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SEC Protects Retail Investors from GameStop Squabble

A new letter shows that the SEC keeps a close eye on all aspects of the GameStop fiasco.

There has been a lot of hand-wringing in the past few days as the regulators and government officials have been reacting to the wave of Reddit-induced market volatility and the trading app Robinhood’s decision to ban GameStop and AMC stock.

Jen Psaki, the White House Press Secretary said that Treasury Secretary Yellen is now “monitoring” the situation; House Speaker Nancy Pelosi made vague comments that showed that she was reviewing it, too; Representatives Alexandria Ocasio-Cortez and Rashida Talib called for a hearing of the House Financial Services Committee, which turned out that they will get; and the Senate Banking Committee will have the same hearing.

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SEC had already released a note about the GameStop squabble early this week, but it is piling on with a new letter from its acting chairman and commissioners.

“In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” reads the note. “Market participants should be careful to avoid such activity. Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.”

It is an impenetrable commentary on a situation that is growing even more complex with each hour. Still, it confirms that the SEC is now investigating all sides, not just Robinhood, but “issuers” like GameStop and AMC as well.

The fiasco began early this week. Users from a Reddit message board called r/wallstreetbets launched a coordinated effort to pump the share price of failing companies like GameStop, AMC, and Nokia. Hundreds of retail investors have started buying in, and things went spiral from there. The stock began the week with just below $100 and then remained over $300.

Robinhood was the online brokerage of choice for several of these traders; when the company decided to ban GameStop and AMC’s new purchases last Thursday morning, there were significant consequences for the market.

This qualifies as market manipulation is an open question, and Robinhood had already been hit with lawsuits alleging it.

The SEC has stated that it is “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.”

“Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes,” the note continues.

“Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.”

To cut it short, the SEC is now looking into it.

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