SEC v. Jian Wu — U.S. Securities and Exchange Commission Litigation Release No. 26398, dated September 11, 2025.
The SEC charged Jian Wu, a quantitative model developer at Two Sigma Investments, with defrauding his employer. Wu manipulated investment models to generate millions in ill-gotten compensation, causing at least $165 million in harm to clients. The SEC seeks injunctive relief, disgorgement, penalties, and a bar from the investment advisory industry.
In Plain English
Imagine you have a special recipe for making cookies that always turns out great. You share this recipe with a bakery, and they use it to make cookies for customers. But secretly, you change your recipe so it's not as special as you told them, and it actually just copies another recipe they already have. This makes the bakery think your new recipe is amazing and worth a lot, so they pay you extra money. However, the cookies aren't as good as they promised, and the bakery has to fix it for their customers, costing them a lot of money. That's similar to what Jian Wu did with his investment recipes (computer models) at Two Sigma.
Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.
How the Alleged Scheme Worked
- Develop Sophisticated Investment Models Jian Wu, a quantitative model developer at Two Sigma Investments, created and helped develop computer-based algorithmic investment models. These models were designed to predict the future performance of securities and generate trading signals for clients.
- Understand Firm's Requirements Two Sigma required that new models be sufficiently uncorrelated, or 'decorrelated,' from existing models. This ensured that new models provided unique forecasts and 'alpha' (returns beyond market benchmarks), rather than duplicating existing predictions.
- Secretly Manipulate Models Between November 2021 and August 2023, Wu secretly manipulated at least fourteen of these models. He made unauthorized and undisclosed changes, increasing their correlation to other firm models and consolidated forecasts.
- Fabricate Unique Forecasts Instead of generating unique forecasts as intended, Wu's manipulated models effectively replicated the output of other existing models. He then misrepresented to Two Sigma that these models were generating unique forecasts and falling below correlation thresholds.
- Deceive Employer Wu's misrepresentations led Two Sigma to believe his models were highly effective and generating significant alpha. This deception caused the firm to rely more heavily on Wu's manipulated models for investment decisions.
- Alter Client Trading Strategies As a result of relying on Wu's fraudulent models, Two Sigma bought and sold securities for its clients in amounts, concentrations, and frequencies that differed from the firm's intended investment strategies.
- Cause Client Harm These altered trading strategies caused harm to certain Two Sigma clients totaling at least $165 million. Two Sigma subsequently repaid these clients for the losses incurred due to the manipulated models.
- Obtain Ill-Gotten Compensation Wu's scheme also resulted in him receiving millions of dollars in ill-gotten gains through cash bonuses and performance grants. These payments were based on the falsely perceived alpha generated by his manipulated models.
The Enforcement Action
On September 11, 2025, the SEC charged Jian Wu with defrauding his employer, Two Sigma Investments, by manipulating algorithmic investment models. The SEC's complaint alleges that Wu's scheme caused at least $165 million in harm to clients, which Two Sigma repaid, and resulted in millions of dollars in ill-gotten compensation for Wu. The SEC seeks injunctive relief, disgorgement and prejudgment interest, a civil penalty, and an industry bar. A parallel criminal action was announced by the U.S. Attorney's Office for the Southern District of New York.
Named in this action: Jian Wu.