The GameStop phenomenon hit American companies in the box office this week. On September 16, MassMutual paid a $ 4 million fine to resolve a lawsuit with Massachusetts securities regulators, according to a report in the Wall Street Journal.
The financial services company was arrested for improper supervision of Keith Gill, a 34-year-old MassMutual employee and YouTuber known on social media under the pseudonym “Roaring Kitty”. Gill gained cult following among retail investors on Reddit for making millions in profits from owning GameStop (GME) shares.
During his time as a MassMutual employee, Gill served as the program director and later as the director of education and wellness. On his social media accounts, he told his followers why he thought buying shares in video game retailer GameStop was one of the best opportunities in the stock market; He posted 10 days worth of YouTube videos detailing investment strategies and at least 590 tweets about securities on Twitter, according to SEC regulations. Gill’s actions violate MassMutual’s social media policy for licensed broker-dealer agents.
“I think it’s pretty easy. MassMutual should have made it much clearer to its employees what they can and can’t do, ”said Anthony Chukuma, a senior equity analyst at Loop Capital, who previously featured on GameStop and understands the Reddit-fueled consumer enthusiasm for the stock.
Keith Gill testifies during a GameStop virtual hearing in Washington on February 18, 2021. Massachusetts fines $ 4 million and instructs MassMutual to revise its social media policies after accusing the company of failing to oversee the employee whose online cheerleading of GameStops stocks helped spark the frenzy that rocked Wall Street earlier this year. The settlement announced on September 16 focuses on the actions of Gill, an employee of a MassMutual subsidiary, from April 2019 to January 2021. (House Financial Services Committee via AP)
“And honestly, it’s not like Gill was in a financial advisor role,” added Chukuma. “I suspect it never occurred to him that his job was in a legal gray area. Even less, you know, strictly prohibited. ”While not a securities attorney, Chukuma noted that the fine likely prompted many corporate compliance departments to rethink what to allow their employees to use on social media.
The story goes on
Joshua Mitts, a law professor who teaches a class on securities regulation at Columbia University, said this type of lawsuit was “the enforcement of [the] Broker-Dealer-Owned Policies ”could be the first of other lawsuits after the stock exchange retail market grew so much over the past year. In this case, Mass Mutual acted as a licensed broker-dealer.
“The SEC lacks the power to directly regulate much of the social media activity associated with trading, and there is no rule preventing broker-dealers from using social media. The consent order is pretty clear that it was a policy violation, ”Mitts said. According to Mitts, this suggests that the case isn’t just about licensed finance broker-dealers breaking their rules. Instead, “it suggests that any employee who violates their company’s social media guidelines could result in liability for their employer if the employer’s failure to enforce these guidelines constitutes a regulatory, contractual, or other legal violation. “
“A direct target against retailers”
A single investor speaking with Yahoo Finance said the fine on MassMutual “is definitely a direct target against retailers”.
“This whole Mass Mutual charade of being sued is likely to force retailers to post anonymously about their stocks on social media for fear of being fired by their employers,” said Tom Abruzzo, who is on the Twitter handle @StockMarketHats is known to Yahoo Finance.
Abruzzo says he trades stocks and sells stock market items in his free time. His employer is not in the financial sector, but he would not be surprised if “other employers, especially those financially bound, are very careful and likely to have more burdensome restrictions on what employees do and also on social media would introduce. ”
Yahoo Finance contacted Keith Gill and received no response.
MassMutual said in a statement that the company “is happy to move on from this matter and avoid the costs and distractions associated with lengthy litigation.”
Ines Ferre is a reporter for the stock market. David Hollerith is a cryptocurrency and stocks reporter.
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