Jane Street Sued Ex-Traders to Guard a $1B Trade Secret… and Handed Regulators the Smoking Gun

It started in a broom closet in New York City… four Ivy League math nerds, $2 million in startup money scraped together from poker buddies and personal savings, and a dream to outsmart the market.

Fast forward a couple decades, and Jane Street has morphed into one of the most powerful and secretive trading empires on the planet. They account for 2% of global trading volume in more than 20 countries, run some of the sharpest high-frequency systems in existence, and try to pretend that they don’t have alumni like Sam Bankman-Fried and Caroline “polyamory & puts” Ellison… a duo best known for turning FTX into a cautionary tale for the ages. So yeah, keeping it low key has never exactly been their thing. But even for Jane Street, things are getting testy.

The latest scandal is that India’s financial watchdog just hit them with the Wall Street equivalent of “go to your room and think about what you’ve done.” The Securities and Exchange Board of India (SEBI) dropped a 105-page hammer accusing Jane Street of what it politely described as a “sinister scheme” to manipulate the country’s Nifty 50 and BANKNIFTY (the SPY of Indian Banks) indexes.

SEBI froze $566 million in alleged illegal gains, barred them from trading in the country, and pretty much said: “These clowns are not good-faith actors. We’ve warned them before. Now we’re done playing nice.”

So what did Jane do (allegedly)? Well, in short… they pulled off the equivalent of selling tickets to a boxing match, rigging the outcome, and placing side bets on the winner. SEBI says Jane Street used huge chunks of capital to aggressively buy up BANKNIFTY stocks and futures early in the day… pushing prices up. Then they loaded up on bearish options (cheap puts, expensive calls), and by lunchtime? They dumped the long positions, tanking the index, and printing money on their short side. One day alone (January 17) netted them $86 million (which is like $10,000 to them, but still a lot of money).

But India officials say that’s not trading. That’s theft with extra steps. And SEBI isn’t buying the “we’re just using creative strategies” defense. The watchdog cited “no plausible economic rationale” for the trades… a fancy way of saying “you’re full of it.” They even noted this behavior continued after Jane Street got a formal warning in February 2025. Keep in mind… Jane Street is no stranger to regulatory gray zones. Rumors have swirled for years that they’ve lobbied to keep high-frequency trading rules loose and carried interest loopholes wide open. Their alumni have quietly made their way into the Treasury, the Fed, and just about every other acronym with regulatory teeth.

So when India’s top regulator called them out for market manipulation and harming retail traders, it hit a nerve. This goes beyond a bad trade or a sloppy strategy… it’s a story about a firm allegedly using its scale, speed, and brainpower to warp the market in its favor… and laughing all the way to the options desk. One hedge fund manager even claimed: “As an options trader, I could see the manipulation happening live on the screen.” That’s like watching someone count cards at the blackjack table and still letting them play 10 more hands. Jane Street, of course, “disputes the findings” and says they’re committed to playing by the rules… the usual corporate damage-control move.

But ironically, this whole saga started when Jane Street sued two former employees for stealing a secret trading strategy and taking it to Millennium Management. That lawsuit basically told regulators: “Hey, we were doing something insanely profitable in India. Please investigate us.” And SEBI was like: “Say less.”

Jane Street will likely weather the storm (Asia only accounted for 14% of their 2023 revenue), but the damage to their golden-boy reputation is already done. India’s move sent a clear message to every high-frequency hotshot: regulators aren’t asleep at the wheel… and they’re getting a lot better at spotting when the game’s rigged. As for the rest of us, it’s just another reminder that when Wall Street plays dirty overseas… retail traders always get stuck cleaning up the mess.

At the time of publishing this article, Stocks.News doesn’t hold positions in companies mentioned in the article.