Seemingly precise short selling brings in a whopping $100 million! Futu and Tiger Brokers are exposed for “insider trading ahead of China’s iron-fisted regulation,” and the U.S. SEC steps in to investigate.

A so-called "prophetic prediction" in U.S. stock options trading has unexpectedly uncovered a shocking insider trading scandal! According to reports from Bloomberg and The Straits Times, the U.S. Securities and Exchange Commission (SEC) has launched an investigation into an insider trading case involving well-known cross-border brokerages Futu and Tiger Brokers. A group of unknown traders, ahead of China's regulatory crackdown, precisely bet on high-risk options, using $12 million in principal to net over $100 million in profits, causing counterparty market-making giant Susquehanna to suffer a $70 million loss and file a lawsuit in federal court.

(Previous Context: Breaking News> Futu Announces Suspension of China Buy-ins and Deposits from June 12! 440k Accounts Can Only Withdraw, No Deposits)

(Background Supplement: Penalty Issued! China Fines Futu 1.85 Billion Yuan and Tiger Brokers 410 Million Yuan, Both CEOs Jointly Penalized)

Table of Contents

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• Precise Bet on China Regulatory Crackdown, $12 Million Principal Nets Nearly $440k in Profits
• Market-Making Giant Susquehanna Suffers $70 Million Loss, Sues Hundreds of Unknown Suspects
• Overview of the Insider Trading Allegations Involving Futu and Tiger Brokers
• U.S. SEC Investigates, Interactive Brokers Cooperates to Freeze Accounts

China's regulatory crackdown on cross-border brokerages has become a lucrative cash cow for insider traders on Wall Street? According to the latest report from The Straits Times, citing Bloomberg News, the U.S. Securities and Exchange Commission (SEC) is currently conducting a comprehensive review of a major suspected insider trading case involving Futu and Tiger Brokers (parent company Up Fintech Holdings).

Precise Bet on China Regulatory Crackdown, $12 Million Principal Nets Nearly $100 Million in Profits

The trigger for this incident stemmed from a surprise regulatory announcement by the Chinese government on May 22 this year. At that time, Chinese authorities officially declared that the cross-border trading services provided by Futu and Tiger Brokers to mainland residents constituted "unlicensed illegal operations." Upon the news, the U.S. stock prices of the two companies crashed instantly; Futu later faced a hefty fine of up to 1.85 billion yuan (approximately 352 million Singapore dollars), and its founder, Leaf Li, saw his personal wealth evaporate by a staggering $1.7 billion in a single day.

However, just before the stock market crash, the options market exhibited extremely abnormal trading signals. Unknown traders (or groups) seemed to have prior knowledge of this regulatory secret that could shake the market. They spent about $12 million to heavily purchase exchange-traded options for these two Chinese brokerage firms in the U.S. After the stock price collapse, these "high-risk, high-reward" bets instantly turned into profits of at least $100 million (approximately S$130 million).

Market-Making Giant Susquehanna Suffers $70 Million Loss, Sues Hundreds of Unknown Suspects

Behind this frenzy, the one footing the bill was Wall Street's options market-making giant – Susquehanna International Group (SIG). As the counterparty to these options trades, Susquehanna suffered a painful loss of over $70 million in this one-sided slaughter.

Unwilling to accept this, Susquehanna filed a lawsuit in the Manhattan federal court on June 29. Unable to confirm the true identities of the masterminds behind the trades, SIG could only sue 100 unknown defendants referred to as "John Doe." In its complaint, SIG strongly argued that these traders likely received "leaked tips" from Chinese regulators or senior executives within the brokerages, as such extreme and precise options bets "cannot be reasonably explained any other way except as insider trading."

Overview of the Insider Trading Allegations Involving Futu and Tiger Brokers

| Event Nodes and Key Parties | | --- | Details of Amounts Involved and Impacts | | --- | --- | | Insider Trading Profits (John Doe) | Approximately $100 million in profits | | Market-Maker Losses (Susquehanna) | Loss of over $70 million | | Chinese Regulatory Penalties (Target: Futu) | Fine of 1.85 billion yuan; founder lost $1.7 billion in net worth in one day. | | Legal Actions and Account Freezes | Federal judge approves freezing of accounts related to Interactive Brokers, Futu, and Tiger Brokers platforms. |

U.S. SEC Investigates, Interactive Brokers Cooperates to Freeze Accounts

This lawsuit quickly drew the attention of U.S. federal regulators. According to reports, the U.S. Securities and Exchange Commission (SEC) has begun a preliminary review of the abnormal trades described in the lawsuit; however, the SEC has declined to comment on the case, and the specific scope of the investigation and whether further enforcement actions will be taken remain unknown.

On the legal front, Susquehanna has achieved an initial victory. On June 29, a federal judge granted SIG's request, ordering the freezing of accounts related to the case held at Interactive Brokers Group, as well as Futu and Tiger Brokers' platforms, and allowing SIG to demand the true identities of these account holders through court subpoenas. A spokesperson for Interactive Brokers subsequently stated that it has fully complied with the court's order to freeze accounts and will actively cooperate with subsequent inquiries from relevant regulatory bodies.

Notably, Susquehanna, the "victim" in this case, is no small player. This market-making firm, active in global options and stock markets, held equity positions worth $893.3 billion in the first quarter; its co-founder Jeff Yass is a global billionaire with an estimated net worth of $93 billion. This "cross-border manhunt" revenge saga initiated by a Wall Street titan is expected to stir up greater financial regulatory turmoil between China and the U.S. in the coming months.