Being criticized for their manipulation of the market, why is the Reddit investor group still ‘at peace’ over the possibility of prosecution?

Tram Ho

On Friday, the US Securities and Exchange Commission (SEC) announced that it was pondering what was going on, as user groups on Reddit caused stocks of some companies to spike. However, while retail investors have succeeded in squeezing institutional investors, experts do not see their actions as manipulating the market.

Joseph Grundfest, professor at Stanford and former SEC commissioner, said: “If someone posts on a ‘subreddit’ that they are excited and are buying a company’s stock while they’re actually selling, then It is against the rules. ” But if out of all the tweets and posts there is no misrepresentation, you can see that there is no illegal activity here, “he added.

The frenzy that took place last week has left managers facing an unusual challenge. While speculation has been on stocks in the past, it is rare for retail investors to buy in large quantities, to the point of causing institutional investors to bet against heavy losses. so.

 Bị chỉ trích có hành vi thao túng thị trường, tại sao nhóm nhà đầu tư Reddit vẫn bình yên vô sự trước khả năng bị truy tố? - Ảnh 1.

Retail investors discussed how, if they buy in sufficient quantity, they can force the short to buy stocks to reduce losses, thereby fueling further momentum. Traders are constantly “talking” about each other’s chat room on Reddit.

Regulators worry that the move has created a bubble that is likely to burst, causing heavy damage to some retail investors. Allison Herren Lee, SEC chairman, said on Friday: “The current price volatility is too strong, has the potential to cause investors to lose quickly and seriously, and undermine confidence in the market.”

However, if the SEC wants to take action against the market participants, legal experts say they will have a case where the evidence is difficult. The Stock Exchange Act of 1934 makes it illegal to “use any manipulative or related device” to buy / sell stocks.

“Manipulation is like what the Supreme Court attorney Potter Steward said about obscene behavior. You have evidence when you see it,” said Todd Henderson, a professor of law at the University of Chicago.

Usually, regulators explain manipulation in connection with fraud: such as making false claims about a company’s operations, the actual owner of the company or a trader’s real opinion about that company. While Reddit users have “coordinated” to help undervalued companies’ shares rise in price, it is currently unclear whether they will defraud in doing so.

“If you are telling people to buy a company’s stock with malicious intent, it’s manipulation,” said John Coffee, a professor at Columbia Law School and a former NYSE legal advisor. They believe in fact, it’s not illegal to make an extravagant optimistic statement either. ”

Meanwhile, the SEC has rarely accused cases of manipulation, accounting for only 5% of moves taken in 2019-2020, and almost all non-alleged fraud cases.

For example, in 2001, Jonanthan Lebed – a teenager living in New Jersey, made hundreds of thousands of dollars buying shares of companies with very low trading volume and “blowing prices” online. The SEC subsequently accused Lebed of fraud, when he created dozens of aliases online to disguise attention with these stocks.

Even if the regulators decide that the manipulation occurred last week, many experts think they may not take action against day traders.

However, the SEC is not just looking at traders who bought stocks last week, they are also considering brokers that “trigger” these transactions by imposing temporary restrictions that cause stock prices to fall. suddenly.

Consult the Financial Times

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Source : Genk