The U.S. Securities and Change Fee has filed a grievance in opposition to two Robinhood customers over an alleged wash-trading-based arbitrage scheme that utilized meme shares.
In keeping with a Sept. 27 complaint, defendants Suyun Gu and Yong Lee took benefit of differing buying and selling charge schedules provided by totally different retail brokers and exchanges to extract arbitrage whereas wash-trading.
By buying and selling between venues that provide rebates to market makers and people that don’t cost charges to market takers, the SEC estimates they generated greater than $1.5 million price of rebates in complete by the alleged wash buying and selling scheme.
Gu and Lee are believed to have been capable of preserve practically half of the rebates as earnings, with the fee estimating they profited $668,671 and $51,334 respectively whereas wash-trading throughout February by April of this 12 months. The pair are believed to have executed 11,400 and a pair of,300 trades by the scheme respectively.
The pair are accused of targetting put choices contacts for well-liked meme shares together with GameStop (GME) and AMC Leisure (AMC). In keeping with the grievance:
“Gu and Lee Imagine that different marker members’ curiosity in shopping for ‘meme shares’ and associated worth enhance would make put choices on these shares much less enticing, making it simpler for Gu and Lee to commerce with themselves.”
Whereas the buying and selling venues utilized by the pair usually are not explicitly named within the courtroom paperwork, it seems the pair had been utilizing the favored fee-free investment app Robinhood. The paperwork state that Gu concocted the scheme after watching the CEO from “Dealer-dealer B” define in a February courtroom testimony that his agency doesn’t cost taker charges to its clients — the identical month that Robinhood CEO Vlad Tenev testified earlier than congress relating to market volatility associated to GME and different meme shares.
So-called “meme shares” like AMC and Gametop turned extensively well-liked on account of the Robinhood and Reddit-based pump and dump group r/wallstreetbets saga earlier this 12 months.
Robinhood was the topic of controversy in January after the platform halted trading on GME amid the notorious short squeeze in opposition to hedge funds that was led by the fiery-eyed Reddit group r/wallstreetbets.
The group responded by immediately converging on crypto, with Dogecoin pumping by 980% on January 28 — the identical day that Robinhood acted to dampen the frenzied meme inventory hypothesis.
Robinhood has since estimated that Dogecoin accounted for 62% of its crypto revenues throughout Q2.