Business & Investment

Are GameStop shares manipulated by social media users or are they free speech?Weighted by legal experts

Clash between GameStop enthusiasts
+ 18.12%

And those who are betting that the company is overvalued are helping to push Texas-based video game retailer stocks into the stratosphere.

But it also fuels concerns about market manipulation — and the growing influence of retail investors touted by bullish talk on the Reddit chat forum.

Stock Wild Ride It seems that it was sent onlineEspecially in places with intense stock support, such as Reddit’s WallStreetBets community.

“If you have a question for a major player, I will be shocked. [GameStop] Sabino & Sabino’s securities lawyer and professor of business law, Anthony Sabino, told MarketWatch, “It wasn’t created by the Securities and Exchange Commission from both a buyer’s and a seller’s perspective. I did. ”

GameStop’s share price was 18% on Monday, a record high of $ 76.79. On a turbulent trading day Stock prices also reached a peak during the day at $ 150. So far in January, stock prices soared 308%, but the Dow Jones Industrial Average averaged only 1%.

2.5% or more for S & P 500
+ 0.36%

According to Sabino, the sharper the stock price surge, the more likely regulators will be investigating GameStop’s move.

Indeed, that rise poses another problem in the absence of news that moves the market. The difference between a legal and fully legal stock market hype in a 21st century social media chat room and a market manipulation that makes some investors take advantage of it. Others.

Will such legal concerns affect GameStop’s transactions? Given that the Biden administration is in charge of the Securities and Exchange Commission and, analysts say, it is ready for leadership with regulators, this is probably a timely question. Known for aggression..

For the sake of clarity, there are no allegations of fraud against GameStop. No significant company updates have been released.

The company did not respond to requests for comment from MarketWatch.

“In principle, people are allowed to make stupid investment decisions.”

— Barbara Roper, Director of Investor Protection, Consumer Federation of America

In many respects, GameStop trading is bolded by ultra-low interest rates and a flood of liquidity from the US government into the financial markets, with ultra-low interest rates and the fatal economic impact of COVID. It highlights the speculative enthusiasm in the market that stops the economy-19. In addition, online trading platforms such as Robinhood and Stash facilitate betting on stocks, while platforms like Reddit provide a virtual place for investors to exchange ideas and coordinate with companies like GameStop. You may also make a bet.

“In contrast to attempts to manipulate the market, distinguishing beliefs that are held in good faith is very gray, which is a very vague area,” Sabino said.

Bill Singer, a veteran securities lawyer at Herskovits PLLC, told MarketWatch that “there may be a subtle line between encouraging people to buy or sell shares in a particular stock and the fraudulent intent to manipulate the results. Maybe, but there are still some subtle boundaries, “he said.

“You have the right to your opinion, both online and offline. You have the right to push your bet and encourage others to join you. It’s not a scam. It’s an opinion.” Said the singer.

At the beginning of monday CNBC Jim Cramer I was confused by the upward march of GameStop. “The market structure is collapsing. It is arguable that these people are all one group.” (Kramer also said that his securities lawyer has stakes stocks among social media users. He said he told him that the call to buy was protected under “free speech.”)

(A SEC spokesman declined to comment.)

But what do regulators need to do to begin proceeding against such buyers and sellers?

According to experts, misrepresentation of important facts to fool investors.

“In principle, people are allowed to make stupid investment decisions,” says Barbara Roper, director of investor protection at the Consumer Federation of America. “No one else is allowed to fraudulently drive stupid investment decisions,” she said.

For example, comments like “I think this is the best stock ever” are within range, Roper said. But she said it’s out of scope to say that, for example, a company did not patent to push up its stake, but did.

Regulators and prosecutors seeking to prove fraud must take action with false statements or omissions of important facts, Singer said. They also have to show that those misrepresentations knew when they weren’t true, thus misleading the victimized “reasonable” investors.

“This obviously causes problems when many novice traders swirl around the stock, posting childish comments for hours every day and burning other posters,” Singer said. It was.

Read again: Chris Sacka ridicules “Robin Hood Brothers” who spurred investment advice: “Stonk never goes down!”

Whether it’s a childish comment or not, Mr Sabino said regulators would be interested in what motivates investors to push up stock prices. “In fact, are they a group of unorganized, heterogeneous individual investors, a group of more organized investors, or a group of sophisticated investors,” he said.

“Their main motivation is,’Do we need to keep this price or lose our shirt?'” He added.

Go back to Reddit One moderator strongly opposed the idea that users were manipulating prices in their favor... “What I think is happening is that you are so influential that these fat cats are worried that they will have to get up and work to make a living. That’s it, “said the moderator.

The singer speculates that there may be an online “scammer” trying to game the system and pushes the stock up to make a profit. “But more likely, only those who are’playing’the market against other people who aren’t playing the game,” he said.

That’s not new, despite Kramer’s dramatic declaration of a broken mechanism in the market, Sabino said. “Forks have been quarreled in the pool hall for generations,” he said.

Familiar play with new investors has been one of the long-standing aspects of the market. Some people buy, sell, and leave others hanging in the “pump and dump” scheme, Roper said.

Current new features are a combination of these forces and developments that accelerate the execution of these scenarios, such as social media and fee-free trading.

“While the enormous increase in efficiency that technology brings to the market has great benefits, it also has disadvantages because it reduces the barriers that can lead to unreasonably enthusiastic behavior,” Roper added. It was.

People who hype stocks, whether within legal limits or not, have “bigger loudspeakers” online.

Are GameStop shares manipulated by social media users or are they free speech?Weighted by legal experts Are GameStop shares manipulated by social media users or are they free speech?Weighted by legal experts

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