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SEC acts against two meme stock wash traders

The Securities and Exchange Commission(SEC) files a lawsuit against two Robinhood customers. The lawsuit is for allegedly using meme stocks in a wash-trading-based arbitrage scheme.

SEC Charges Suyun Gu and Yong Lee

Suyun Gu and Yong Lee used various trading fee schedules supplied by different retail brokers and exchanges. In order to extract arbitrage during wash-trading.

The SEC believes that the alleged wash trading scam produced more than $1.5 million in rebates. By trading between venues that provide rebates to market makers and those that do not collect fees to market takers.

Gu and Lee kept over half of the refunds as profits. Additionally, the commission calculating that they gained $668,671 and $51,334 respectively through wash-trading between February and April of this year. The strategy resulted in the pair executing 11,400 and 2,300 transactions, respectively.

The duo is under suspicion in the hands of the SEC of going for put option contacts for famous meme stocks. Therefore, including GameStop (GME) and AMC Entertainment (AMC).

Robinhood’s Involvement

The trading platforms used by the duo are not mentioned in the SEC filings. However, it appears that they were utilizing Robinhood, a prominent fee-free investment programme. According to the SEC, Gu devised the plan after witnessing the CEO of “Broker-dealer B” testify in court in February that his business does not impose taker fees to its customers — the same month that Robinhood CEO Vlad Tenev testified before congress about market volatility connected to GME and other meme stocks.

As a result of the Robinhood and Reddit-based pump and dump group r/wallstreetbets fiasco, so-called “meme stocks” like AMC and Gametop became quite popular earlier this year.

In January, Robinhood sparked outrage when it suspended trading on GME amid the infamous short squeeze on hedge funds, led by the heated Reddit community r/wallstreetbets.

The gang reacted by focusing on cryptocurrency right after, with Dogecoin surging 980% on January 28 – the same day that Robinhood intervened to stop the frantic meme stock speculation.

According to the company, Dogecoin accounted for 62% of Robinhood’s crypto revenues in the second quarter.

Read More: Robinhood Reports Six-Fold Increase in Crypto Traders in Q1 2021

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