A former Two Sigma Investments quantitative researcher was charged with secretly manipulating algorithmic investment models so they appeared to be generating higher returns than they were, with the goal of inflating his own compensation by millions of dollars.

An indictment against Jian Wu, 34, was unsealed Thursday in federal court in Manhattan. While prosecutors didn’t name Wu’s former employer, a parallel suit filed by the Securities and Exchange Commission said he was employed by Two Sigma during the alleged fraud, which it said took place between November 2021 and August 2023. 

“Wu’s employer trusted him to act with integrity when creating models for the firm’s use,” Manhattan US Attorney Jay Clayton said in a statement. “Instead, Wu used his technical abilities to cheat his employer out of millions.”

Prosecutors said Wu was not in custody and was currently a fugitive. Patrick Smith, a lawyer who previously represented Wu in a related civil matter, didn’t immediately respond to messages seeking comment on the charges, which carry a maximum prison term of 20 years.

A Two Sigma representative declined to comment on the case.

The charges against Wu suggest federal prosecutors are more closely scrutinizing the conduct of individual quants. In January, former Headlands Technologies LLC trader Richard Ho was indicted for allegedly stealing source code from that quant firm. Ho appeared in Manhattan federal court Friday for a conference at which his trial was scheduled for July 13, 2026.

‘Significantly Altered’ Models

The indictment alleges that, between late 2021 and August 2023, Wu designed models for his firm that were approved and released for use, but then made changes to their parameters that “significantly altered” their behavior. His aim, the indictment alleges, was to make the models appear more high-performing, resulting in an “inflated” 2022 compensation package of $23 million.

Two Sigma told investors in October 2023 that an employee at the firm caused some $170 million in losses to its clients by manipulating its investment models. Wu subsequently identified himself as the employee but denied responsibility for the losses in a court petition seeking to force the firm to disclose the names of employees who communicated with investors and journalists about the matter. He said he planned to file defamation claims against them. 

“Any purported loss was a result of Two Sigma’s abysmally weak controls and reckless investments decisions,” Wu said in the December 2023 filing. He said it was common practice for researchers to change models they designed without approval.

Earlier this year, the SEC said Two Sigma waited four years to address vulnerabilities raised by staff who said numerous employees had unfettered access to a database that stored parameters for some of the firm’s trading models. The regulator noted the incident Two Sigma described in 2023. The firm agreed to pay a total of $90 million in civil penalties to settle the SEC claims and voluntarily repaid $165 million to affected funds and accounts.

Wu, a permanent US resident and Chinese citizen, earned Ph.D.s from both the University of Southern California and Cornell University. He held various positions at Two Sigma from April 2018 to August 2023, including researcher, vice president and senior vice president.

In his petition, Wu noted his 2022 compensation and also said he was paid $2.8 million in 2021 and $4.2 million in 2020. He cited the numbers to highlight the harm he said he’d suffered from the firm’s allegations, saying its statements may have made him “unemployable in the hedge fund industry.”

The incident emerged amid a falling-out between Two Sigma’s billionaire co-founders that had become so strained that the firm reported it as a material risk.

John Overdeck and David Siegel disagreed over Two Sigma’s organization and succession plans, according to a March 31, 2023, regulatory filing. The tensions were affecting the ability of employees to fully implement key research, engineering or business initiatives, according to the filing. Wu also pointed to the feud in his filing.

“The inadequacy of Two Sigma’s controls in this area is illustrative of the dysfunction at Two Sigma that flows down from the dispute between Overdeck and Siegel,” he said.

The duo stepped down from day-to-day management last year and handed over control to two new CEOs. A few months later, the new executives dismissed about 200 employees, or 10% of the firm’s employees, after conducting a wide-ranging review of Two Sigma’s business. Overdeck subsequently returned to the firm’s management committee.

The criminal case is US v. Wu, 25-cr-413, US District Court, Southern District of New York. The SEC case is SEC v. Wu, 25-cv-7573. US District Court, Southern District of New York.

With assistance from Nicola M White.

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