New York Securities Fraud Lawyers Blog
What might have been a coincidental system glitch of an apparent freeze of E*Trade’s trading platform on May 13, 2024 following Keith Gill’s reappearance on social media, may have been intentional. Read more about the May 13 event, here. The Wall Street Journal reported on June 3, 2024, about internal discussions to ban Mr. Gill, famously known as “Roaring Kitty” online, from its platform to allegedly prevent market manipulation. If you have ever been locked out of your online brokerage platform, or ever received notice of an apparent ban, you should consult an Investor Protection law firm in New York, like Malecki Law.
Following Mr. Gill’s screenshot posted online this past weekend of his apparent portfolio, GameStop shares rose 21% in the morning of June 3, 2024. The screenshot displayed 5 million shares of GameStop worth nearly $116 million, with 120,000 call options purchased for $5.68 each, with a strike price of $20, expiring on June 21, 2024. Therefore, if Mr. Gill exercises the options, it will leave him with 17 million shares, making him the fourth biggest GameStop shareholder.
In 2021, Mr. Gill appeared at congressional hearings regarding gamifying stock trading and “meme stocks,” while Mr. Gill faced class action lawsuits. Currently, the recent uptick received backlash from other investors, including large GameStop short seller Citron Research. There are even discussions that Mr. Gill is not acting alone, as Citron points out that Mr. Gill’s alleged finances do not support his recent trade. If your broker recommended that you invest in meme stocks against your best interest, you should contact an expert FINRA lawyer, like the lawyers at Malecki Law in New York.
On June 7, 2024, Mr. Gill livestreamed on YouTube, his first in years, with GameStop’s stock summary in clear view. Mr. Gill started the livestream while imitating an injured patient, with a broken arm in a cast and bandages, and was then “brought back to life,” and addressed the viewers. Mr. Gill reiterated that this is no different than a few years ago, and stated he is not working with anyone else, nor is he an institutional investor. Even while livestreaming, trading was halted several times, with GameStop’s price eventually dropping a few points toward the end of the stream.
There are some concerns with regards to a publicly traded firm attempting to ban a customer, including violating FINRA Rule 5310, or the SEC’s Best Execution Rule, which requires brokers to handle customer transactions with reasonable care and due diligence, so that the price to the customer is as favorable as possible under market conditions. Furthermore, firms must conduct “regular and rigorous” reviews of the execution of customer orders, which includes the speed and likelihood of trade execution. Banning customers would inevitably disrupt the speed and likelihood of trade execution, like the major backlash from Robinhood’s freezing of GameStop trades in 2021. Although firms can block accounts for a period if there are capital concerns that insufficiently supports a trade, they also cannot hide behind this blanket reason. If this sounds like something that happened to you, you should reach out to a Securities Fraud attorney in New York, like the lawyers at Malecki Law.
In the current Gill case, there may be a fine line between smart investing and market manipulation. Market manipulation comes in several forms, like pump and dump schemes, spreading false information, micro transactions making securities seem more active, and other ways to inflate or deflate a company’s actual value. Does Mr. Gill’s behavior constitute manipulation, or is he simply trading as the other large firms do themselves? One may think that his media following is a way to inflate GameStop’s actual value, and there are clearly good arguments for it. However, Mr. Gill broadcasting his opinions about trading may not be any different than CNBC.
The SEC can suspend trading only in certain circumstances for the public’s best interest and investor protection. However, would an E*Trade ban without a proper investigation violate SEC rules? If your advisor did not recommend 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 to review your brokerage account documents to determine if the investment recommendations were made in your best interest to satisfy the Regulation Best Interest guidelines.
Morgan Stanley, the parent company to E*Trade, has not yet reached a decision on the matter. This is a developing situation that will be interesting to see how it plays out.
Contributions by Brandon Amato, Summer Legal Intern and Student at New York Law School.