketable order” is an order that executes immediately when routed to an
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`exchange. It does this either because it is a market order or a limit order with a limit price that is
`
`at or below the NBB if a sell order or at or above the NBO if a buy order. Marketable orders
`
`execute against the orders that rest on an exchange’s order book and thus take liquidity off the
`
`exchange. Marketable orders typically pay a take fee when they are executed.
`
`DEFENDANTS
`
`24.
`
`Suyun Gu, age 35, is a resident of Miami, Florida. Gu previously resided in New
`
`York, New York. Gu is self-employed and operates a nutritional supplement business that
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`primary resells products through online marketplaces.
`
`25.
`
`Yong Lee, age 37, is a resident of Torrance, California. Lee has been a personal
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`friend of Gu for approximately 10 years. Lee is an independent contractor working for Gu’s
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`nutritional supplement business.
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`RELATED PARTIES AND ENTITIES
`
`26.
`
`Broker-dealer A is a retail broker-dealer headquartered in Greenwich,
`
`Connecticut. Broker-dealer A passes make rebates and take fees back to its customers.
`
`27.
`
`Broker-dealer B is a retail broker-dealer headquartered in Menlo Park, California.
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`Broker-dealer B sends its orders to wholesale market makers and does not pass make rebates or
`
`take fees back to its customers.
`
`28.
`
`Broker-dealer C is a retail broker-dealer headquartered in Morristown, New
`
`Jersey. Broker-dealer C passes make rebates and take fees back to its customers.
`
`
`
`7
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`29.
`
`Broker-dealer D is a retail broker-dealer headquartered in Flushing, New York.
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`Broker-dealer D sends its orders to wholesale market makers and does not pass make rebates or
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`take fees back to its customers.
`
`30.
`
`Broker-dealer E is a retail broker-dealer headquartered in New York, New York.
`
`Broker-dealer E sends its orders to wholesale market makers and does not pass make rebates or
`
`take fees back to its customers.
`
`31.
`
`Exchange A is an options exchange operated by a company based in Princeton,
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`New Jersey. Exchange A’s production servers are located in New Jersey.
`
`32.
`
`Individual A resides in Totowa, New Jersey and has a familial relationship with
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`Gu. Individual A opened an account at Broker-dealer B in his name and let Gu use that account
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`to trade.
`
`33.
`
`Individual B resides in Brooklyn, New York. Individual B has a personal
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`friendship with Gu and works for Gu’s business. Individual B had an account at Broker-dealer B
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`in his name and let Gu use that account to trade.
`
`34.
`
`Individual C resides in Snohomish, Washington. Individual C is personally
`
`acquainted with Gu. Individual C had an account at broker-dealer B in his name and let Gu use
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`that account to trade.
`
`A.
`
`Gu’s Creation of the Scheme
`
`FACTS
`
`35.
`
`After graduating college, Gu worked briefly at several financial institutions as a
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`trade system developer. In those roles and through his personal trading, Gu developed
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`knowledge of the U.S. options market structure.
`
`36.
`
`Gu traded infrequently from 2010 through early 2021. Upon information and
`
`belief, Gu only executed one options trade during this time period, in January 2010.
`
`
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`8
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`37.
`
`Gu became interested in options trading in early 2021, when there was increased
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`market interest in certain securities, such as GameStop, Inc. (ticker: GME), AMC Entertainment
`
`Holdings, Inc. (ticker: AMC), BlackBerry Ltd. (ticker: BB), Nokia Corporation (ticker: NOK),
`
`and Rocket Companies, Inc. (ticker: RKT), colloquially known as “meme stocks.” Gu opened an
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`account with Broker-dealer A on February 1, 2021 and started doing small trades in option
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`contracts on various stocks.
`
`38.
`
`On February 18, 2021, the U.S. House of Representatives Financial Services
`
`Committee held a hearing related to the market volatility events in January 2021 primarily
`
`related to certain meme stocks. At that hearing, the CEO of Broker-dealer B testified and noted
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`that Broker-dealer B “pioneered commission free and zero contract fee options trading.” Gu
`
`watched all or part that hearing. Consequently, Gu understood that Broker-dealer B did not pass
`
`along to its customers the take fees charged by exchanges.
`
`39.
`
`On February 19, 2021, Gu opened accounts at Broker-dealer B and Broker-dealer
`
`E. He also opened an account at Broker-dealer D on February 21, 2021. Gu understood that all
`
`three of these broker-dealers do not pass take fees back to their customers. Gu also understood
`
`that Broker-dealer A and Broker-dealer C passed make rebates back to their customers. Gu thus
`
`understood that the wash trading scheme would result in his receipt of make rebates, without
`
`paying take fees.
`
`40.
`
`Gu’s scheme relied on identifying illiquid put options. Gu was aware of the
`
`increased market interest in GME and other meme stocks. He decided to trade out-of-the-money
`
`put option contracts on those stocks because he thought other market participants would not trade
`
`those contract because of the retail buying interest and related price increases. Gu also tried to
`
`select put options that wholesale market makers would not want to trade against. He instead
`
`hoped that the wholesale market makers would route his orders from Broker-dealers B, D, and E
`
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`9
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`to exchanges. Gu thought the lack of interest in these contracts would make it easier for him to
`
`ensure that he traded with himself.
`
`41.
`
`In deciding to implement the scheme, Gu understood how maker-taker fee models
`
`work and testified that they exist “to promote liquidity on that particular exchange.” He also
`
`admitted that he was not trying to provide liquidity to the market; instead, his “intent was to trade
`
`against [him]self.”
`
`42.
`
`Gu and Lee either knew or were reckless in not knowing that their wash trading
`
`scheme was illegal. For example, during a sworn interview with the SEC staff, Gu stated that
`
`“wash trading in the sense of trading with no beneficial change of ownership is only illegal if it
`
`was done with the intent of market manipulation or creating a false market where there isn’t
`
`one.” Yet Gu and Lee proceeded with their wash trading scheme that created the false
`
`impression of legitimate market activity when none existed, all to recover hundreds of thousands
`
`of dollars in ill-gotten rebates.
`
`B.
`
`The First Round of the Wash Trading Scheme
`
`43.
`
`Gu first implemented the wash trading scheme using an account at Broker-dealer
`
`A, which passes back make rebates, and an account at Broker-dealer B, which does not pass back
`
`take fees. Gu opened his account at Brokerage Firm B on February 19, 2021 and immediately
`
`began placing small trades to test his strategy.
`
`44.
`
`Gu called Lee on February 19, 2021 and shared this strategy with him. Lee
`
`opened an account at Broker-dealer B that same day and opened an account at Broker-dealer A a
`
`few days later. Lee started using the wash trading strategy on February 26, 2021, once funds
`
`cleared into his account.
`
`45.
`
`To trade options in their accounts, Lee and Gu had to submit options approval
`
`forms. Both Defendants misrepresented their options trading experience and average number of
`
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`10
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`option contracts traded per year on the options approval forms submitted to Broker-dealer A.
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`For example, Gu indicated that he had more than 10 years of options trading experience and did
`
`100+ options trades per year when he, in fact, had done one options trade in the past 11 years.
`
`46. Gu and Lee enabled a configuration feature on their accounts at Broker-dealer A
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`that caused their orders to be routed to the exchange that offered the highest make rebate. For
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`almost all of their wash trading done through the accounts at Broker-dealer A, the routing feature
`
`caused the orders to be routed to Exchange A.
`
`47.
`
`At all times relevant to this Complaint, Exchange A charged a take fee of 50 cents
`
`per contract and, at the highest volume tier, paid a make rebate of 53 cents per contract.
`
`Exchange A paid the 3 cents difference itself to incentivize liquidity on the exchange. When a
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`trade from Broker-dealer A was executed on Exchange A and earned a rebate, Broker-dealer A
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`passed 43 cents per contract back to Gu or Lee and kept 10 cents for itself.
`
`48.
`
`The following are two examples of how Gu and Lee executed the wash trading
`
`scheme to obtain rebates:
`
`Example 1: On March 4, 2021, Gu wash traded put options on Rocket Companies, Inc.
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`(Ticker: RKT) with a $5 strike price and an expiration of June 18, 2021 to obtain rebates. On
`
`March 4, 2021, RKT closed the trading day at $26.86 per share.
`
`Gu’s March 4, 2021 Wash Trades in Options of Rocket Companies, Inc. (ticker: RKT)
`
`
`Event
`Time
`13:07:54 Gu places non-marketable limit order to sell 500 put option contracts
`13:08:02 Gu places marketable order to buy 500 put option contracts
`13:08:03 Gu’s order to buy 500 contracts executes on Exchange A – Gu pays no take
`fee for this side of the trade
`13:08:03 Gu’s order to sell 500 contracts executes on Exchange A – Gu receives $215
`in make rebates for this side of the trade
`
`
`
`13:08:11 Gu places non-marketable order to buy 500 put option contracts
`13:08:22 Gu places marketable order to sell 100 put option contracts
`
`
`
`11
`
`Account
`Broker-dealer A
`Broker-dealer B
`Broker-dealer B
`
`Broker-dealer A
`
`
`Broker-dealer A
`Broker-dealer B
`
`
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`Case 2:21-cv-17578-SDW-AME Document 1 Filed 09/27/21 Page 12 of 23 PageID: 12
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`13:08:22 Gu’s order to sell 100 contracts executes on Exchange A – Gu pays no take
`fee for this side of the trade
`13:08:22 Gu’s order to buy 100 put options contracts executes on Exchange A – Gu
`receives $43 in make rebates for this side of the trade
`13:08:28 Gu’s places marketable order to sell 400 put option contracts
`13:08:29 Gu’s order to sell 400 contracts executes on Exchange A – Gu pays no take
`fee for this side of the trade
`13:08:29 Gu’s order to buy 400 put option contracts executes – Gu receives $172 in
`make rebates for this side of the trade
`
`Broker-dealer B
`
`Broker-dealer A
`
`Broker-dealer B
`Broker-dealer B
`
`Broker-dealer A
`
`Example 2: On March 1, 2021, Lee wash traded put options on Vale S.A. (Ticker:
`
`
`
`
`VALE) with a $14.50 strike price and an expiration of March 5, 2021 to obtain rebates. On
`
`March 1, 2021, VALE closed the trading day at $17.53 per share.
`
`Lee’s March 1, 2021 Wash Trades in Options of Vale S.A. (Ticker: VALE)
`
`
`Event
`Time
`15:41:31 Lee places non-marketable limit order to sell 90 put option contracts
`15:41:43 Lee places marketable order to buy 90 put option contracts
`15:41:43 Lee’s order to buy 90 put option contracts executes on Exchange A – Lee
`pays no take fee for this side of the trade
`15:41:43 Lee’s order to sell 90 put option contracts executes on Exchange A – Lee
`receives $38.70 in make rebates for this side of the trade
`
`
`
`15:41:59 Lee places non-marketable order to buy 90 put option contracts
`15:42:11 Lee places marketable order to sell 90 put option contracts
`15:42:11 Lee’s order to sell 90 put option contracts executes on Exchange A – Lee
`pays no take fee for this side of the trade
`15:42:11 Lee’s order to buy 90 put option contracts executes on Exchange A – Lee
`receives $38.70 in make rebates for this side of the trade
`
`Account
`Broker-dealer A
`Broker-dealer B
`Broker-dealer B
`
`Broker-dealer A
`
`
`Broker-dealer A
`Broker-dealer B
`Broker-dealer B
`
`Broker-dealer A
`
`
`49.
`
`On March 4, 2021, Broker-dealers A and B froze Defendants’ accounts because
`
`of concerns about market manipulation and wash trading. A representative from Broker-dealer
`
`A spoke with Gu and Lee on or about March 12, 2021 and asked whether they knew who was on
`
`the other side of their trades. Lee asked if he had to answer the question, was told he did not
`
`have to, and then declined to answer it. Similarly, Gu told Broker-dealer A that he “didn’t want
`
`to confirm or deny anything.”
`
`
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`12
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`50.
`
`The following chart summarizes Gu and Lee’s wash trading during the first
`
`round:
`
`
`Dates of trading
`Approx. wash trades
`Approx. contracts traded
`No. of underlying securities
`
`Gu
`2/19/2021 – 3/4/2021
`8,300
`2.6 million
`15 (including GME, AMC,
`BB & NOK)
`
`Lee
`2/26/2021 – 3/4/2021
`2,360
`405,000
`14 (including GME, AMC, BB
`& NOK)
`
`
`51.
`
`Gu’s first round of wash trading resulted in his accounts receiving rebates of more
`
`than $1,121,000 and net gains of at least $490,346 after paying commissions and certain fees.
`
`Lee’s trading resulted in rebates of at least $174,000 and net gains of at least $51,334 after
`
`commissions and fees.
`
`C.
`
`The Second Round of the Wash Trading Scheme
`
`52.
`
`After Broker-dealer A froze his account, Gu opened an account at Broker-dealer
`
`C on March 9, 2021. Like Broker-dealer A, Broker-dealer C passed make rebates back to its
`
`customers.
`
`53.
`
`During the process of opening that account, a representative from Broker-dealer C
`
`asked Gu why he was changing broker-dealers. Gu falsely answered that the “biggest thing is I
`
`wanted to do direct routing.” As Gu has admitted to the SEC staff, he changed accounts because
`
`Broker-dealer A froze his account due to concerns about wash trading, not because he “wanted to
`
`do direct routing.” Gu further testified during the SEC’s investigation that he did not tell Broker-
`
`dealer C the truth because he was afraid that it “might reflect negatively” and prevent him from
`
`opening an account at Broker-dealer C.
`
`54.
`
`Gu used several brokerage accounts to trade with his account at Broker-dealer C.
`
`He first wash traded in an account in his name at Broker-dealer D, which does not pass take fees
`
`
`
`13
`
`
`
`Case 2:21-cv-17578-SDW-AME Document 1 Filed 09/27/21 Page 14 of 23 PageID: 14
`
`back to its customers. Gu opened that account on February 21, 2021 but did not use it until he
`
`started the second round of trading on March 25, 2021.
`
`55.
`
`Broker-dealer D froze Gu’s account on March 31, 2021 and asked questions about
`
`Gu’s trading strategy. In response to those questions, Gu failed to disclose his true wash trading
`
`strategy. During the SEC’s investigation, Gu admitted that he did not provide a complete
`
`explanation of his wash trading strategy to Broker-dealer D because he was hoping he could get
`
`Broker-dealer D to lift the account freeze.
`
`56.
`
`The following month, in April 2021, Gu started wash trading to obtain make
`
`rebates in another account in his name at Broker-dealer E, which he had opened in February
`
`2021. Broker-dealer E does not pass take fees back to its customers.
`
`57. Gu also used the brokerage accounts of others to perpetrade his wash trading
`
`scheme. For example, on March 1, 2021, Gu asked a family member (Individual A) to open an
`
`account at Broker-dealer B, fund the account, and let Gu use it to trade. Gu used a virtual private
`
`server to make it appear to Broker-dealer B that the trading in Individual A’s account came from
`
`a different computer and different internet protocol address than Gu had used for his own
`
`account at Broker-dealer B.
`
`58.
`
`Gu then perpetraded the same wash trading scheme described above, this time
`
`through his account at Broker-dealer C and Individual A’s account at Broker-dealer B. For
`
`example, on March 26, 2021, using Individual A’s account, Gu wash traded put options on AMC
`
`Holdings, Inc. (Ticker: AMC) with a $0.50 strike price and an expiration of September 17, 2021
`
`to obtain make rebates. On March 26, 2021, AMC closed the trading day at $10.24 per share.
`
`Time
`
`Gu’s March 26, 2021 Wash Trades in Options of AMC Entertainment Holdings, Inc. (ticker: AMC)
`Event
`Account
`11:39:46 Gu places non-marketable limit order to sell
`Broker-dealer C
`195 put option contracts
`11:39:57 Gu places marketable order to buy 195 put
`option contracts
`
`Broker-dealer B (Individual A)
`
`
`
`14
`
`
`
`Case 2:21-cv-17578-SDW-AME Document 1 Filed 09/27/21 Page 15 of 23 PageID: 15
`
`11:39:58
`
`11:39:58
`
`
`
`
`
`11:40:49
`
` 11:40:49
`
`Gu’s order to buy 195 contracts executes on
`Exchange A – Gu pays no take fee for this
`side of the trade
`Gu’s order to sell 195 contracts executes on
`Exchange A – Gu receives $83.85 in make
`rebates for this side of the trade
`
`
`
` 11:40:42 Gu places non-marketable order to buy 195
`put option contracts
`15:40:48 Gu places marketable order to sell 195 put
`option contracts
`Gu’s order to sell 195 contracts executes on
`Exchange A – Gu pays no take fee for this
`side of the trade
`Gu’s order to buy 195 put options contracts
`executes on Exchange A – Gu receives
`$83.85 in make rebates for this side of the
`trade
`
`Broker-dealer B (Individual A)
`
`Broker-dealer C
`
`
`
`Broker-dealer C
`
`Broker-dealer B (Individual A)
`
`Broker-dealer B (Individual A)
`
`Broker-dealer C
`
`
`59.
`
`On April 5, 2021, Gu contacted a friend (Individual B) and asked if he could use
`
`Individual B’s account at Broker-dealer B. Individual B had opened the account in January 2021
`
`but did not use it to trade. Individual B agreed. Gu then wired $25,000 to Individual B’s bank
`
`account, which was then wired by Gu – using Individual B’s login credentials – to Broker-dealer
`
`B to fund the account. Gu used a second virtual private server to make it appear to Broker-dealer
`
`B that the trading in Individual B’s account came from a different computer and different
`
`internet protocol address than Gu had used for: (a) his own account at Broker-dealer B; and (b)
`
`Individuals A’s account at Broker-dealer B.
`
`60.
`
`Gu again perpetraded the wash trading scheme described above, this time through
`
`his account at Broker-dealer C and Individual B’s account at Broker-dealer B. For example, on
`
`April 12, 2021, Gu wash traded put options on United Fire Group, Inc. (Ticker: UFCS) with a
`
`$20 strike price and an expiration of May 21, 2021 to obtain rebates. On April 12, 2021, UFCS
`
`closed the trading day at $33.73 per share.
`
`
`
`
`
`
`
`15
`
`
`
`Case 2:21-cv-17578-SDW-AME Document 1 Filed 09/27/21 Page 16 of 23 PageID: 16
`
`Broker-dealer C
`
`Gu’s April 12, 2021 Wash Trades in Options of United Fire Group, Inc. (ticker: UFCS)
`Time
`Event
`Account
`9:38:10 Gu places non-marketable limit order to sell
`96 put option contracts
`9:38:36 Gu places marketable order to buy 96 put
`option contracts
`9:38:36 Gu’s order to buy 96 contracts executes – Gu
`pays no take fee for this side of the trade
`
`Broker-dealer B (Individual B)
`
`Broker-dealer B (Individual B)
`
`9:38:36
`
`Gu’s order to sell 96 contracts executes – Gu
`receives $76.80 in make rebates for this side
`of the trade
`
`Broker-dealer C
`
`9:38:59 Gu places non-marketable order to buy 96 put
`option contracts
`9:39:00 Gu places marketable order to sell 96 put
`option contracts
`9:39:00 Gu’s order to sell 96 contracts executes – Gu
`pays no take fee for this side of the trade
`Gu’s order to buy 96 put options contracts
`executes – Gu receives $81.60 in make rebates
`for this side of the trade
`
`9:39:00
`
`Broker-dealer C
`
`Broker-dealer B (Individual B)
`
`Broker-dealer B (Individual B)
`
`Broker-dealer C
`
`59.
`
`On April 15, 2021, Gu started using an the account of his acquaintance
`
`
`
`
`
`(Individual C) at Broker-dealer B to continue his wash trading scheme and obtain make rebates.
`
`Gu used a third virtual private server for the trading in this account.
`
`60.
`
`Shortly after Gu started trading in this account on March 5, 2015, Broker-dealer C
`
`sent an email asking Gu about some of the trades in his account and inquiring about his strategy.
`
`Gu answered that his “goal is to open and close trades at the same price (or if need be at a
`
`slightly higher price to close out the position if I’m unable to get a fill at the same) and profit
`
`from the rebates.” In response to Broker-dealer C’s inquiries, Gu failed to inform Broker-dealer
`
`C that he was doing wash trades and on both sides of the trades in question. Gu testified to the
`
`SEC that he did not think that information was