Former Two Sigma Quant Researcher Faces Fraud Charges Over Manipulated Models
From the desk of Jim Eccleston at 蘑菇传媒
Federal prosecutors and the Securities and Exchange Commission (SEC) have filed parallel actions against Jian Wu, a former quantitative researcher at Two Sigma Investments, alleging he secretly manipulated algorithmic trading models to boost his own compensation by millions of dollars.
According to an indictment unsealed in the Southern District of New York, Wu allegedly altered parameters in models between November 2021 and August 2023 to make them appear more profitable than they actually were. According to ThinkAdvisor, prosecutors claim these changes directly inflated his 2022 pay package to $23 million. Wu, 34, is a permanent U.S. resident and Chinese citizen who has not been taken into custody and is currently considered a fugitive.
The SEC’s civil complaint mirrors the criminal charges. It alleges that Wu’s conduct caused significant harm to Two Sigma and its clients, citing firm disclosures that pegged client losses from the manipulated models at approximately $170 million. Two Sigma voluntarily repaid $165 million to affected accounts and agreed to pay $90 million in civil penalties to settle related SEC claims about internal control failures.
ThinkAdvisor reports that Wu denies responsibility. In a prior court petition, he acknowledged being the employee at the center of the controversy but argued that any losses stemmed from Two Sigma’s “abysmally weak controls and reckless investment decisions.” He further asserted that it was common practice for researchers to adjust models without prior approval.
According to ThinkAdvisor, the case also comes against the backdrop of internal strife at Two Sigma. In 2023, its billionaire co-founders, John Overdeck and David Siegel, engaged in a dispute over governance and succession plans, a conflict Two Sigma itself disclosed as a material risk. Both later stepped back from daily management, though Overdeck has since returned to the firm’s management committee.
ThinkAdvisor reports that Wu has pointed to these governance issues as further evidence of dysfunction at the firm, arguing they contributed to weak oversight of model controls.
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