FINRA 'discipline': From January 2016 - April 2022 Elevation, LLC supervisory system was not reasonably designed to detect potential fraudulent trading, including spoofing, layering, and wash trades, in equity securities.

Penalty? Without admitting the findings, a censure and $75k fine.

Background — Source: https://www.finra.org/sites/default/files/fda_documents/2016049229501%20Elevation%2C%20LLC%20CRD%20140341%20AWC%20gg.pdf

FACTS AND VIOLATIVE CONDUCT:

Elevation failed to have a supervisory system reasonably designed to achieve compliance with applicable federal securities laws and FINRA rules prohibiting fraudulent trading, including spoofing, layering, and wash trades.

Elevation failed to have a supervisory system reasonably designed to achieve compliance with applicable federal securities laws and FINRA rules prohibiting fraudulent trading, including spoofing, layering, and wash trades.

Penalty?:

Without admitting the findings, a censure and $75k fine.

How could this impact GameStop?:

OTC exchanges, traded OVER 1.27 BILLION shares of GME between Dec 2020 and May 2021.
OTC markets are less regulated than formal exchanges, providing a fertile ground for spoofing, layering, and wash trades.
Lack of transparency and lower trading volumes in the OTC markets make it easier for individuals or entities to manipulate stock prices through these techniques without immediate detection.
These tactics can be used to artificially depress GameStop's share price.
- These traders may engage in spoofing or layering to manipulate the market price of a stock downwards, making it more profitable to engage in naked short selling.
- Wash trades can be used to cover up the illegal activity by creating artificial volumes so it becomes difficult to track real stock movements, including illegal short sales.

TLDRS:

Elevation Securities failed to establish a supervisory system designed to comply with laws and FINRA rules against fraudulent trading practices such as spoofing, layering, and wash trades from January 2016 - April 2022.
- Penalty? Without admitting the findings, a censure and $75k fine.
The issue was identified through FINRA's surveillance of potential spoofing in over-the-counter (OTC) markets, which are less regulated than formal exchanges and thus more susceptible to such illicit trading activities.
Remember, between December 2020 and May 2021, over 1.27 billion shares of GameStop (GME) were traded in OTC markets.
Fraudulent tactics like spoofing and layering could be employed in the OTC market to artificially lower GameStop's stock price, benefitting those involved in naked short selling.
Wash trades are used to create false trading volumes, obscuring the tracking of real stock movements and covering up illegal activities, including unauthorized short sales.