Congress plans to hold hearings on short sellers, digital trading platforms and WallStreetBets pumping GameStop stock 25-fold.
The price of GameStop ($GME) stock nearly hit $500 per share on Thursday, after a week of meteoric rises instigated by users of the WallStreetBets community on Reddit and bolstered by other retail traders.
These everyday traders forced a GME short-seller to close its position and accept a loss of billions of dollars, suggesting that Wall Street doesn’t quite have a monopoly on controlling the stock market. On Thursday, Robinhood and other retail trading platforms suspended purchases of GameStop, as well as AMC and other shares pumped by WallStreetBets in recent days.
The question now is how the U.S. government will react. As of Thursday afternoon, multiple lawmakers were planning hearings around the situation.
Representative Maxine Waters (D-Calif.), chairwoman of the House committee, said in a statement that hedge funds “have a long history of predatory conduct” that she called indefensible.
“As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors,” she said.
She added that hedge funds must be dealt with, though she does not appear to be looking at the WallStreetBets users or other retail investors who pumped a number of stocks to sky-high prices.
Details weren’t immediately available for the Senate committee hearing.
Financial regulators might be less well-equipped to respond to the trading or the suspensions.
Fox Business reporter Charles Gasparino reported the SEC is planning to investigate whether Reddit commenters manipulated the stock market in pumping GameStop and other company share prices. However, it’s unclear what these regulators could actually do.
One attorney with experience in the securities markets, who requested anonymity due to the lack of clarity around the issue, told CoinDesk that the SEC doesn’t have much leeway in this situation.
“What are they going to do? Prevent people from having chatrooms on a social media site? This isn’t even a pump and dump, because a pump and dump is a centralized effort by a handful of parties to move a stock,” the attorney said. “This is an effort by an entire community, by hundreds of people or perhaps thousands of people who are putting in a couple dollars here and there, and it works.”
CoinDesk reached out to the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC). The FTC declined to comment. The CFPB referred CoinDesk to the SEC, which also declined to comment.
White House Press Secretary Jen Psaki referred reporters to an SEC statement about monitoring the situation during a press briefing Thursday.
Asked if President Joe Biden or his administration was looking at Robinhood’s actions, Psaki said, “He's briefed by his economic team frequently but we don't have anything more for you … I don’t have anything more for you on this.”
New York Attorney General Letitia James also announced her office would also be reviewing Robinhood's actions on Thursday.
UPDATE (Jan. 28, 2021, 22:20 UTC): Adds an announcement from the NYAG's office.
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