US regulators are engaging in the stock market version of whack-a-mole – rushing to suspend shares of companies with dubious prospects that have been touted to the moon on social media.
In a statement on Friday, the Securities and Exchange Commission said it had temporarily suspended trading for 15 companies due to concerns that their stock prices were artificially inflated.
“We proactively monitor suspicious business activities linked to social media stock promotions and act quickly to stop these negotiations when appropriate to safeguard the public interest,” said Melissa Hodgman, acting director of the SEC’s oversight division.
The SEC crackdown contributes to the aftermath of the GameStop Corp. frenzy, in which an army of day traders teamed up to bring long-ignored stocks to the stratosphere. The regulator has routinely sought to remove dying companies from stock exchanges because it is concerned about retail investors suffering losses, but that effort has accelerated amid this year’s wild trade.
In Friday’s action, regulators are venturing further into one of the most turbulent districts on the market, targeting low-cost stocks driven by price and volume frenzy by relentless pumping from social media. Frantic trading, often in non-profit companies, in poorly regulated brokerage networks is perhaps the most extreme example of speculative excess in the 2021 market, a scenario that also included growing cryptocurrencies and the mania for special-purpose acquisition companies.
Two weeks ago, the SEC suspended trading for SpectraScience Inc. – a company that had grown 633% in 2021 to just over two-tenths of a cent before the shutdown. The SEC order noted that, although the company has not filed reports in years and its phone number does not work, “social media accounts may be involved in a coordinated attempt to artificially influence” its share price. SpectraScience’s volume exceeded 3.5 billion shares in a single day at the end of January, up 167%.
None of the companies suspended on Friday submitted any information to the SEC for more than a year. Under federal securities laws, the SEC can prohibit trading for 10 days and prevent a broker from asking investors to buy or sell the shares again until certain reporting requirements are met.