UNITED STATES SECURITIES AND EXCHANGE COMMISSION v. GU et al

On September 27, 2021, United States Securities and Exchange Commission (“Commission” or “Plaintiff”), represented by James Patrick Connor attorney at SEC’s DC regional office, filed a civil enforcement action against Suyun Gu (“Gu”) and Yong Lee (“Lee”) (collectively, “Defendants”), seeking permanent injunctive relief, disgorgement of all ill-gotten gains, prejudgment interest, civil penalties, and other relief for allegedly perpetrating a fraudulently options-trading scheme. This case was filed in the United States District Court in the District of New Jersey with Judges Susan D. Wigenton and Andre M. Espinosa presiding.

This is an action against Defendants, Gu and Lee for allegedly perpetrating a fraudulent options-trading scheme to collectively obtain over $1 million in rebates from U.S. national security exchanges through thousands of “wash trades” – simultaneous or near-simultaneous purchases and sales of securities without an actual change in beneficial ownership. 

In the complaint, Plaintiff alleged that, “Gu and Lee either knew or were reckless in not knowing that their wash trading scheme was illegal. For example, during a sworn interview with the SEC staff, Gu stated that “wash trading in the sense of trading with no beneficial change of ownership is only illegal if it was done with the intent of market manipulation or creating a false market where there isn’t one.” Yet Gu and Lee proceeded with their wash trading scheme that created the false impression of legitimate market activity when none existed, all to recover hundreds of thousands of dollars in ill-gotten rebates.”

Plaintiff also alleged that, “By reason of the conduct described above, Defendants in connection with the offer or sale of securities, by the use of the means or instrumentalities of interstate commerce or of the mails, directly or indirectly, acting intentionally, knowingly, recklessly or negligently (i) employed devices, schemes, or artifices to defraud; and (ii) obtained money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”

Further, Plaintiff alleged that, “By reason of the conduct described above, Defendants, in connection with the purchase or sale of securities, with scienter, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange, directly or indirectly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and/or (c) engaged in acts, practices or courses of business which operated or would have operated as a fraud or deceit upon persons.”

There are two claims for relief laid down by Plaintiff. The first claim is for violation section 17(a)(1) and (2) of the securities act and the second claim is for violations of section 10(b) of the exchange act and rules 10b-5.

In the prayer for relief, Plaintiff has requested the court to pass an order for an award of permanent injunctive relief along with an order to Defendants to disgorge, with prejudgment interest, all ill-gotten gains and civil monetary penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] and further relief as the court may deem just and proper. 

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