US SEC Takes Action Against Meme Stock Fraud

The US SEC 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.

The US Securities and Exchange Commission (SEC) filed a complaint on September 27, against two users of Robinhood. They used meme shares in a fraudulent arbitration scheme and illegally received over $700,000.

The commission document states that Suyun Gu and Yong Lee took advantage of trading commission charts to profit from the spread between cryptocurrencies during flush trading.

The SEC estimates that by trading between sites that offer discounts to market makers and those that do not charge market makers, scammers have received more than $1.5 million in total. Gu and Li were able to keep nearly half of the discounts as profit. From February to April of this year, the pair made 13,700 trades. Such a scheme could affect the market due to the distortion of the volume of options contracts, which prompted traders to place deals on illiquid options.

The document does not name specific sites. It looks like the couple used the Robinhood investment app.

As stated in our complaint, Gu and Li engaged in a fraudulent trading scheme to outplay the exchange programs and benefit from the market conditions associated with the sale of meme shares,” said Joseph Sansone, head of the SEC with abuse.

Stocks of memes such as AMC and GameStop went viral this January. This happened after the users of the Reddit forum “dispersed” the course so that institutional traders suffered losses. Then , the volatility of GameStop shares exceeded the volatility of the cryptocurrency market.

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