Sanford Heisler Sharp is Investigating Misconduct Involving Options Assignment

by | May 5, 2018 | 401(k) Mismanagement, Investment Fraud

Sanford Heisler Sharp is currently investigating the way E* Trade recently handled the assignment of a naked in-the-money put on the S&P 500 ETF (symbol SPY). A volatile price drop in SPY on the Friday of expiration triggered a likely assignment of 5,000 SPY shares. Rather than closing out the put contract before the close of options trading on Friday, or waiting until Monday to resolve the trade, E* Trade apparently took control of the investor’s account after the market’s close and unwound the position in a manner that greatly benefitted them at the expense of the investor. Without the investor’s knowledge, E* Trade allegedly loaned 5,000 SPY shares to the investor’s account. It then sold those shares short in the “after-market” at an unfavorable price. Using the proceeds from the short sale, it then seemingly purchased the 5,000 SPY shares assigned by the put contract at a higher price and returned those shares to themselves to cover the short SPY position it had initiated. The prices at which these trades were done were approved by E* Trade.

Sanford Heisler Sharp believes E* Trade’s handling of the assignment was both commercially unreasonable and fraudulent. Had E* Trade closed out the contract before Friday’s close, or let the investor address the assignment in an orderly manner at the market’s open on Monday for a substantially more favorable price, the investor may have actually made a small gain. Instead, it appears E* Trade’s conduct locked in a loss for the investor while guaranteeing for itself lending fees and brokerage commissions. We believe E* Trade’s actions constituted a bad-faith exercise of its right to take control of the investor’s account for its own self-interest.

Sanford Heisler Sharp is investigating whether this is a pervasive course of business conduct among brokers. If you believe you have been the victim of investor fraud or deceit in connection with the exercise of option contracts, please contact the investment fraud lawyers at Sanford Heisler Sharp.