Hedge funds do this to each other every day. Why is it suddenly wrong when it’s retail investors on the other side of the trade?
I truly do not understand the naïveté of arguments like these. Only the wealthy should be allowed to game the price of assets and rip each other off?
Do you have a source for this?
(this is why you might want to... hedge your shorts.)
For eg, here’s an insane one from last fall on negative oil futures:
https://www.bloomberg.com/opinion/articles/2020-08-04/some-p...
In other words, the capital firm that got short-squeezed by the idiots at /r/WSB were also doing something illegal. It's not the case that the short is legal but the longs aren't. Alternatively, if the argument is that /r/WSB isn't market-manipulating, they just think the stock is undervalued, then the hedge fund can use the same argument. "We think this stock is overvalued so we shorted it" is how they'll explain it to the SEC.
And that's not an invalid position: GME has been suspiciously overvalued way before any of the parties involved started holding positions. It's a retail-heavy business in pandemic season with multiple year-over-year same-store sales cuts. What that means is that, for each one of their stores, on average, they sold 30% less product in Q3 2020 than they did in Q3 2019. And even if you think, "oh, that's just the COVID economy, they'll be back"; Q3 2019 sales were already 20% down from the year before. This is a company nobody wanted to buy games from even before a novel coronavirus decided to close a good chunk of their stores.
The fun fact about that above explanation is that it provides plausible deniability for someone trying to juice the market in a particular direction. Hell, if /r/WSB hadn't caught the hedge fund with their pants down, they probably would have gotten off scot-free. However, the financial vigilantes dumping fat stacks into GME don't have the same kind of excuse - they explicitly coordinated in public fora to manipulate stock price, so it's an easy target for an SEC that really doesn't get the budget necessary to prosecute the complex kinds of financial crimes they're tasked with.
So, from a legal perspective, both parties are in the wrong. From an enforcement perspective, /r/WSB is a soft target.
On top of that, you have the beginnings of a takeover by a successful e-commerce CEO and potential for real turnaround.
That would have been enough on its own for WSB longs to jump in, but then the hedge funds shorted over 100% of the stock making it the perfect powder keg for this explosion.
What can be market manipulation is to collude with others to move a stock price not because you believe it is worth a different amount, but because you predict others will react to the movement you create. That applies to collusion involving shorts (bear raids) too. Proving the collusion and the artificial price bit is the difficult bit
This is text-book illegal activity.
There is no logical derivation of GameStop's financial books that would warrant the kind of stock price it has.
It is very very clearly market manipulation, and these exact sorts of manipulations are commonly prosecuted.
Hedge funds are so used to being the only tool on the block, they overextended, and for the first(?) time the retail side is fighting back.
The professional investing world have so many advantages over main street that it's not even funny. They've got everything from frontrunning, colocation, free money, and leverage(10x), 'unsophisticated' investors only can dream of this. And when they do go belly up, tax payers bail them out, meanwhile the bonus machine keeps churning.
But it is funny and good when main street actually catches them with their hand in the cookie jar.
How is this different from Bill Ackmans attack on Herbal life? https://www.youtube.com/watch?v=bQc6L4ieMwo
How is this different from all the FUD Tesla has gotten over the years? Which CNBC has happily broadcast for years. https://www.youtube.com/watch?v=a-YgFDAroeI
That was shorting. That is LEGAL.
> How is this different from all the FUD Tesla has gotten over the years?
Tesla was specifically investigated by the SEC when it tried to push short sellers out - and they paid an undisclosed fine for that ILLEGAL activity.
Is it? If I have the money to put a short squeeze on someone by myself, with my own money, is that illegal? Isn't that what some people do all the time with smaller numbers?
(honestly asking)
Pump and Dump schemes have been illegal forever. This is no different.
Furthermore, if you're arguing that it's illegal because it's done in group, then I don't understand what legal basis you are using for that. I also don't understand why you'd say it's "very different" from doing it on your own. I can't think of anything else off the top of my head that legal to do on your own, but illegal in group (some things are more illegal in a group, but that's not what we're talking about)
I think it's very risky for the investors but I don't know whether the SEC has stuff that would cover this.
And even if there were a law, if you somehow have your thumb on the social media hype button then how would you enforce that law? Makes me think nothing unruly is going on, just a bubble that will inevitably collapse and make Musk etc. rich once more just like during the dot com era. Some people only know how to make money through theft and I'm not surprised we've found ourselves here after the last 4 years.
If i tell you GME has a new product line that will increase their wealth 10x - that seems like manipulation. If i say to you i'm buying GME and you should too, with clear disclaimers that this isn't financial advice but rather a meme - i don't think i manipulated you.
By "normal" definition manipulation requires some about of deception/etc. I don't think "anyone" (within obvious reason) is being manipulated here. It's very clear what the community is buying into.
So i come back to what "manipulation" is defined as in the stock sense. Is it meaningfully different?
Why is one okay but not the other? Right because rich people with connections are the ones being burnt right now.
Is there a requirement for stock prices to be logical? Wouldn't that would ban all sorts of hft trades?
If only value investing was legal, the stock market look and operate very differently to today.
Edited to add: ultimately the law should be there to prevent fraud, not to restrict capital ownership and financial autonomy to a handful of cronies. You know, what they call a free market.
Incidentally, if this had been a properly regulated market to begin with, the price inflation would not have been possible.
We usually don't see distributed market manipulation like this, but I wouldn't be surprised if a shitton of people buying GameStop to squeeze a short-seller breaks securities law. Does it feel good to get one up on a hedge fund idiot that was trying to manipulate GameStop the other way? Yes - but this is, at best, financial vigilantism.