Potential market misconduct draws investigation by SEC
The Securities and Exchange Commission, facing pressure to respond to the recent mania in the stock market, said it is seeking to identify potential misconduct and will scrutinize brokerages’ decisions to halt buying that triggered a retail-investor revolt.
The SEC warned traders about engaging in illegal schemes to drive up share prices and said it was working with other regulators, stock exchanges and federal agencies to “identify and pursue potential wrongdoing,” according to a statement released Friday by acting Chairwoman Allison Herren Lee and the agency’s commissioners.
The SEC leadership added that the agency “will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
The remarks were the most aggressive yet from Wall Street’s top regulator after a weeklong frenzy that has seen small-time investors harness social media to drive up GameStop Corp., AMC Entertainment Holdings Inc. and other stocks; hedge funds get crushed by their short bets; and Robinhood Markets and other brokerages restrict trading in the inflated securities.
By Friday, restrictions had been lifted and the rally in GameStop and others was back on. The stock rose 68% to $325 in New York after surging as much as 114% earlier in the day.
The tumult has shaken the finance industry and prompted demands for SEC action from both Democrats and Republicans on Capitol Hill. The anger reached a fever pitch Thursday, with lawmakers expressing indignation that investors were prevented from adding to their bullish GameStop positions. Many said they suspected the move was done to help hedge funds, a claim that brokerages rejected.
Sen. Elizabeth Warren, one of Wall Street’s loudest critics, pressured the SEC on Friday to get to the bottom of the wild trading. In a letter to Lee, the Massachusetts Democrat said she’s concerned that the “casino-like swings” in GameStop and other companies are diminishing confidence in the stock market.
Warren noted that the recent surge wasn’t based in any changes in the company’s fundamentals, but rather by “anonymous traders on the Reddit forum.” In addition to repeating some of her longstanding criticism of private equity firms and hedge funds for “treating the stock market like a casino,” she also called on the SEC to examine whether securities rules were broken.