Key Takeaways
- Susquehanna’s motion to freeze approximately $100 million in funds connected to suspected insider trading was rejected by a New York federal judge
- The ruling stated insufficient evidence that defendants would conceal or transfer assets prior to a final judgment
- Susquehanna failed to demonstrate traders acted on privileged information before China’s May 22 regulatory announcement
- Both the preliminary injunction and asset attachment motions were dismissed by the court
- Multiple defendants claimed their trading decisions stemmed from publicly accessible market data rather than insider tips
A federal judge in New York has rejected Susquehanna Securities and Susquehanna Investment Group’s motion to freeze approximately $100 million in assets allegedly connected to an insider trading operation related to China’s regulatory crackdown on cross-border trading services.
Judge Arun Subramanian of the U.S. District Court for the Southern District of New York delivered the decision on September 14. The lawsuit, filed by Susquehanna on June 29, targeted 100 unnamed defendants for alleged violations of Section 20A of the Securities Exchange Act of 1934 and claims of unjust enrichment. Citadel Securities subsequently entered the proceedings as an intervenor.
The case revolves around trading patterns that emerged prior to May 22, when Chinese authorities unveiled enforcement measures targeting cross-border trading platforms. Susquehanna contended that defendants purchased short-term put options using confidential, non-public intelligence, profiting substantially when the regulatory announcement triggered significant price declines in affected securities.
Insufficient Evidence of Asset Flight Risk
Susquehanna reduced its freeze petition from 100 defendants to 40 individuals. The firm requested court intervention to prevent these parties from transferring or liquidating funds maintained at external brokerage firms.
Judge Subramanian determined that Susquehanna failed to present adequate proof suggesting defendants would likely conceal or relocate their holdings before a final verdict. The court emphasized that endorsing Susquehanna’s position would essentially permit automatic asset freezes in most insider trading disputes without proper substantiation.
The most compelling evidence Susquehanna offered concerned one defendant, designated as John Doe 3, who purportedly transferred over $10 million from an account before restrictions could be implemented. The court concluded this claim lacked corroborating documentation and noted that withdrawing funds from a brokerage account doesn’t inherently indicate an effort to evade legal obligations.
Alternative Trading Rationales Presented
Susquehanna also encountered difficulties establishing that defendants probably utilized confidential information instead of publicly observable market indicators.
Defendant Zhengfei Li provided transaction records demonstrating two identical positions, with half expiring prior to May 22 and half afterward. He contended his trades resulted from abnormally high put option volume visible in accessible market information, not privileged intelligence. Li noted that on May 21, the put-to-call ratio reached approximately 49 to 1, data that prompted his trading decisions. A separate defendant presented communications expressing her astonishment upon learning of the Chinese regulatory measures, which the court interpreted as evidence of lacking advance knowledge.
The court concluded defendants may have responded to publicly available market indicators, which wouldn’t constitute nonpublic information under insider trading statutes.
Additionally, Susquehanna had not identified the supposed source of the information, the fiduciary relationship involved, or any personal advantage gained through sharing the intelligence.
Judge Subramanian also dismissed Susquehanna’s backup request for an asset attachment directive, determining the firm hadn’t demonstrated a reasonable probability of prevailing on either legal theory.
A previous temporary order restricting the disputed funds expired at 5 p.m. ET on September 16.
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