You folks are so naive. This is just another Nigerian scam in disguise. Think about it. Are we still stuck in the late 90s? Since the 2008 financial meltdown, ET and just about all other brokers in the industry have risk protocols in place to protect themselves in a situation like this. His position would have been liquidated once his account balance breached that protocol. (ie. once it reached $0.00).
As someone else mentioned in another website, he could have just bought some puts. Other protection would be short the stock and buy calls to protect the position. In futures, this is why I set stops and don't trade overnight.
Not being naive. I said it is likely a scam. But the price gapped up overnight -- there is nothing ET could do. Even IB doesn't usually do after-market liquidations, and they are the most responsive.
I don't think it is about the ability to trade after-hours --- If Etrade could trade AH, and that is a big IF that the prices are even "fair" after AH, and then the stock did not gap up at all, the investor can sue Etrade for false liquidation and it is hard for ET to prove it did the right thing, since the official market doesn't show those prints.
IB will in fact auto-liquidate positions pre- and aftermarket. Also most brokerages will run a stress test on all open positions and they will force partial or complete liquidation just before the close of the market in case they feel the stock will run foul with their criteria of the test. Most stocks collapsed during the 2008 financial meltdown. Almost all of the stocks were severely impacted on the day of the Flash Crash. To say that ET (or any other brokerage) will allow you to trade with reckless abandon, even if the stock in question is only $2, would be an admission of utter ignorance. I don't think they're that stupid.
Everyone is blaming others and trying to get a free handout. Its a sad commentary on today's society.
Can anyone give an example of IB auto-liquidating pre-market for an account only holding equities? I have never heard of this. Yes, all brokers with portfolio margin do a test periodically and liquidate during the trading day or close. I see you picked up Obama's choice. Either I have to allow the broker to liquidate my position at random prices eg. -50% pre-market, or I must be trading with reckless abandon. I often see ask prices of 9999.99 for many stocks pre-market, so why not autoliquidate all accounts with short positions?
Also, if the story is true, he could just file bankruptcy. I googled and 401k's are protected by bankruptcy. It is negligence on Etrade's part to not have auto margin calls even in after hours so he is not liable for the loss beyond what he had in the account if he files for protection.