A former researcher at New York-based quantitative trading firm, Two Sigma Advisers LP, has been charged for allegedly altering trading models that he’d developed for the firm — to create the false impression that his models were generating unique alpha.
U.S. authorities charged Jian Wu — who worked building trading models at Two Sigma — with securities fraud, wire fraud and money laundering, based on allegations that he defrauded the firm by secretly manipulating its trading models to boost his own compensation.
According to an indictment that was unsealed in a federal court in New York, between 2021 and 2023, Wu secretly altered trading models after they’d been released, to change the models’ performance, mimicking its other successful models — to make it appear as though his models delivered strong returns that were distinct from its other models — which allegedly led to him receiving US$23 million in added compensation.
After the firm discovered the scheme, Wu allegedly made additionally changes to the models in an effort to hide his misconduct, the indictment alleged.
The U.S. Securities and Exchange Commission (SEC) also filed parallel civil proceedings against Wu, alleging that he secretly manipulated at least 14 investment models that he created or helped create, which “caused Two Sigma to falsely believe that his models were generating substantially more alpha not captured by the firm’s other models …”
Additionally, the SEC alleged that the changes, “… caused Two Sigma to buy and sell securities for its clients in amounts, concentrations and frequencies that differed from Two Sigma’s intended strategies, and caused at least US$165 million in harm to certain clients, which Two Sigma subsequently repaid.”
The regulator is seeking disgorgement plus prejudgment interest, a civil penalty and an order barring Wu from the industry.
None of the allegations have been proven, and he’s presumed innocent of the criminal charges.
In 2024, Wu was fired by the firm — and, according to U.S. authorities, he remains at large.
“As alleged, Jian Wu deceived his employer, a quantitative trading firm, into paying him millions of dollars of unearned compensation,” said Jay Clayton, U.S. attorney for the Southern District of New York, in a release.
“Wu’s employer trusted him to act with integrity when creating models for the firm’s use. Instead, Wu used his technical abilities to cheat his employer out of millions,” Clayton said.