Recently, a meme has been circulating, following the controversy over people buying stocks in businesses with low stock value such as GME (GameStop), NOK (Nokia), AMC (AMC Entertainment); as well as a low-value cryptocurrency called Dogecoin (yes named after the viral Doge meme).
The meme claiming that ‘GameStop is going to the Moon!’ follows the actions of the people who started off as a group of Redditors (users on Reddit) from the subreddit WallStreetBets (a specific forum about amateur stock trading). However, this group grew to include many outsiders once it went viral, even receiving endorsements from celebrities and online personalities, such as billionaire Elon Musk on Twitter.
The reason for the sudden popularity comes from the disdain towards the Wall Street short-sellers who use hedge funds, such as Melvin Capital, to bet stocks against a business, making money if the business gets devalued. Ultimately, this can put thousands of jobs at risk, in some cases. Hence, individuals like Elon Musk promoted WallStreetBets actions, since his company, Tesla had been put at risk by short-sellers and hedge funds in the past.
WallStreetBets advises users to put money into stocks like GameStop, in order to increase the stock value of GME, leading to hedge funds needing to be paid off. Since the action began, short-sellers have lost over $5 billion in total, Business Insider reported. And so, questions have arisen. Has WallStreetBets broken the law in their doings? Will WallStreetBets get prosecuted by the FCA? (UK Financial Conduct Authority) or SEC? (U.S. Securities and Exchange Commission) and if so, is it fair?
First of all, Wall Street, specifically the short-sellers who had been using the hedge funds, have tried to claim that the co-ordinated buying of stocks was ‘market manipulation’. Yet on the flipside, WallStreetBets view the hedge fund managers as the culprits for manipulating the market by purposefully devaluing businesses to make money.
The Financial Times explains market manipulation and suggests that the person who convinced others to join in on the buying spree, would have had to have been selling their stocks at the same time, instead of holding on to the stocks like they were telling people to do (persuading others for their own gain). Moreover, manipulation cases are hard to prove with manipulation only making up 5 per cent of SEC cases from 2019 to 2020; with most cases not even alleging deception.
This leads us to question whether the WallStreetBets users that participated and, in some cases, helped organise the co-ordinated stock buying spree, should be prosecuted by either the FCA or SEC. The FT reports that this is unlikely, due to the fact (as aforementioned) that market manipulation is incredibly hard to prove. With the case of WallStreetBets, it is more likely that it will be seen as people advising other users to buy certain stocks, which is not illegal. Even in the case that it could be manipulation by telling people to buy in ‘bad faith’ is unlikely as John Coffee, Professor at Columbia Law School explains. He believes that the Redditors are ‘truth’ believers, with there being nothing illegal about making ‘wildly optimistic statements’.
Therefore, it is very unlikely that the group of Redditors known as WallStreetBets will be getting prosecuted anytime soon by the FCA or SEC, with the same going for the hedge-fund agencies like Melvin Capital. What this whole event has exposed though, is how easily our free markets can be influenced by large corporations, as well as large co-ordinated groups of people. In many ways, this is concerning as no one wants a repeat of the 2008 crash and the subsequent eurozone crisis.
Cameron Thomas
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