In GameStop saga, US regulator examines all aspects and parts: sources by Reuters

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© Reuters. FILE PHOTO: A person walks past a GameStop in New York

By Chris Prentice and Pete Schroeder WASHINGTON (Reuters) – The US Securities and Exchange Commission (SEC) is looking at all aspects and parties involved in the GameStop Corp (NYSE 🙂 “Reddit rally” and others. shares, said two people familiar with the matter, suggesting that a swath of industry players may be caught up in the regulator’s review of the trade frenzy. People added that the furious rise in shares of GameStop, AMC Entertainment (NYSE 🙂 Holdings, and other stocks contained familiar patterns as it involves users of online platforms promoting the stocks, something that was seen in the past in the bulletin boards and social media platforms. . However, tampering cases can be complex and may rely on more than just language posted on a message board, they said. Thousands of Reddit users trading on low-cost retail platforms, including Robinhood, came together to drive prices for GameStop and other “meme” stocks, squeezing hedge funds that had taken short positions or bets against those stocks. The resulting volatility prompted massive margin calls from post-trade “clearing” houses that guarantee the trading of shares, prompting several retail brokers to suspend the purchase of the affected securities. The Reddit effect seemed to spread to the silver market last week. Several US lawmakers voiced outrage over individual investors’ trade limits, and Treasury Secretary Janet Yellen called a meeting of market regulators. On Monday, SEC Acting Chairman Allison Herren Lee told National Public Radio that the agency was examining the conduct of retail brokers, possible market manipulation, the role of hedge funds betting against companies and if companies tried to exploit the rally by raising money. . In recent days, questions have been raised about the agreements retail brokers have with the market-making companies to which they direct orders; the role of clearing houses; And if some hedge funds jumped on the Reddit bandwagon and bought GameStop to amplify their rivals’ pain. GameStop and other Reddit rally stocks have fallen dramatically since then, with GameStop down 38% on Thursday. BEYOND THE MORTGAGE Proving tampering can be difficult due to ambiguous US securities laws, said Joseph Grundfest, a Stanford Law professor and former SEC commissioner. “The law governing market manipulation is almost as chaotic as GameStop stock trading,” he said. Still, the episode isn’t entirely new territory. In 2000, the SEC charged people in two separate “pump and dump” schemes that used Internet message boards to increase stocks. In December, he sued a former daily trader who profited from spreading false rumors about public companies on online forums. The SEC would look beyond the widespread hype for users who spread false or misleading information about important company matters, such as revenue and products, or coordinated efforts to force a purchase or sale, the attorneys said. “I think the existing SEC playbook still works quite well,” said Philip Moustakis, an attorney for Seward & Kissel and a former senior SEC enforcement attorney. If the trade was driven by a decentralized crowd with no organizers, that could pose challenges, he continued. “They may have to rely on a newer theory of market manipulation.” The SEC will likely also investigate whether hedge funds adequately disclosed risky bets to clients and allowed some clients to withdraw money earlier than others, said Ken C. Joseph, managing director of Duff & Phelps LLC and a former SEC official. The brokers’ trade restrictions will also raise questions about fair market access, said Robert Frenchman, an attorney at Mukasey Frenchman & Sklaroff. “Fair access to markets has long been a regulatory priority,” he added. Robinhood has said that its decision to suspend trading in some shares was purely a risk management decision and that it is committed to its clients.