Senator Elizabeth Warren (D-MA) asked the United States Securities and Exchange Commission (SEC) to investigate potential “market manipulation” after an army of redditers raised the value of GameStop’s stock to “squeeze” sellers into discovered from hedge funds. Warren characterized the scenario as a “flash mob with money” involved in “Internet commerce schemes”.
In a letter to the SEC released on Friday, the senator who used to chastise Wall Street in the past expressed deep concern about the Reddit army behind GameStop’s rise, speculating that potential “market manipulation” had taken place.
“I’m writing about the recent rise in stock prices at video game retailer GameStop, whose shares are ‘up 1.700% this month, including a 135% rise on Wednesday’ – driven by what an expert called a ‘flash’ mob with money ‘Warren started. “These violent fluctuations in the value of GameStop and other companies that are subject to similar bets by traders are ‘separate from the factors that traditionally help establish a company’s value to investors.’
“I am deeply concerned that these casino swings in the value of GameStop and other company stocks are yet another example of the skill of the game that interferes with the ‘fair, orderly and efficient’ function of the market, raising obvious questions about the public confidence in the market and those who trade in it, ”she continued. I am writing to seek information on how the SEC intends to address these concerns and to avoid these and future incidents of possible market manipulation. Hedge funds, like Melvin Capital Management, bet that GameStop’s stock would fall in the hope of making substantial profits. In recent weeks, however, GameStop’s stock prices have started to rise, with a dramatic rise in the past few days, fueled not by any changes in the company’s economic fundamentals, but by anonymous traders on the Reddit r / WallStreetBets forum. The news claims that these traders acted quickly to buy option contracts in an apparent attempt to reach large investors. “
Warren expressed concern that such rapid changes in the market could create general instability in the financial system, “forcing hedge funds on the losing side of these trades to sell parts of their portfolios to raise money to cover their losses.”
“These wild fluctuations are just the latest indication that many private equity firms, hedge funds and other investors, large and small, are treating the stock market like a casino, giving little consideration to companies, communities, workers and consumers. that can be affected by these risky bets, ”he argued. The recent chaos reveals a clear distortion in the bond markets, with benefits for investors that do not clearly benefit the company’s workers, consumers or the economy in general. “
Regarding the Reddit army, more specifically WallStreetBets, Warren lamented about the “worrying lack of clarity” behind the identities of those involved and “the degree to which their activities can be coordinated”.
“There is no way of knowing whether the messages that spread the GameStop come from ordinary Joes – or scammers who carry out a ‘bomb and eviction’ scheme of actions,” she said.
There is no reported evidence yet to indicate that WallStreetBets and those who led the squeeze were participating in a “pump-and-dump”, which would deliberately lie about the positive value of a stock and sell it to unsuspecting investors.
Read Warren’s full letter to the SEC here.
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