Broker sanctioned over meme stock misdirection

The U.S. Securities and Exchange Commission (SEC) has sanctioned a brokerage firm for falsely claiming that it didn’t restrict investors’ trading in “meme” stocks.

The SEC charged TradeZero America Inc. and its co-founder Daniel Pipitone with violating securities rules by making false statements about its handling of meme stocks in early 2021. At the time, social media drove a stampede in retail trading of a handful of stocks that captured online attention.

According to the SEC’s order, on Jan. 28, 2021, TradeZero halted purchases in three meme stocks for about 10 minutes and later made false statements about its actions.

“After the halt, TradeZero and Pipitone made misleading public statements via interviews, social media, and in a press release in an effort to distinguish their company from brokers that restricted trading during that period,” the SEC alleged.

TradeZero and Pipitone agreed to settle the case without admitting or denying the SEC’s charges.

They agreed to pay US$125,000 in penalties ($100,000 for TradeZero, and $25,000 for Pipitone), a cease-and-desist order, and to retain an independent compliance consultant.

“This case sends a powerful message that participants in our capital markets cannot exploit market turbulence to deceive customers,” said Melissa Hodgman, associate director of the SEC’s enforcement division, in a release.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.