A former part-time pretzel-shop worker bought US$200,000 worth of mostly meme stocks with money he didn’t have, and his brokerage ended up making a profit according to a complaint recently filed by the U.S. Securities and Exchange Commission. That’s a lot of dough for someone who only had nine cents in the bank account connected to his trading platform.
I canvassed social media and was surprised to learn that there is a degree of admiration for the defendant’s alleged fraud.
According to the complaint, 23-year-old Deyonte Jahtori Anthony of North Carolina, exploited a feature that many brokerages, including some in Canada, make available to investors who might want to start placing trades before their initial deposit of funds makes its way into their brokerage account.
It’s sometimes referred to as “instant deposit” or “immediate access.” Once you initiate a deposit from a linked bank account to your brokerage account, you can be given access to a portion of that transfer amount to start trading before the money settles.
And in the case of Mr. Anthony, he used a broker with a very liberal instant deposit policy. While he only had nine cents in his linked bank account, he initiated multiple transfers to his brokerage worth a total of US$1-million. This would allow him to instantly access US$200,000 to place trades.
He immediately proceeded to use US$199,956.65 of the available US$200,000 of instant funding his brokerage made available to purchase nine different securities including GameStop (US$78,448.50); AMC (US$12,680); Apple (US$84,870); Tesla (US$691.18); and Nvidia (US$22,457.87).
The brokerage discovered his fraud one day later and froze his account and liquidated his holdings at a profit of US$7,127.25, which the brokerage kept.
I have lots of questions.
Of course, Mr. Anthony’s alleged actions are fraudulent. But while Mr. Anthony’s actual income was about US$400 per month, how did a brokerage authorize US$200,000 in instant credit to a 23-year-old who applied for an account with a reported income between US$25,000 and US$50,000?
It’s not mentioned in the complaint whether he also reported inflated assets held elsewhere, but a simple cap on instant access credit seems prudent given deposits clear in only a few days. If a trade needs to be executed so urgently, is that in and of itself not a red flag for a new account?
To what degree will this scheme attempt to be copycatted in the future? This is a real concern as, according to the SEC, Mr. Anthony says he thought of his scheme as a joke, and never really considered it fraud.
It’s the stuff of legends for the WallStreetBets community on Reddit. And with more and more people adopting conspiratorial views of the world, coupled with the celebrity of fraud – through the likes of Elizabeth Holmes, Martin Shkreli and Frank Abagnale – it turns out more and more people are coming to view fraud perpetrated by the little guy against faceless corporations as … acceptable.
Are we witnessing a new type of “recreational fraud”?
Last month, it was reported that the Australian Tax Office (ATO) admitted to paying out AUD$1.6-billion in fake goods-and-services tax claims as the result of TikTok users creating and sharing a strategy on how to get a loan from the government by setting up a business and then making fake expense claims to generate large GST refunds.
The ATO was bombarded with thousands of false claims per day. While it paid out AUD$1.6-billion, the total amount of fraud attempted was reportedly closer to AUD$4.6-billion. More than 50,000 people attempted the tax fraud, and as the first wave of convictions hit, it’s becoming clear that at least some people knew what they were doing was wrong but that they’d give it a go anyway.
Some people convicted in the Australian tax fraud are going to prison.
Mr. Anthony’s fate is uncertain, but the SEC is seeking trading restrictions and a civil penalty, which would likely be unpleasant even at nominal levels given his reported financial situation.
Following the Jan. 6, 2021, attack on the U.S. Capitol, many of the participants in the riots expressed surprise that they would face consequences – and even jail time – for their actions. Recreational fraudsters will similarly learn that there’s a cost for breaking the rules, regardless of how you feel about them.
Editor’s note: A previous version of this story said the U.S. worker had bought US$1-million worth of stocks. That number has since been changed to US$200,000.
Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.