GameStop, the video game retail chain, saw its shares rise by as much as 1,800% in January 2021 after fans, who believe the shares were unfairly devalued by major investors, defended the purchase of the shares.
As WallStreetBets, an online group on the social news platform Reddit, generated intense interest in stocks, some financial experts speculated whether the group was involved in market manipulation – that is, engaging in deceptive speech or stock buying tactics to inflate. artificially the price of a share.
Experts also wonder whether the Robinhood commission-free investment app has engaged in inappropriate behavior by restricting buyers’ ability to buy GameStop stock, resulting in its subsequent decline.
As a law professor who teaches First Amendment classes, I find the lack of clarity in the law on this subject fascinating.
The freedom of expression protections offered by the First Amendment are likely to protect many, if not all, anonymous posters on WallStreetBets from allegations of market manipulation.
Market manipulation claims
GameStop’s stock price skyrocketed in mid-January after members of WallStreetBets discovered that hedge funds were short selling the shares or betting that it would give them money when the stock price fell.
Anonymous members of WallStreetBets encouraged investors to buy GameStop shares, claiming that they would “go to the moon” and seriously harm Wall Street. According to some estimates, short sellers have lost $ 1 billion so far this year.
The influx of new investors into a struggling company likely created a stock bubble that would eventually burst, costing investors who bought GameStop stock shortly before its decline.
Whether WallStreetBets members can be held responsible for market manipulation depends on whether the First Amendment protects their right to speak anonymously.
Market manipulation involves deceptive behavior that artificially alters a stock’s price beyond its real value; therefore, freedom of expression is generally not a viable defense against these securities laws. Tricking consumers into artificially inflating a stock’s price – often called a “pump and dump” scheme – is therefore not protected by the First Amendment.
However, I am confident that the speech designed to express someone’s true opinions about a stock – or the benefits of holding Wall Street hedge funds accountable for their behavior – is a totally protected speech.
In many WallStreetBets posts, it is difficult to say whether an anonymous poster was intended to mislead investors. The author of the post may be sharing investment advice, sympathizing with others, or simply being silly and inflamed. All of these examples are protected speech.
One Redditor said that these investors would be part of a “deep story”, which is a statement about being part of a social movement.
Another said: “Take the money you can lose and buy, buy, buy. ”This statement does not indicate an optimistic view of how the stock will fare. Therefore, it probably does not equate to market manipulation and is a protected speech.
In these two cases, a court is unlikely to unmask Reddit posters and investigate whether they intended to deceive investors.
Judicial summary
One thing that makes this case so interesting is that the Supreme Court did not address these points directly.
Without Supreme Court guidance, appellate courts and first instance courts have split over standards to determine when a website may be required to disclose the identity of a poster after its users have allegedly engaged in illegal activities.
This means that jurisdictions may differ over when Reddit may be forced to disclose the identity of an anonymous author, if there are lawsuits against Redditors.
In that case, the limit issue will be whether the speech in question is considered commercial speech. Commercial discourse, which proposes or announces an economic transaction, has less First Amendment protection than other forms of defense.
Many WallStreetBets posts on GameStop do not propose a commercial transaction.
The posts involve discussions about Wall Street’s responsibility and how GameStop’s actions will fare. These posts are likely to deserve a higher level of First Amendment protection and thus keep the anonymity of posters intact.
Whether the United States Securities and Exchange Commission or a private individual is seeking the identity of an anonymous author may determine the level of First Amendment protection given to the anonymous speaker.
In some federal and state jurisdictions, if a government agency is seeking to release identity, it will have to show a compelling reason. Without unmasking a person’s identity, it would be difficult to prove market manipulation in this particular case, given the nature of Reddit’s posts.
In others, a government agency like the SEC may simply have to show a need in good faith for the information, which would likely include evidence of market manipulation.
In many jurisdictions, courts that determine whether to force Reddit to disclose an author’s identity will balance the First Amendment’s interest in anonymous speech with the validity of the market manipulation claim.
In the case of GameStop, many of the Redditors have engaged in central and protected speech on a matter of public interest, so the interest of the First Amendment will be strong.
If a court decides to investigate a WallStreetBets post, it will want to see the facts that indicate that the post was misleading and that the poster intended to share materially false information.
Since much of what was posted was bravado, sincere messages of solidarity or hope about the value of the shares, First Amendment interests are likely to outweigh the need to identify anonymous posters.
Perhaps, for some selected, a court may find that there is sufficient evidence of market manipulation to force Reddit to expose the identity of the poster. This scenario would require evidence that the poster was being misleading, which can be difficult to acquire given the nature of Reddit’s posts.
The line between freedom of speech and illegal market manipulation – and a determination of when blogs should unmask anonymous posters who may or may not be involved in market manipulation – will have to be drawn by the courts and ultimately resolved by Supreme Court.
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This article was republished from The Conversation, a nonprofit news site dedicated to sharing ideas from academic experts. It was written by: Erica Goldberg, University of Dayton.
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Erica Goldberg does not work for, consult, own shares or receive funding from any company or organization that would benefit from this article and has not disclosed relevant affiliations other than her academic appointment.