E*Trade’s Platform Was Down While “Meme Stock” Leader “Roaring Kitty” Woke Up

On May 13, 2024, E*Trade’s trading platform was down at market open, which caused its customers to be unable to sign in, halting their ability to buy or sell securities. Many retail investors took social media by storm about the event. If you were locked out of your online brokerage platform, you should consult an Investor Protection law firm in New York, like Malecki Law.

This may remind you of the GameStop short-squeeze and rise of Reddit investors during the wake of COVID, where a trading freeze ensued.

Keith Gill, who led the Reddit craze in 2021, also known as the “Roaring Kitty,” woke up from his social media nap and made his return by posting a picture on Sunday night of a man seemingly leaning forward in his video game chair, indicating the intent to become re-involved. Mr. Gill made a few other cryptic posts, one of which depicted a movie villain stating, “Fine, I’ll do it myself.”

In fact, GameStop’s share price quickly rose, most likely due to Mr. Gill’s splash after being dormant on social media for approximately three years. Specifically, the stock opened at $26.30 and increased to $36.70 by 10 a.m. It closed at $30.40, with an overall 74.40% jump in just one trading day. As a result, other “meme stocks” felt the same spike, including AMC, which increased 78% in just one day. If your broker recommended that you invest in meme stocks against your best interest, you should contact an Investor Protection lawyer, like the lawyers at Malecki Law in New York, to review your holdings and investor profile characteristics.

It is unclear whether E*Trade froze its sign in capabilities, which in effect froze trading, due to Mr. Gill’s cryptic posts, or if it faced coincidental technological glitches simultaneously. In any case, either possibility is a potential concern for the investing public.

This can cause violations of FINRA Rule 5310, which imposes the best execution requirement on FINRA member firms, like E*Trade. Best execution requires your broker-dealer or broker to use “reasonable diligence” to obtain the price and terms most “favorable” to you as their customer investor. Rule 5310 (a)(1)’s subsections (A) through (E) provide a list of factors in what can be considered reasonable diligence, including, but not limited to, “character of the market for the security,” and “the size and type of transaction.” If your online trading platform is single-handedly frozen, you may in effect lose the opportunity to obtain the best execution because investors you are competing with will continue to trade in that same security. If this sounds like something that happened to you, you need to reach out to an Investor Protection attorney in New York, like the lawyers at Malecki Law.

On the other hand, there are circumstances where the SEC can decide that it will suspend trading in certain securities, which would likely impact any and all available trading platforms offering that security. However, the SEC must determine that the trading suspension is both in the public’s interest and will further support the mission of investor protection, which may include concerns of insider trading and/or market manipulation. By way of example, on September 27, 2023, the SEC temporarily suspended the trading in GACR because it determined there was a “lack of current and accurate information about the company.” As for another example, on May 12, 2023, the SEC temporarily suspended the trading in TOP due to its finding that there was “unusual, and unexplained market activity raising concerns.”

This activity also raises questions of whether “meme” stocks, “gamification” on trading platforms, and “FOMO” investing are back. Time will tell. If your advisor encouraged you to engage in FOMO investing, instead of recommending investments in line with your risk tolerance, liquidity needs, and time horizon, you should have an Investor Protection law firm, like Malecki Law in New York, review your brokerage account documents to determine if the investment recommendations were made in your best interest under Regulation Best Interest.


Contributions by Jacqueline N. Candella, Associate at Malecki Law

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