Meme Stock Wash-Trading Scheme Triggers SEC Enforcement Action

(Bloomberg) -- The Securities and Exchange Commission sued a pair of traders over an alleged scheme to collect liquidity rebates from exchanges by wash trading put options of certain meme stocks in early 2021.

Staring in February 2021, Suyun Gu, 35, allegedly devised a way to take advantage of so-called maker-taker programs, in which exchanges reimburse high-volume traders, the SEC said in a Monday statement. 

Gu, along with his friend and business associate, Yong Lee, was trading options on shares with himself. The misconduct relied on meme stocks that were being actively promoted on social media, and were experiencing increased trading volumes and volatility. 

“Gu and Lee engaged in a deceptive wash trading scheme to game the exchanges’ maker-taker programs and take advantage of market conditions associated with meme stocks trading,” said Joseph Sansone, head of the SEC’s market abuse unit. 

Gu executed approximately 11,400 trades with himself, netting at least $668,671 in liquidity-rebates, the SEC said. Lee executed about 2,300 trades, receiving $51,334 in rebates.

The SEC case against Gu is ongoing. Lee settled the allegations without admitting or denying wrongdoing, agreed to pay a penalty of $25,000 and about $52,000 in disgorgement and interest, the regulator said. 

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