Broker-Dealer settles claims with SEC that they don’t restrict meme actions

A broker-dealer, TradeZero America, and its founder, Daniel Pipitone, have agreed to settle charges with the Securities and Exchange Commission of misleading investors regarding access to so-called “meme stocks”.

the definition of a meme stock can be slippery, but overall they can be seen as stocks that are not traded on real fundamentals, but rather a social media-fueled cult. Examples include Gamestop, a retailer of physical video games at a time when most downloaded or streamed games, and AMC, a chain of movie theaters that gained popularity as a meme stockpile during pandemic shutdowns, when virtually all cinemas were closed. .

The SEC’s complaint said many companies, wary of the market volatility that accompanied the stocks’ sudden popularity, restricted buyers’ access. TradeZero presented itself as an exception, saying that despite demands from its clearing broker, it would not budge to prevent people from buying as many of these stocks as they want. And, for the vast majority of the time, it was true.

However, the SEC said, there were 10 minutes when the company complied with the clearing broker’s request, preventing customers from buying three different stocks: the aforementioned GameStop and AMC, plus Koss Corp., a helmets which attracted similar attention at the time. After those 10 minutes, TradeZero backtracked and lifted the restrictions. The company then heavily touted itself as the broker that doesn’t restrict access to meme stocks when, in fact, that’s exactly what it did for a little while.

Although the restrictions were only in place for 10 minutes, the SEC said that was 10 minutes too long.

“Information regarding TradeZero’s trading restrictions would have been important to investors because investors were concerned about trading restrictions. TradeZero’s marketing strategy was to distinguish itself from brokers who had restricted trading and thereby influence investors’ decisions as to which broker to use. In various communications, new TradeZero customers have expressed appreciation for TradeZero’s alleged refusal to comply with restrictions on buying meme stocks,” the complaint stated.

TradeZero and Pipitone, without admitting or denying the charges, have agreed to a cease and desist order, to retain an independent compliance consultant to ensure future compliance with federal securities laws, to a $100,000 penalty for TradeZero and a $25,000 penalty for Pipitone.

About the author