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TradeZero's Woes Continue

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Published: June 9th, 2022
The broker-dealer is now the subject of an SEC complaint, adding to a lawsuit and teetering merger with a SPAC.

Offshore securities firm TradeZero Holding Corp. has hit a rough patch.

It entered a $500 million de-SPAC transaction with Dune Acquisition Corp. (DUNE) in October, but the SPAC sued it in the Delaware Court of Chancery in April. Then the SPAC advised its investors to vote against approving the business combination in early May.

In the latest hiccup, the U.S. Securities and Exchange Commission filed a complaint on May 24 against the Bahamas-based broker-dealer, which does business as TradeZero America Inc., charging the firm and co-founder Daniel Pipitone with lying to investors.

The SEC alleged TradeZero and Pipitone told its customers that they never restricted purchases of meme stocks when that is actually what happened.

The SEC complaint alleged that on Jan. 28, 2021, TradeZero’s clearing broker instructed the firm to not allow its clients to buy three meme stocks, and the firm halted purchases in those stocks for about 10 minutes. The firm then told its clients it never halted trading in the meme stocks.

TradeZero and Pipitone consented to the SEC’s order and agreed to a cease-and-desist order without admitting or denying the charges. The company also agreed to retaining an independent compliance consultant and to pay a $100,000 civil penalty, and Pipitone agreed to pay a $25,000 penalty.

The SEC suit comes as TradeZero and Dune are still engaged in a proposed business combination and working toward different ends.

TradeZero appears to seek to complete the de-SPAC deal, while Dune’s board of directors has taken the unheard of position of asking investors to vote against the deal on June 14.

Dune has also asked shareholders to give it until Dec. 22, 2023, to find another deal. If shareholders vote against the TradeZero transaction and approve Dune’s deadline extension request, it would give the SPAC a total of 36 months from its IPO, which is the time limit that Nasdaq will allow for a SPAC to be listed that has not completed a de-SPAC.

TradeZero and Dune were on good terms when they agreed to a deal on Oct. 12 but have been exchanging blows ever since.

Dune’s Chancery Court suit alleged that TradeZero had induced the SPAC to enter the transaction via fraudulent misrepresentation and that TradeZero had breached the merger agreement.

TradeZero asked the court to dismiss the action two days after Dune asked its shareholder to vote against the deal on May 3.

Dune and TradeZero officials did not respond to requests for comment.

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