The Securities and Exchange Commission released a statement Friday announcing plans to “closely” monitor and evaluate some brokerage firms that blocked investors’ abilities to buy volatile stocks, such as retailer GameStop and several others.
“The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” the SEC readout said.
Online brokers such as Robinhood, TD Ameritrade, and Charles Schwab, were criticized by thousands of independent online investors Thursday after imposing restrictions on the types of trades that could be conducted involving stocks such as GameStop, AMC, and BlackBerry.
The commotion on the stock market this week was prompted largely in part by a group of online users from social media sites such as Twitter and Reddit, who organized and banded together to purchase shares of GameStop’s stock throughout the month of January, causing the value of the shares to ascend over 1,700% since the beginning of the month.
Robinhood raised over $1 billion from its investors to shore up a path to clear and execute trades in the select volatile stocks and allowed clients to resume trading Friday.
Following GameStop’s massive stock increase on Monday this week, the company’s share price peaked to over $450 per share on Thursday and closed out Friday evening at roughly $325 per share, defying the odds of hedge funds who shorted the company’s price, such as Melvin Capital and Citron.
Melvin Capital and Citron adopted a strategy of shorting GameStop stock by borrowing shares, selling them in hopes of buying it again at a lower price, and then returning the shares to the place from where they “borrowed” the stocks in an attempt to make a profit.
Many critics of the hedge fund shorting practice, such as Barstool Sports founder David Portnoy, have called the efforts by online brokers to limit retail investors from buying more shares of GameStop and other volatile stocks “flat out criminal.”
“You’re telling me that analysts don’t manipulate stock prices and drive them up and down to create buying opportunities and selling opportunities?” Portnoy asked host Stuart Varney on Fox Business. “I’m not saying what the new guys are doing is great, but let’s not pretend the old guys haven’t made billions and have yachts and mansions for doing this same exact thing.”
The SEC said the statement Friday was issued by its four commissioners: acting Chairwoman Allison Herren Lee, Hester M. Peirce, Elad Roisman, and Caroline Crenshaw.
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” the SEC readout added. “Market participants should be careful to avoid such activity.”
Some market experts have argued against the viral retail traders who sent GameStop’s stock skyrocketing, saying their transparency and online coordination could allow a pathway for regulators to prove the existence of market manipulation.
“If they are all egging each other on using a social-media platform, they are effectively engaged in a crowdsourced pump-and-dump scheme,” Daniel Hawke, a partner at Arnold & Porter Kaye Scholer LLP, told the Wall Street Journal.
The traders “are making no effort to conceal their apparent intent to manipulate the price of the stock,” Hawke added. He previously served as the chief of the Securities and Exchange Commission’s market abuse unit.
