Bruce Brumberg, JDN, 9 February 2021
The Reddit/GameStop aftermath continues. Now, it’s been reported, investigators at the US Securities and Exchange Commission (SEC) are allegedly scouring posts on social media and online message boards for evidence of fraud and coordinated stock-price manipulation in the hype that led to recent unlikely surges in the stock prices of GameStop, AMC Entertainment Holdings, and a few other companies.
What goes on in these types of SEC investigations? Are individual investors who contributed to the online buzz about these companies really at risk of SEC enforcement actions or criminal prosecution? What about the legality of the decision by trading app Robinhood and other online trading platforms to temporarily restrict trading in the stock of GameStop and the other targeted companies?
To get insights and lessons for all investors, I turned to attorney John Reed Stark. From 1998 through 2009, he was Chief of the Office of Internet Enforcement at the US Securities and Exchange Commission (SEC). His team investigated hundreds, perhaps thousands, of stock-promotion schemes orchestrated via online message boards. He’s currently president of John Reed Stark Consulting LLC, a firm specializing in data-breach responses and digital compliance. He’s also a Senior Lecturing Fellow at Duke Law School.
See also my prior article on the topic of market manipulation, in which I asked him what investors can legally say about a company that could move its stock price and what trades they can make individually or together without getting into trouble.