By Jonathan Stempel
NEW YORK (Reuters) -A former quantitative researcher at Two Sigma Investments has been indicted for fraud, after allegedly manipulating the big hedge fund’s algorithmic fashions to generate a $23.5 million payday for himself whereas inflicting $165 million of hurt to shoppers, U.S. authorities mentioned on Thursday.
The U.S. Division of Justice mentioned Jian Wu was indicted on wire fraud, securities fraud and cash laundering prices.
Wu, 34, a Chinese language citizen who has lived in New York, additionally faces associated U.S. Securities and Trade Fee civil prices, that regulator mentioned.
Prosecutors mentioned Wu is a fugitive. A lawyer for him couldn’t instantly be recognized. Two Sigma declined to remark. It fired Wu in 2024, ending six years of employment, and repaid shoppers for losses, authorities mentioned.
“Wu’s employer trusted him to behave with integrity,” U.S. Legal professional Jay Clayton in Manhattan mentioned in an announcement. “As an alternative, Wu used his technical skills to cheat his employer out of hundreds of thousands.”
Two Sigma makes use of an array of funding fashions that digest information and make funding predictions, which can be utilized to make trades.
Based in 2001, the New York-based agency has greater than $60 billion of belongings beneath administration.
Authorities mentioned Wu created or helped create 14 fashions that circumvented Two Sigma’s requirement that new fashions generate distinctive predictions that complement, reasonably than duplicate, current predictions.
Two Sigma allegedly started utilizing Wu’s fashions extra continuously, believing them sufficiently completely different, inflicting it to deviate from the supposed methods of shoppers when it purchased and bought securities on their behalf.
Authorities mentioned Wu was paid $23.5 million in 2022, and spent some on a multimillion-dollar Manhattan residence.
They mentioned the scheme started to unravel in 2023 as staff observed higher-than-expected correlations between Wu’s fashions and different fashions, and Two Sigma started an investigation.
Wu then made further unauthorized modifications to hide his prior exercise, authorities mentioned.
The SEC mentioned Two Sigma canceled Wu’s $8 million of efficiency grants in 2021 and 2022, however has not recouped his $17.8 million of money bonuses for these years.
The circumstances are U.S. v. Wu, U.S. District Courtroom, Southern District of New York, No. 25-cr-00413; and SEC v Wu in the identical courtroom, No. 25-07573.
(Reporting by Jonathan Stempel in New York; Enhancing by Jamie Freed)