The GameStop phenomenon hit corporate America in the coffers this week. On Sept. 16, MassMutual paid a $4 million fine to settle a litigation with Massachusetts securities regulators, according to a Wall Street Journal report.
The financial-services company got busted for not properly supervising Keith Gill, the 34-year-old MassMutual employee and YouTuber, who went by the alias “Roaring Kitty” on social media. Gill gained a cult-like following among retail investors on Reddit for posting million-dollar gains from owning shares of GameStop (GME).
During his time as a MassMutual employee Gill worked as program director and later director of education and wellness. On his social media accounts, he told followers why he thought buying shares of the 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 securities-related tweets on Twitter, according to the SEC order. Gill’s actions violated MassMutual’s social media policy for licensed broker-dealer agents.
“I think it’s pretty straightforward. MassMutual should have been a lot more clear with their employees in terms of what they could and could not do,” said Anthony Chukuma, a senior equities analyst with Loop Capital who previously covered GameStop and understands the Reddit-driven retail investor enthusiasm for the stock.
“And quite frankly, it’s not like Gill was in a financial advisor role,” Chukuma added. “I’m guessing it never even crossed his mind that what he was doing was even in a legal gray area. Much less, you know, strictly prohibited.” Though Chukuma isn’t a securities lawyer, he did note that this fine is likely causing many corporate compliance departments to reconsider what they should allow their employees to do on social media.
Joshua Mitts, a law professor who teaches a class on securities regulation at Columbia University, said this type of lawsuit, which “turns on enforcement of [the] broker dealer’s own policies,” could be the first of more lawsuits after so much growth in retail trading in the stock market over the past year. In this case, Mass Mutual acted as a licensed broker dealer.
“The SEC lacks power to directly regulate much of social media activity connected to trading, and there’s no rule that restricts broker-dealers from using social media. The consent order is fairly clear that it was a policy violation,” said Mitts. According to Mitts, that suggests the case isn’t merely about licensed financial broker-dealers violating their rules. Instead, “it suggests that any employee in violation of their company’s social media policies could lead to liability for its employer when that employer’s failure to enforce those policies is a regulatory, contractual or other legal violation.”
‘A direct target against retail traders’
One individual investor who spoke with Yahoo Finance felt the fine against MassMutual “definitely is a direct target against retail traders.”
“This entire charade of Mass Mutual getting sued will likely force retail traders to post anonymously on social media about stocks they own over fears of getting fired by their employers,” Tom Abruzzo, who goes by the Twitter handle @StockMarketHats, told Yahoo Finance.
Abruzzo says he trades stocks and sells stock market merchandise in his spare time. His employer isn’t in finance, but he wouldn’t be surprised if “other employers, especially the ones tied to finance, will be very wary and likely institute more burdensome restrictions on what employees can do trading wise and also on social media.”
Yahoo Finance reached out to Keith Gill and did not receive a response.
MassMutual said in a statement the company “is pleased to put this matter behind us, avoiding the expense and distraction associated with protracted litigation.”
Ines Ferre is a reporter covering the stock market. David Hollerith is a reporter covering cryptocurrencies and stocks.
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