SEC takes action against two traders who laundered meme stocks

The US Securities and Exchange Commission (SEC) filed a complaint against two Robinhood users over an alleged wash-trading-based arbitrage program that used meme stocks.

According to the Sept. 27 lawsuit, Defendants Suyun Gu and Yong Lee used different trading fee tariffs offered by various brokers and retail exchanges to compensate for price differences in trading.

The SEC estimates that trading between venues that offer discounts to market makers and venues that do not charge market participants a total of over $ 1.5 million in impairment was caused by a suspected money laundering trading system.

Gu and Lee are said to have been able to withhold nearly half of the discounts as profits, with their commissions earning an estimated $ 668,671 and $ 51,334, respectively, during the laundry trade from February to May. The pair reportedly made 11,400 and 2,300 trades through the program, respectively.

The pair reportedly targeted contacts with popular meme stocks like GameStop (GME) and AMC Entertainment (AMC). According to the complaint:

“Gu and Lee believe that other tickers are interested in buying ‘meme stocks’ and the associated rise in prices will make call options on those stocks less attractive, making it easier for Gu and Lee to be self-sufficient. “

Although the trading venues used by the couple are not explicitly mentioned in court documents, it appears that the couple are using the popular free investment app Robinhood. According to the documents, Gu formulated the plan after seeing Broker Agent B’s CEO outlined in a court statement in February that his company did not bill customers for goods – the same month that Robinhood CEO Vlad Tenev testified to Congress regarding the market. Volatility related to GME and other meme stocks.

Related: SEC “Open to Discussion” Regarding Cryptocurrencies: Chief Counsel Kraken

So-called “meme stocks” such as AMC and Gametop gained immense popularity earlier this year thanks to the Robinhood and Reddit-based pumping and dumping group r / wallstreetbets Saga.

Robinhood was the subject of controversy in January after the platform stopped trading on GME amid notorious pressure on hedge funds led by the Reddit r / wallstreetbets community.

The team responded by immediately focusing on cryptocurrencies, with Dogecoin pumping 980% on Jan. 28 – the same day Robinhood took action to curb frantic speculation in meme stocks.

Robinhood estimates that Dogecoin accounted for 62% of crypto sales in the second quarter.