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MemeMoney: Adam Aron’s latest stock sale rattles AMC, and Finra might be rattling E-Trade and everyone else

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Adam Aron won’t be selling any more of his AMC Entertainment AMC, -9.07% shares, okay? Because $42 million worth in three months is enough for him and his bankers, okay?

For AMC’s loyal retail investing “Apes,” maybe it’s not okay.

After the company filed a Form 4 with the Securities and Exchange Commission on Wednesday, alerting investors that its memelord chief executive had sold 312,500 more of his shares on Jan. 11, Aron took to Twitter to assure his social-media base that he is down with his prearranged share sale bonanza that has now yielded $42.12 million in profit for the man who leveraged AMC’s meme stock buzz into a full “Planet of the Apes.”

As Aron said in the tweet, he told everyone this would be happening during AMC’s most recent earnings call, but that did not appear to calm the nerves of some still HODLing AMC shares as the stock closed down 9%.

And Aron’s detractors were not being silent even with the forewarning.

“Wasn’t like he wasn’t all ready a millionaire 1%er. Most here hold poor or broke,” moaned one user on subreddit r/AMCStock. “He didn’t need the cash and still paper handed. He took profit apes created . We held. Trust no suit!!!!!!!”

 “He used to be the CEO of the 76ers and Carnival cruise ships. If he spent all that money and really needs AMC to have cash then he’s a terrible choice to have as CEO,” declared another. “I’m f—ing pissed.”

And Aron obviously also got some guff from his vocal critics on Twitter:

But there were also a lot of Aron supporters who stayed loyal to their “Silverback.”

 “He’s about to retire,” lectured another r/AMCStock user. “We know this. Haters can shut the FUD up.”

“Our CEO said back during the summer he was going to sell some shares now he is done selling time to go back to business,” said another. “AMC to the moon. I’am in.”

Apes also showed their support on Twitter.

The timing of Aron’s final sale was also a schadenfreude gift to some GameStop GME, -4.36% Apes, who have come to resent the linkage of the two biggest meme stocks and pointed out that their Silverback — chairman Ryan Cohen — got involved as an activist investor one year ago and has never sold his stock while focusing on GameStop’s debt and bottom line.

Cohen, who marked his GameStop anniversary in very much his own way on Tuesday, got some social-media support on Thursday in the wake of Aron’s most recent sale.

GameStop stock, however, ultimately fared not much better than AMC on Thursday.

Finra is trying to protect E-Trade from itself

The Financial Industry Regulatory Authority is getting E-Trade (or as it is now called “E-Trade from Morgan Stanley”) to cough up a $350,000 fine for failing to properly oversee the platform, allowing customers to engage in manipulative trading.

In a consent letter signed by E-Trade and Finra, the trading platform cops to having been inadequate in preventing customers from engaging in practices like wash trading and marking the close, both of which are illegal strategies used to manipulate the prices of stocks through buying in volume.

While “wash trading” is using multiple brokers to buy and sell the same stock almost all at once to create the appearance of action — kind of like the financial equivalent of passing a ball between your hands so fast that it looks like there is more than one ball — “marking the close” is loading up on one stock at the very end of the trading day at a higher price to make the thing pop in the morning.

According to the letter, E-Trade failed to watch both of these and they did so on “thinly traded stocks.”

Factoring in that this happened between February 2016 and November 2021, and we might be looking at a new wrinkle in the meme stock movement.

Especially with this little extra bit about “Other Potentially Manipulative Activity”:

E*TRADE did not have surveillance reasonably designed to detect trading that
artificially increased or decreased the price of thinly traded stocks, such as when a
customer attempted to artificially influence the price of a security by effecting a series of buy transactions within a short period of time to create the false appearance of trading interest and activity in the security, followed shortly thereafter by transactions on the opposite side of the market to reap profits from an artificially increased price.

Now, that sounds a lot like how an algorithmic trader moving large lots through E-Trade could have played the rise and fall of memes even as far back as Hertz’s bizarre journey in the summer of 2020, using small moves to crate big ones by using a zero-commission broker on stocks that no one was really paying attention to anyway.

And it might also speak to a wider trend that up-close market watchers have been picking up on for awhile now.

“We’ve seen recently where the volatility at the end of the day has been way greater than it was throughout that same day,” mused Joshua Mitts, a capital markets expert and professor at Columbia Law School. “It does raise the question, are there trading algorithms executing strategies to reverse momentum late in the day?”

While something this wonky and a fine this small is not going to make big waves [unless you’re a relieved Morgan Stanley MS, -0.49% or a cheap thrill-seeking Robinhood HOOD, -5.85% happy to see Finra picking on someone else for a change] it might also be something that just goes away if other regulators don’t find it interesting.

Finra is like a paid babysitter for brokers, who enter in an agreement to let it save them from themselves, identifying issues that the SEC might frown upon before the SEC gets to see it at all. And in most environments, that might be the case here, but the SEC is under the guidance of Gary Gensler, who is very much intrigued by the market structure inefficincies that underpinned meme stocks and is still, according to many Beltway insiders, looking for a few villains in the whole affair.

In this new reality, Gensler might have interest piqued by these kind of Finra wrist slaps, and because of a relatively new — and very arcane — Finra rule, it might be able to provide Gensler with something of a weapon.

“Finra’s ability to monitor trades has really increased,” explains Mitt. “They can do customer-level analysis with the CAT (Consolidated Audit Trail).”

The CAT just became an industry-wide regulation that compels borkers to self-report and give Finra a holistic view of individual orders by individual traders from the moment they order to when they are filled and then whatever happens next. It also keeps track of which broker-dealers handled them along the way, so even if E*Trade or Robinhood or whomever else fails to see someone wash trading on BlackBerry BB, -2.83% stock in late 2020, Finra can if it wants to look.

But again, Finra only looks to make sure that its clients know they’re in danger of getting a slap on the wrist from a bigger fish, and indulging the aforementioned “babysitter” analogy, Finra often behaves like a babysitter who would rather Netflix n’ chill with her boyfriend than watch the kids.

“Finra is well-suited to protect brokers from themselves, it’s not well-suited to look into specific instances and build, and then bring, a case,” explained Mitts. “That’s what the SEC is there to do.”

And now that online brokerages are seeing potential loopholes of their own making that allow for some very manipulative stuff on stocks that no one is watching, Finra might want to turn off “Emily in Paris” and tell the kids to get in bed and pretend to be asleep, because Gary Gensler just pulled up in the driveway.

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