Broker-Dealer and Co-Founder Settle SEC Charges for Misleading Customers about Trading Halts

A New York-based broker-dealer and one of its co-founders settled SEC charges for misleading customers by falsely claiming that the firm did not restrict customers' purchases of "meme stocks" during high levels of volatility.

In its Order, the SEC found that the broker-dealer, at the request of its clearing broker, suspended customers' ability to purchase shares of GameStop, AMC Entertainment and Koss Corporation for approximately 10 minutes during a time when those stocks were highly volatile. The SEC found that the broker dealer proceeded to make misleading statements to investors in an effort to distinguish itself from other brokers in the market that also restricted trading of those particular stocks.

The SEC highlighted that the co-founder issued public statements via interviews and social media criticizing trading firms for restricting customers' trading ability. The co-founder stated on social media that the fact that "some trading firms are blocking these symbols is disgusting, unprecedented" and "[o]ur clearing firm tried to make us block you and we refused." Such statements by the broker-dealer and its co-founder resulted in an influx of new subscribers to the broker-dealer's trading platform. The co-founder later acknowledged that the broker-dealer did in fact halt trading on meme stocks.

As a result, the SEC found that the broker-dealer violated Section 17(a)(2) and Section 17(a)(3) ("Use of interstate commerce for purpose of fraud or deceit") of the Securities Act.

To settle the charges, the broker-dealer and co-founder agreed to (i) cease-and-desist from further violations of Section 17(a) of the Securities Act, (ii) retain an independent compliance consultant to ensure future compliance with the federal securities laws and (iii) a $100,000 civil penalty for the broker-dealer and a $25,000 civil penalty for the co-founder.