Elizabeth Warren Urges SEC to Review GameStop Surge, Prevent ‘Market Manipulation’

Sen. Elizabeth Warren, D-Mass., speaks to the media outside her home Thursday, March 5, 2020, in Cambridge, Mass., after she dropped out of the Democratic presidential race. (AP Photo/Steven Senne)
Steven Senne/AP Photo

Sen. Elizabeth Warren (D-MA), who has long billed herself as an enemy of Wall Street, is urging the United States Securities and Exchange Commission (SEC) to review the recent surge in stock for video game retail company GameStop that was spurred by an online Reddit community.

This week, the prices of GameStop, Blockbuster, Koss, Blackberry, and Nokia all shot up as a struggle escalated between retail investors — many inspired by a Reddit board called r/WallStreetBets and a YouTuber going by the handle Roaring Kitty — and hedge funds that short those stocks. Some of the Redditors believed Wall Street had undervalued the companies, especially GameStop. At least some of the hedge funds were squeezed out of their short positions, forced to buy shares to cover their shorts when the price rose sharply. That buying helped push the prices up even more.

Shares of GameStop, which had been as low as $2.57 a share last year, were trading at $327 on Wednesday.

In response, Warren has sent a letter to the SEC asking that they review the surge in GameStop stock, those Redditors involved, and wants increased enforcement to “address these concerns and prevent these and future incidents of potential market manipulation.”

Warren writes:

I am writing regarding the recent surge in share prices for the video game retailer GameStop, whose stocks are “up 1,700 percent this month, including Wednesday’s climb of 135 percent” — driven by what one expert called a “flash mob with money.” These wild swings in value of GameStop and other companies that are subject to similar bets by traders are “detached from the factors that traditionally help establish a company’s value to investors,” I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the “fair, orderly, and efficient” function of the market, raising obvious questions about public confidence in the market and those trading in it. I am writing to seek information on how the SEC intends to address these concerns and prevent these and future incidents of potential market manipulation. [Emphasis added]

Although “[f]ederal securities law prohibits market participants from misrepresenting a company’s prospects to artificially affect its share price,” there is a troubling lack of clarity regarding who the major market participants are in this case and the degree to which their activities may be coordinated. With many of these traders “cloaked in anonymity, there is no way of knowing whether messages touting GameStop come from average Joes — or scam artists executing a ‘pump-and-dump’ stock scheme.” [Emphasis added]

The Commission must review recent market activity affecting GameStop and other companies, and act to ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders. To protect and restore public trust in sound securities regulation and enforcement, the Commission must identify gaps in existing securities laws and rules and ways in which the Commission can improve its enforcement capabilities. [Emphasis added]

Warren is asking the SEC to respond by February 5 to a series of questions, including “What were the causes of the recent dramatic shifts in GameStop share prices?” and “Did these shifts represent a ‘fair, orderly, and efficient’ market function?”

Notably, Warren asks the SEC to “what extent did online message boards, such those on Reddit, or broader social media amplification impact the fluctuation of GameStop’s prices?” and if the Redditors’ practices “violate existing securities laws?”

John Binder is a reporter for Breitbart News. Email him at jbinder@breitbart.com.

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