Broker-Dealer settles with SEC over statements they do not restrict meme stocks
A broker-dealer, TradeZero America, and its founder, Daniel Pipitone, have agreed to settle with the Securities and Exchange Commission over accusations it misled investors regarding access to so-called “meme stocks.”
the definition of a meme stock can be slippery, but overall, they can be viewed as securities that are traded not on any real fundamentals but, rather, by a cult following fueled by social media. Examples include Gamestop, a brick-and-mortar video game retailer in an age when most now download or stream games, and AMC, a movie theater chain that gained popularity as a meme stock during the pandemic lockdowns, when virtually all movie theaters were closed.
The SEC complaint said that many companies, wary of the market volatility that came with these stocks’ sudden popularity, restricted buyer access. TradeZero held itself out as an exception, saying that, despite requests from its clearing broker, it would not move to prevent people from buying as many of these shares as they want. And, for the vast majority of time, this was true.
However, said the SEC, 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 headphone company that attracted similar attention at the time. After these 10 minutes, TradeZero reversed course and lifted the restrictions. The company then heavily promoted itself as the broker-dealer that does not restrict access to meme stocks when, in fact, it did exactly that for a little while.
Though the restrictions were in place for only 10 minutes, the SEC said this was 10 minutes too many.
“Information regarding TradeZero’s trading restrictions would have been material to investors because investors were concerned with trade restrictions. TradeZero’s marketing strategy was to distinguish itself from brokers that had restricted trading and thereby influence investors’ decisions about which broker to use. In various communications, new customers of TradeZero expressed that they valued TradeZero’s purported refusal to comply with restrictions on the purchase of meme stocks,” said the complaint.
TradeZero and Pipitone, without admitting or denying the charges, agreed to a cease-and-desist order, retention of an independent compliance consultant to ensure future compliance with the federal securities laws, a $100,000 penalty for TradeZero, and a $25,000 penalty for Pipitone.