[5]. Matt Phillips, GameStop Craters Again as the `Meme Trade` Unravels, N.Y. Times (February 4, 2021), www.nytimes.com/2021/02/04/business/gamestop-stock.html. This is a difficult question. You can buy a stock for any reason – unless you can`t buy a stock as part of a plan to artificially distort the market for a security. For example, if a major shareholder of a publicly traded company decides to pay a number of investors to trade in both directions, creating the illusion of high volumes and/or large variations in share prices, which he in turn wants to launch on the market at this artificially inflated price – this may be an illegal pumping and emptying system. Pandemonium peaked in late January, when the GameStop (GME) stock price — which became the rallying point for the meme stock movement — rose from $20 to $438 in two weeks. [2] This has led to investigations by numerous government agencies, a congressional hearing, and the controversial decision by brokerage platforms to restrict stock trading. [3] These events allowed investors who expressed their intentions in online forums to hinder large institutional investors by sending the GME share price “to the moon”, but also raised concerns about possible market manipulation. [4] Questions remain about the legality of individual investors` actions and whether this type of coordinated exploitation can continue.
One question Congress faces is whether bad behavior has occurred when the stock price has fluctuated wildly. Reddit users accuse hedge funds and Robinhood of trying to manipulate the stock market and stop trading GameStop shares when they fell from their high of around $483. You also can`t buy a stock based on material, not public information – that would be illegal insider trading. You cannot buy a stock at certain times if you are an insider of a company if you are in possession of material and non-public information because of that position. You also can`t buy a stock based on information you`ve learned when you`ve deceptively hacked a company and stolen tangible, non-public information. These are just a few restrictions on when you can buy a stock. [1] Joshua F. Bartz, What is the SEC going to Do About GameStop?, N.Y. State Bar Ass`n (February 2, 2021), nysba.org/what-is-the-sec-going-to-do-about-gamestop/.
However, the SEC`s statement is somewhat misleading, as the behavior on Reddit is not the typical type of market manipulation the SEC usually accuses. Historically, SEC manipulation cases are divided into two categories: It`s actually much more complex than most people realize. The SEC issued a disturbing statement to that effect on January 29, 2021, which included this nugget about market manipulation that raised many eyebrows: “We will act to protect retail clients if the facts demonstrate abusive or manipulative trading activities prohibited by federal securities laws. Market participants must ensure that such activities are avoided. 5. Does the main reason you want to buy or sell a stock have to be a trading profit? For example, could it be easy to squeeze hedge funds or punish a company for its environmental policies? A clash between fanatical investors in GameStop GME, +5.40%, and those betting the company is overvalued has helped push the Texas-based video game retailer`s stock into the stratosphere. And as former Secretary of Labor Robert Reich put it on Twitter: “If Redditors collect that GameStop is unacceptable market manipulation, what would you call it if greedy Wall Street bankers gambled our entire economy in 2008 and had no consequences?” There are significant First Amendment concerns that can arise when the SEC begins investigating statements that are not fraud. Of course, the SEC has a duty to protect investors.
However, he does not believe in momentum trading, but rather preaches a much more fundamental approach to investing. The SEC warns that before buying a stock, investors should research the company and its executives, read its documents, study its markets, consider its price-to-earnings ratio, evaluate its cash generation versus its debt, check its earnings expectations against reality, etc.