In the stock market, timing is everything. A little too early and you miss, a little too late and you can really get pounded. E*Trade may be forced to answer for its alleged locking out of investors as oil prices hit the floor (and below) this past spring.
As the WTI Crude futures collapsed into negative territory on April 20, many retail investors lost a lot of money as they were unable to sell the front-month futures contracts they had purchased. Some brokerages limited the ability of their smaller customers to place new trades in the June futures contracts of WTI and Brent Crude, after the May contract of WTI Crude plunged to as low as minus -US$37 a barrel on April 20.
According to the class-action lawsuit filed with the Northern District Court of California on Tuesday, E*Trade failed to explain to investors that oil prices could go negative and failed to adequately test its trading system to see how it would handle negative prices. E*Trade clients who wanted out of the May WTI Crude contract on the day the prices went negative were unable to do so because the brokerage’s systems failed and locked users out, the lawsuit alleges.
The collapse in WTI Crude futures in April triggered investigations by the SEC and by law firms on behalf of their risk-averse clients. Klayman & Toskes, for example, announced as early as on April 24 that they were undertaking an investigation on behalf of risk-averse investors with Wells Fargo, Morgan Stanley, UBS, and Merrill Lynch, who had sustained significant losses recently from investment in the turbulent energy sector.
The United States Oil Fund LP (NYSEARCA: USO) – one of the most popular oil-tracking funds for retail investors and believed to be one of the reasons for the historic plunge in the May WTI futures – was also hit by a class-action lawsuit in June. Investors in USO filed a class action complaint against the fund for alleged violations of the Securities Exchange Act between March 19, 2020, and April 28, 2020.
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