The US Securities and Exchange Commission has filed a complaint against two Robinhood users over an alleged arbitration scheme to launder money using meme shares.
According to the September 27 complaint, defendants Suyun Gu and Yeon Lee took advantage of different pricing schemes offered by various retail brokers and exchanges to extract arbitrage during trading.
The SEC estimates that by trading between sites that offer discounts to market makers and sites that don’t charge a market maker, they have earned in excess of $1.5 million in discounts through the alleged laundry trading scheme.
It is believed that Gu and Li managed to keep nearly half of the rebates as profits, and the committee estimated that they made $668,671 and $51,334, respectively, while shopping for clothes between February and April of this year. It is assumed that the pair made 11400 and 2300 trades according to this chart, respectively.
The pair were accused of targeting sales contacts of popular meme stocks, including GameStop (GME) and AMC Entertainment (AMC). In the complaint:
Gu and Li believe that other market participants’ interest in buying ‘meme shares’ and the associated price increases will make put options on these shares less attractive, making it easier for Gu and Li to trade on their own.
While the markets the couple uses are not explicitly mentioned in the court documents, it appears that the couple used the popular free investing app Robinhood. The documents say Gu set up the scheme after seeing Broker-Dealer B CEO in February, who testified that his company did not charge commissions from clients – the same month that Robinhoods CEO Vlad Tenev testified before the market conference. Fluctuation associated with GME and other meme promotions.
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So-called “memes” like AMC and Gametop became very popular as a result of the epic r/wallstreetbets Pump-and-dump, based on Robinhood and Reddit, earlier this year.
Robinhood became the subject of controversy in January after the platform ceased trading with GME amidst infamous pressure on a short hedge fund led by the fiery Reddit community r/wallstreetbets.
The group responded with an immediate switch to crypto: Dogecoin pumped 980% on January 28 — the same day Robinhood traded to curb crazy stock market speculation on memes.
Robinhood estimates that Dogecoin accounted for 62% of cryptocurrency revenue in the second quarter.