A 23-year-old North Carolina man who worked at Auntie Anne's pretzel franchise and didn't have enough money in his bank account to cover a meal at Chipotle fraudulently bought nearly $200,000 in meme stocks in a "free-riding" scheme, the SEC alleges.
According to the SEC's complaint, Deyonte Jahtori Anthony is a fast-food worker who held various part-time jobs at restaurants and retail jobs and made less than $400 a month. He also did a bit of stock trading through an unnamed "online investing platform." On July 1, 2022, Anthony opened a brokerage account using an online form where he exaggerated his finances, claiming he had an annual income between $25,000 and $50,000.
In reality, the complaint states, Anthony was working at a pretzel franchise, earning a total of $333.09 in 21 hours of work before he was fired for not showing up to work on July 9, about a week after he fraudulently opened a brokerage account and mere days after his scheme was discovered.
The "free-ride" scheme that Anthony allegedly engaged in takes advantage of accounts that give clients immediate access to $200,000 worth of credit for pending deposits. According to the SEC, he made unfunded deposits from his bank account totaling $1 million into his brokerage account, starting with small deposits of $10 and $16, and immediately accessed all of his available credit.
At the time, his linked bank account had $0.09 in it. Another bank account in Anthony's name, which was not connected to his brokerage account, held less than $14.
Using his fraudulently obtained credit, the SEC alleges, on July 5 the fast-food worker bought $199,956.65 in meme stocks popular with investors on social media sites such as Reddit. He bought stock in Tesla, GameStop, and AMC, for example, as well as in Apple and an exchange-traded fund called the ETFMG Prime Cyber Security ETF (HACK).
Incredibly, it appears these trades worked out for Anthony. Before his alleged fraud was discovered, his portfolio was in the green to the tune of $7,127.25.
But, very soon, it all came crumbling down. The brokerage discovered that Anthony didn't have any money on July 7, and froze his account. According to the complaint, Anthony claimed it was all "a joke" and he "never really thought of it as fraud," and that he had the money to cover the $26 in small unfunded deposits he made. He did not have $26.
The brokerage liquidated Anthony's holdings and made a profit of over $7,000, according to the complaint. He did not get to sell any of his holdings himself and so made no gains from his scheme, and the broker had no losses. On July 11, his unfunded deposits were reversed by the bank.
According to an SEC press release, Anthony has not admitted or denied the allegations against him, but has consented to a judgement that would enjoin him from violating securities law, place injunctions on future trading activity, and force him to pay an unspecified civil fine.