A key task for compliance divisions within wealth management firms is to keep track of the activity of their broker-dealers. This includes monitoring for potential insider trading and market manipulation, trading in another person’s account, and whether the volume of trades by any one dealer on a given day violates firm-imposed caps.
A Massachusetts life insurance company’s wealth management division apparently missed nearly two years’ worth of red flags by one of its broker-dealers, who turned out to be a driving force behind the “meme stocks” craze earlier this year. And now the firm is paying for that lapse in oversight.
MML Investors Services (MMLIS), a subsidiary of Massachusetts Mutual Life Insurance Co., accepted a $4 million fine levied by the Massachusetts Secretary of the Commonwealth in connection with the trading activity of one of its broker-dealers. Keith Gill, better known as the “Roaring Kitty” user on Reddit and other internet platforms, whipped up a trading frenzy on GameStop and several other previously moribund stocks. The company also agreed to pay $750,000 to settle unrelated charges regarding nearly 500 employees involved in securities trading who were not registered as broker-dealers with the commonwealth.
According to the consent order, filed Wednesday, MMLIS failed to monitor the activities of Gill as he completed more than 1,700 trades in the accounts of three other individuals, including two single-day trades by Gill of more than $700,000 that exceeded the firm’s pre-determined transaction limit of $250,000.
“It’s clear that MassMutual was not as diligent as it should have been in supervising its employees,” said Secretary of the Commonwealth William Galvin in a press release. “It took the media less than a day to identify the person behind the Roaring Kitty posts, while his own employer took no notice of his online persona.”
Gill was a registered broker-dealer with MMLIS from April 2019 until he was fired in January 2021. His title was director of education and wellness for an MMLIS marketing program designed to “attract new customers and retain existing customers through educational offerings.” Gill’s job was to create marketing materials and did not require him to execute trades on behalf of customers.
In his free time, starting in August 2019, Gill posted more than 250 hours’ worth of videos to YouTube and at least 590 tweets, all touting his investments into GameStop and other stocks. Although he did so under the name “Roaring Kitty” and another pseudonym, his face was never obscured, the order noted.
“MMLIS policies were inadequate to detect Gill’s social media activities,” the order stated, as well as the firm “failing to have adequate policies and procedures in place to detect and monitor broker-dealer agent trading in the accounts of others.” MMLIS’s third-party electronic trading surveillance program was “substantially flawed,” the regulator concluded.
According to the order, during Gill’s tenure with MMLIS, his supervisor met with him only once in a group setting and never one-on-one. The supervisor was also responsible for overseeing the activities of approximately 500 other home office agents, the order said.
“Gill ran rampant on his personal social media—frequently and extensively posting regarding generic and specific securities,” the order said, on YouTube, Twitter, Reddit, TikTok, StockTwits, and Seeking Alpha. He occasionally referred to himself as a security analyst.
At least one MMLIS employee knew about Gill’s interest in GameStop around September 2020. But no action was taken until a “low-level employee” brought Gill’s social media activities to the attention of his immediate supervisor and the head of the marketing program on Jan. 18, 2021.
Gill submitted his resignation three days later and was fired on Jan. 27, the order said.
As part of the consent order, MMLIS must hire a consultant within 90 days to conduct a comprehensive review of its policies and procedures related to the matter, including:
- Broker-dealers’ use of social media platforms;
- Detecting and monitoring broker-dealers’ trading in the accounts of others;
- Monitoring the personal trading of MMLIS registered agents; and
- Compliance training for all affected employees
MMLIS must also submit a comprehensive report on the consultant’s findings to the Massachusetts Secretary of the Commonwealth within 180 days and will conduct an annual compliance review for three years after the report is filed.
Gill, under subpoena, testified before the commonwealth’s Division of Securities earlier this year, according to the Boston Globe. He is still under investigation, a spokesperson for the division told the Globe.
On Thursday, a spokesperson for MassMutual released this statement to the Globe: “MassMutual is pleased to put this matter behind us, avoiding the expense and distraction associated with protracted litigation.”