The GameStop story is coming soon to the big screen, but we needn’t wait for the star-studded opening (nor even to read the book becoming said major motion picture) to know the gist: The villains are the big, bad hedge funds; the heroes the meme-slinging, giant-killing, self-proclaimed degenerate Redditors rocketing ostensibly worthless companies to the moon.

Suffice it to say, Massachusetts Secretary of the Commonwealth William Galvin does not subscribe to Ben Mezrich’s rather facile view. To him, as ever when it comes to anyone doing anything financial, there are only villains.

[Keith] Gill, known as “Roaring Kitty” on YouTube and “DeepF—ingValue” on Reddit, became an Internet folk hero in January, thanks to his prescient bets on GameStop stock…. At the time, Mr. Gill was registered as a broker at MML Investors Services LLC, a broker-dealer and investment adviser whose parent company is MassMutual. His role was director of education and wellness, and he was responsible for creating educational materials used by the company and its client-facing registered agents….

[Galvin’s] office said that while MML prohibited broker-dealer employees from discussing securities on social media, the company didn’t have “reasonable policies and procedures in place to detect and monitor” such activity.

Clearly not. Nor, it seems were they particularly attentive to their rules for keeping tabs on big-ticket stock purchases by employees such as Gill, nor their restrictions on employees trading on others’ behalf.

Mr. Gill carried out nearly 1,700 trades in the accounts of three other people…. Such trading by a broker outside the brokerage firm for which the broker works must be approved in writing ahead of time, under Massachusetts regulations, the settlement said….

Mr. Gill had informed the company of his access to the accounts of one of those individuals, and requested permission to manage them, which the company denied, Mr. Galvin’s office said. Mr. Gill was also managing outside investment accounts for two other people, a fact MassMutual failed to identify, the settlement said.

A third-party electronic monitoring system used by MML should have flagged transactions of more than $250,000 in a single security. But Mr. Galvin’s office said the company had disabled tracking for that so-called “excessive-trading rule….” Mr. Gill “was licensed under [MML], and we look to them to police their own members or their agents,” Mr. Galvin said in an interview. “It’s almost stunning [that the company] could be so clueless when it comes to their employees.” He added that the incident spoke to the “lack of oversight on their part” and “created chaos in the marketplace….”

An inquiry into Mr. Gill’s registration in Massachusetts is pending, Mr. Galvin’s office said.

Also no fan of Gill and the Reddit hordes is Jim Cramer. Unfortunately for both he and Galvin, SEC chief Gary Gensler seems to be.

“If three hedge fund members work in concert to smash a short hedge fund, the 5 million Reddit people would say that’s legal, but perhaps it shouldn’t be,” Cramer said. “If 5 million people decide to smash a hedge fund that’s short, is that ok? What’s within the bounds of what you can do to smash a short seller?”…

“People come on your show and they advocate either to buy or sell a security,” Gensler said. “Before we had television, people did it on the radio, now we have various social media platforms.

“That’s not only free speech, but it’s part of what makes our capital markets robust, that people can disagree and disagree using the media of the day.”

MassMutual Fined for Failing to Oversee GameStop Trader Keith Gill, Others [WSJ]
Ex-Employer of GameStop Trader ‘Roaring Kitty’ Fined for Lack of Oversight [NYT]
SEC Chair Gensler defends Reddit, GameStop investors’ right to ‘smash’ short sellers [MarketWatch]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Related

robinhood

Sheriff Of Boston-ham Comes For Robinhood

Massachusetts has some problems with the Millennial trading-game app.

robots

Do Robo-Advisors Have Electric Fiduciary Duties?

Gary Gensler’s latest thought experiment.

gamestop 3

SEC Monitoring GameStop Frenzy With Eye Towards Doing Nothing

Letting the Redditors have their fun seems to be a bipartisan point of agreement, which is great, because it probably can’t be stopped.

gensler

Will There Be Anything Left For Gary Gensler To Do At The SEC?

Interim chief Allison Herren Lee keeps taking things off his plate.

gensler

Maybe Having A Crypto Expert At SEC’s Helm Isn’t So Great For Crypto Company Being Sued By SEC

Gary Gensler knows what a cryptocurrency is when he sees it, and XRP may be right in his blind spot.

(Getty Images)

SEC Making Sure Gary Gensler Will Feel Right At Home

You can authorize and investigation and you can authorize an investigation and you and you and you, too!