Proving that GameStop manipulation will be difficult for the SEC and others

The United States Securities and Exchange Commission will struggle to prove that the recent surge in GameStop Corp. and others like it are the result of market manipulation.

“One point of view is that there is clever manipulation by sinister manipulators,” John Coffee, a professor at Columbia Law School, told FOX Business.

GameStop shares surged on Friday and climbed 1545% since Jan.12 after a group of investors rallied to squeeze short sellers who had increased their bets against the video game retailer to around 150% of outstanding shares.

Other heavily bypassed names including AMC Entertainment Holdings, Bed Bath & Beyond Inc. and BlackBerry Ltd. also saw outsized gains due to similar short presses.

The idea of ​​launching a counterattack on these short sellers was linked to the WallStreetBets bulletin board on the Reddit discussion site.

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“The other point of view is that Wall Street is inundated and overtaken by thousands of retail investors walking Wall Street like French peasants during the French Revolution, carrying pitchforks,” he added. “They are inexperienced. They don’t know anything about investing, but they believe in the momentum and they’re going to keep pushing something up, thinking it’s going to last forever.

The SEC said Friday it was monitoring developments and would “act to protect retail investors when the facts demonstrate abusive or manipulative business activity that is prohibited by federal securities laws.”

– US Securities & Exchange Commission, 1-29-21

The SEC said on Friday it was monitoring developments and “would act to protect retail investors when facts show abusive or manipulative business activity prohibited by federal securities laws.”

Proving manipulation is extremely difficult, according to Coffee.

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“The problem is distinguishing the true believers who have committed no crime from those who are just trying to get others to buy, to jack up the stock because they want to tighten the shorts,” he said.

To do this, regulators would need to find a technique or tactic used by those looking to manipulate the market, such as sending explosive emails to thousands of investors.

“There are a lot and a lot of these true believers,” Coffee said.

Retail investing has grown in popularity as more Americans have found the time to monitor their investments while working from home during the COVID-19 pandemic.

This environment has led to a 50% increase in the number of households making trades, according to Charles Schwab, who also owns TD Ameritrade. Many of them have little investment experience and in the long run they could be the ones who will suffer the most from the consequences of what happens in GameStop and other similar actions.

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“Putting safeguards around this type of otherwise legal activity will hurt the flow of information to the market in the long run,” wrote Jennifer Schulp, director of financial regulation studies at the Cato Institute, a think tank. with a libertarian tendency. “Increased participation of retailers in the market should be welcomed as an opportunity for people to build their wealth over the long term, especially when they are made aware of the risks and rewards of investing.”