NEW YORK – Susquehanna Investment Group is attempting to unmask the identities of individuals it claims made at least US$100 million (S$129 million) trading on inside information about a Chinese government crackdown on cross-border brokerages in May.
The US market-making firm, which says it was the counterparty on most of the alleged insider trades, sued 100 John Doe defendants in Manhattan federal court on June 29. Susquehanna is seeking to recover more than US$70 million it says it lost to what it believes is one of the largest insider-trading schemes in recent memory.
According to Susquehanna, many of those trades were made from accounts at Interactive Brokers Group, as well as the platforms of two firms targetted in the Chinese crackdown, Futu Holdings and Up Fintech Holding’s Tiger Brokers. Susquehanna is seeking an order freezing certain accounts at those brokerages and authorising subpoenas of them.
Representatives for Tiger, Futu and Interactive Brokers didn’t immediately respond to requests for comment. Susquehanna declined to comment on the suit.
Susquehanna’s allegations focus on 200,000 short-dated put option bets placed in the two weeks before the Chinese government’s May 22 announcement that it would punish brokers it said were flouting capital controls by moving money from mainland China to foreign markets. Both Futu and Tiger were singled out for soliciting business in China without an onshore licence, leading to dramatic drops in their share prices.
In its suit, Susquehanna alleges several accounts engaged in a pattern of “high risk, high reward trading” designed to take advantage of the projected drops. In one example, a trader purchased the option to sell Futu shares at US$102.45 – down from US$124.58 – up to a week after the Chinese government’s announcement.
There was “powerful evidence” the traders were using material non-public information to inform their well-timed bets, Susquehanna alleges. It said the tips could have come from Chinese securities regulators or personnel at Futu or Tiger’s TradeUP unit.
The traders collectively purchased US$12 million in options, yielding a profit of more than US$100 million and a return of more than 900 per cent.
“By way of comparison, Raj Rajaratnam’s infamous insider trading scheme at Galleon Management yielded only approximately US$53 million in profits,” Susquehanna said in its complaint, referring to the hedge fund manager convicted in 2011. BLOOMBERG
