Bruce Brumberg, JD, 04 February 2021
As just about everyone knows by now, investors communicating on the Reddit forum WallStreetBets drove up the stock price of GameStop while openly discussing both their tactics and their reasoning. Some of them purchased GameStop shares as part of a strategy expressly intended to squeeze hedge funds that were shorting the stock. Others simply saw the stock as undervalued.
Will they face charges of stock-market manipulation from the SEC, or even criminal charges? What can investors legally say about a company that could move its share price? What trades can they make individually or together without risk of a government crackdown?
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.