Opinion: Adam Aron’s latest stock sale rocks AMC, and Finra could rock E-Trade and everyone else

Adam Aron will no longer sell his AMC Entertainment AMC,
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shares, okay? Because $42 million in three months is enough for him and his bankers, okay?

For AMC’s loyal retail investment “monkeys,” that may not be acceptable.

After the company filed a Form 4 with the Securities and Exchange Commission on Wednesday, alerting investors that its memelord chief executive had sold another 312,500 of its shares on Jan. 11, Aron took to Twitter to assure his base. social media outlets that he’s down with his pre-arranged stock sale bonanza that has now netted $42.12 million in profits for the man who tapped AMC’s meme stock buzz in a “Planet monkeys” complete.

As Aron said in the tweet, he told everyone this would happen on AMC’s latest earnings call, but that didn’t seem to calm the nerves of some AMC stocks still HODLing as the stock closed 9%.

And Aron’s critics weren’t silent even with the warning.

“It wasn’t like he wasn’t all ready, a 1%er millionaire. Most here are poor or broke,” groaned one user on the r/AMCStock subreddit. cash and he always had paper. He took advantage of the monkeys created. We held on. Trust no costume!!!!!!!”

“He was the CEO of the 76ers and the Carnival cruise ships. If he’s spent all that money and he really needs the money for AMC, that’s a terrible choice to make as CEO,” another said. “I’m fucking pissed off.”

And Aron obviously also mocked his vocal critics on Twitter:

But there were also plenty of Aron supporters who remained loyal to their “Silverback”.

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

“Our CEO said over the summer that he was going to sell stocks now that he’s done selling time to get back to business,” another said. “AMC on the moon. I’m in.”

The monkeys also showed their support on Twitter.

The timing of Aron’s final sale was also a schadenfreude giveaway at some GameStop GME,
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The Monkeys, who came to resent the connection between the two largest meme stocks and pointed out that their Silverback – chairman Ryan Cohen – got involved as an activist investor a year ago and never sold his shares while focusing on GameStop’s debt and bottom line.

Cohen, who marked his GameStop birthday his way on tuesday, gained social media support on Thursday following Aron’s latest sellout.

GameStop’s stock, however, ultimately didn’t fare much better than AMC on Thursday.

Finra tries to protect E-Trade from itself

The Financial Industry Regulatory Authority is seeking a $350,000 fine from E-Trade (or as it is now called “Morgan Stanley’s E-Trade”) for failing to properly oversee the platform, allowing clients to engage to manipulative transactions.

In a consent letter signed by E-Trade and Finra, the trading platform accuses of having been inadequate to prevent clients from engaging in practices such as wash trading and fence marking, which are both illegal strategies used to manipulate stock prices by buying in volume.

Whereas “wash trading” uses multiple brokers to buy and sell the same stock almost all at once to create the appearance of the action – much like the financial equivalent of passing a ball through your hands so fast that it looks like there’s more than one bullet – “closing” loads on a stock at the very end of the trading day at a higher price to pop the morning thing.

According to the letter, E-Trade did not monitor these two items and did so on “thinly traded stocks”.

Taking into account that this happened between February 2016 and November 2021, and we could be looking at a new wrinkle in the movement of meme stocks.

Especially with this little extra on “Other potentially manipulative activity”:

E*TRADE did not have monitoring reasonably designed to detect transactions that
artificially increased or decreased the price of thinly traded stocks, such as when a
client attempted to artificially influence the price of a security by making a series of buying transactions within a short period of time to create the false appearance of interest and trading activity in the security, followed soon after by trading on the opposite side of the market to take advantage of an artificially inflated price.

Now this looks a lot like how an algorithmic trader moving large lots via 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 create big ones using a commission-free brokerage on stocks that no one was really paying attention to anyway.

And it could also be indicative of a larger trend that market watchers have been observing for some time now.

“We’ve seen recently where the volatility at the end of the day was much higher than it was throughout the same day,” said Joshua Mitts, a financial market expert and professor at Columbia Law School. “This begs the question, are there any trading algorithms running strategies to reverse momentum late in the day?”

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

Finra is like a paid babysitter for brokers, who cut a deal to let her save them from themselves, identifying issues the SEC might frown upon before the SEC can see at all. And in most environments, that might be the case here, but the SEC is under the leadership of Gary Gensler, who is very intrigued by the inefficiencies in market structure that underpin meme stocks and still is, according to many Beltway insiders, looking for a few bad guys in the whole thing.

In this new reality, Gensler might have an interest piqued by these kinds of Finra wrist-whacks, and due to a relatively new – and very obscure – Finra rule he might be able to provide Gensler with some sort of weapon.

“Finra’s ability to monitor transactions has really increased,” says Mitt. “They can perform client-level analysis with the CAT (Consolidated Audit Trail).

CAT has just become an industry-wide regulation that requires brokers to self-report and gives Finra a holistic view of individual orders by individual traders from the time they order until the time where they are executed, and then whatever happens next. It also keeps track of which brokers have processed them along the way, so even if E*Trade or Robinhood or whoever else doesn’t see someone washing the trade on BlackBerry BB,
-2.83%
stock at the end of 2020, Finra can if it wants to look.

But again, Finra is only looking to make sure his clients know they’re at risk of getting kicked on the wrist by a bigger fish, and indulging in the aforementioned “babysitter” analogy. , Finra often acts like a Netflix babysitter who would rather chill with her boyfriend than watch the kids.

“Finra is well suited to protect brokers from themselves, it is not well suited to review specific cases and build and then carry a case,” Mitts explained. “That’s what the SEC is here to do.”

And now that online brokers are seeing potential loopholes of their own making that allow for highly manipulative stock stuff that no one is watching, Finra might want to turn off “Emily in Paris” and tell the kids to lay down and pretend to sleeping, because Gary Gensler just pulled up in the driveway.

About Kristina McManus

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