Considering the high volume of media coverage, the most likely enforcement targets would be early investors and participants in the Reddit forum, like Gill. Many later investors were evidently joining the bandwagon of rising stock prices and excited to see if their efforts could disrupt Wall Street. Although some have characterized the trading as a “pump and dump scheme,” wherein promoters first “try to the price of a stock with false or misleading statements” before “selling their own holdings of the stock dumping shares into the market,” questions linger over whether any false or misleading transactions were ever actually made. Generally, Redditors were largely transparent about their motives and any charge against them would diverge from a typical SEC case. Gill testified that his only involvement in the GameStop trading was as an amateur investor sharing his ideas solely for the educational value, not manipulation. After his identification, Gill became the face of early investors who helped increase the popularity of GameStop stock, with even the House Committee on Financial Services calling him to testify during its hearings about recent market volatility. For example, Massachusetts is investigating one high profile Redditor, Keith Gill, for a possible violation of state securities regulations because he has a higher fiduciary duty as a registered broker-dealer and previously worked for MassMutual. Īlthough it may take months or years for the SEC to complete any investigation, enforcement actions, or criminal prosecutions against Reddit investors appear unlikely except in exigent circumstances. Under Section 9 of the Exchange Act, it is unlawful for a person to effect any transaction in a security to “creat a false or misleading appearance of active trading in any security . . . or a false or misleading appearance with respect to the market for any such security . . . .” Although the Commodity Futures Trading Commission has separately recognized a four-part test regarding manipulation, the SEC’s definition of “market manipulation” remains in flux to a degree. Primary among them here is the prohibition of market manipulation. The Securities Exchange Act of 1934 (the “Exchange Act”) was enacted to regulate and control transactions in securities and “insure the maintenance of fair and honest markets in such transactions.” Although anyone can invest in the stock market, there are some regulations that must be followed. There has been extensive fallout and speculation about what actions the SEC may take against individual traders and platforms like Robinhood, but what does it all mean? What is really likely to happen? Two days after its first statement, the SEC, without naming any specifics, again acknowledged its close review of the “actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities ” pledged to protect investors from “abusive or manipulative trading activity that is prohibited by the federal securities laws ” and cautioned investors against participating in such activity. (“Robinhood”) placed temporary pauses on trading of the affected stocks. Īs GameStop stock surged throughout the week, the Securities and Exchange Commission (the “SEC”) and the White House acknowledged monitoring market volatility to “maintain fair, orderly, and efficient markets . . . .” In response to the volatility, trading apps including Robinhood Markets, Inc. By the close of trading on January 27, 2021, the stock price had increased by 1,915 percent from the beginning of the year. Another new household name was the Reddit forum “r/wallstreetbets,” which is self-described as “a community for making money and being amused while doing it.” Users of the subreddit coordinated to purchase previously unpopular stocks, most notably GameStop, ultimately leading to a “10-day realized volatility 308%” just prior to the market opening on January 26, 2021. The unexpected story, however, came the following week when Americans were reminded of the existence of GameStop and learned all about “stonks.” To the uninitiated, the term “stonks” references a popular meme poking fun at the unpredictability and (in)sanity of the stock market. We all expected to see stories of President Joe Biden’s inauguration, if not breakout star poet Amanda Gorman. The end of January 2021 brought a few trending headlines.