The SEC noted that certain broker-dealers pass the make rebates and take fees to their clients while wholesale market makers don’t.
The Commission alleged that Gu and Lee generated illegal profits by “using broker-dealer accounts that passed rebates back to their customers to place initial orders on one side of the market and then using broker-dealer accounts that did not charge fees for taking liquidity for his subsequent orders on the other side of the market.”
Gu and Lee allegedly “focused their wash trading scheme on trading out-of-the-money put options in meme stocks that experienced a significant increase in price and trading volume in early 2021. The defendants believed that put options on those stocks are less attractive for other market participants, making it easier to trade with themselves.
The defendants violated the anti-fraud provision of the federal securities laws, according to the Commission.
In a statement, SEC Market Abuse Unit Chief Joseph Sansone said, “As alleged in our complaint, Gu and Lee engaged in a deceptive wash trading scheme to game the exchanges’ maker-taker programs and take advantage of market conditions associated with meme stocks trading.