SEC probes alleged insider trades tied to Susquehanna’s $100 million claim

The U.S. Securities and Exchange Commission is examining options trades that turned about $12 million into at least $100 million before China moved against cross-border brokerages Futu and Tiger Brokers. Susquehanna International Group was on the losing side of the trades, taking more than $70 million in losses as the counterparty.

Susquehanna filed suit June 29 in Manhattan federal court against 100 John Doe defendants. It said it did not know who made the trades but that the “high risk, high reward” bets could only be explained by insider information. The traders bought roughly 200,000 short-dated put option contracts in Chinese securities firms before the May 22 crackdown, then profited when shares fell. The SEC has begun looking at the trades in the complaint.

A federal judge, Arun Subramanian, granted Susquehanna’s request to freeze brokerage accounts tied to the alleged scheme and allowed subpoenas to Interactive Brokers Group, Futu and Up Fintech Holdings, the parent of Tiger Brokers, to identify the account holders. Interactive Brokers said it had been cooperating with Susquehanna, including freezing accounts, and would cooperate further as regulators ask questions.

Susquehanna said the traders were likely tipped off by Chinese regulatory staff or workers at Futu or Up Fintech before the crackdown. China’s May 22 actions targeted Futu and Tiger Brokers for allegedly operating unlicensed trading services for mainland residents, sending both stocks sharply lower. Futu was later hit with a 1.85 billion yuan penalty, about US$273 million, and founder Leaf Li’s fortune fell by US$1.7 billion in a single day.

In a recent SEC filing, the firm said its equity positions in the first quarter totaled more than US$893 billion.