Susquehanna sues over $100M insider trading on China brokerage crackdown

Susquehanna International Group alleged in a lawsuit filed Monday that unknown traders used inside knowledge of a Chinese brokerage crackdown to earn more than $100 million from bearish options bets, one of the largest documented insider-trading cases in recent memory.

"These trades suggest inside knowledge not only of the fact that the crackdown news was going to be announced, but also its approximate timing," Susquehanna said in the complaint, which was filed in Manhattan federal court and names up to 100 John Doe defendants.

The traders spent about $12 million on premiums to buy more than 200,000 short-dated put options on Futu Holdings and UP Fintech Holding between May 7 and May 21, according to the filing. The bets paid off when the China Securities Regulatory Commission said on May 22 that it had found the two online brokerages illegally serving mainland Chinese customers without proper licenses, sending their U.S.-listed shares sharply lower. Susquehanna said it lost $71.4 million as the counterparty on a substantial portion of the trades, while the mystery traders booked a return exceeding 900 percent.

The case underscores the cross-border legal challenges of policing insider trading when regulatory actions in one jurisdiction create trading opportunities in another. Susquehanna, a Bala Cynwyd, Pennsylvania-based market-making firm led by billionaire Jeff Yass, is seeking expedited subpoenas and account freezes to identify the traders before any profits can be moved. Most of the suspicious trades were executed through about nine accounts at Interactive Brokers, which said it has frozen accounts and is cooperating with the investigation. A smaller number of trades were routed through platforms owned by Futu or UP Fintech, according to the complaint.

The alleged scheme dwarfs the $53.8 million in illegal profit from the insider-trading ring masterminded by former Galleon Group founder Raj Rajaratnam, who was convicted in 2011. Susquehanna's lawsuit, which asserts claims under Section 20A of the Securities Exchange Act and New York's unjust enrichment statute, will test how U.S. courts use civil discovery to trace trades routed through global systems. The CSRC, Futu and UP Fintech did not respond to requests for comment. Both brokerage firms said immediately after the May 22 announcement that they were cooperating with the Chinese regulator.

This article is for informational purposes only and does not constitute investment advice.