On Tuesday, the Securities and Exchange Commission (SEC) announced charges against broker-dealer TradeZero America Inc., and its co-founder Daniel Pipitone over allegations that they lied to customers about whether investors were barred from purchasing highly volatile “meme stocks” in January 2021. The cease-and-desist order mandates that the company and its principal retain an independent compliance consultant and pay a $100,000 and $25,000 penalty, respectively.
TradeZero is a Brooklyn, New York-based company that offers commission free stock trading software. The SEC explains that the events giving rise to its accusations occurred in January 2021 when many brokers restricted investors’ ability to purchase trending meme stocks. The order says that on Jan. 28, 2021 TradeZero’s clearing broker instructed it not to allow customers to purchase three meme stocks, which the platform did for about 10 minutes.
Thereafter, the company and Pipitone reportedly made misleading statements through interviews, on social media, and in a press release concealing the fact that they indeed blocked trading. The SEC points to a Reddit “Ask Me Anything,” where Pipitone reportedly said, “[t]hat some trading firms are blocking these symbols is disgusting, unprecedented… Our clearing firm tried to make us block you and we refused.”
The order finds that the defendants violated anti-fraud provisions of the Securities Act of 1933. Without admitting or denying fault, TradeZero and Pipitone agreed to the cease-and-desist order.
Other litigation concerning the January 2021 short squeeze has centered on Robinhood, a brokerage platform that advertises itself to everyday investors as easy to use. Recently, the court sent two sets of plaintiffs packing: one alleging an antitrust conspiracy against Robinhood and market maker Citadel Securities and the other against Robinhood for tortious conduct against users. The latter plaintiffs have appealed the loss to the Eleventh Circuit.
