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The US Securities and Exchange Commission (SEC) has been carefully reviewing social media posts, as the federal regulator is looking out for any signs of potential fraud, which may have increased due to the frenzied trading of GameStop and other firms’ shares.
The SEC‘s probe into these recent activities including social media or online posts is being carried out along with a review of financial trading data in order to determine if these posts were part of manipulative tactics. These abusive activities may have led to a dramatic surge in share prices, Bloomberg News confirmed on Wednesday (February 3, 2001), while citing several sources familiar with the matter.
The “meme stock” rally has been driven (to a large extent) by conversations or exchanges carried out in the Reddit forum WallStreetBets which reportedly led to highly-inflated stock prices for companies that had not been performing well, such as GameStop (NYSE:GME), which saw its share prices surge 1,600% last month before losing 70% of its value this past week.
GameStop shares managed to close at a fairly modest 2.7% this past Wednesday, at $92.41, but has now crashed to around $53.50 at the time of writing.
It had not been clear, at first, whether the target of the SEC probe would be some of the smaller, retail investors who have been aggressively promoting GameStop in order to go against large hedge funds. It may also be the case that the SEC is now looking into whether bigger investors might be manipulating social media behind the scenes as well.
WallStreetBets forum participants have been criticizing and even mocking the SEC’s potential move to investigate their activities.
One of the forum members noted:
“To the SEC lawyer reading this: I like to cover myself in lube and pretend I’m a slug.”
Another member said:
“Hello to all the new SEC interns. I bought 11 more shares yesterday/today. I just like the stock ok.”
Industry analysts have stated that it may be difficult to actually prove any fraud or wrongdoing against someone for simply talking up or hyping up a stock, unless that individual has made false claims about the firm in some manner.
In statements shared with Bloomberg, Brad Bennett, a former enforcement chief for brokerage regulator the Financial Industry Regulatory Authority, clarified:
“It’s no crime to go on a website and say, ‘I think the stock’s going to go up.’”
If investors or the general public decides to follow your recommendations, then none of that’s actually a violation or crime, Bennett added.
Recently, the SEC’s Acting Chair Allison Herren Lee stated that the regulator would be working “around the clock” to identify potential market manipulation or other abusive activities in financial markets.
During an interview with NPR, Lee pointed out that this situation might be just a “little bit more challenging” than the agency’s usual day-to-day tasks.
Meanwhile, Reddit forum WallStreetBets’ users have been encouraging people to buy GameStop, AMC and several other stocks, which led to dramatic short-term surges in the share prices of these companies before crashing hard.
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