> ...all the while he was buying tons and tons of stocks which he turned into billions

It's called activist investing. His fund did not buy stocks, but bought Credit Default Swaps to the tune of $27 million USD. In the event that the markets dropped, they were awarded massive gains if they exit position. They gained $1.3 billion.

Prior to exiting the position which was publicly released, he went on media outlets and promoted the idea of shutting down the economy. This is what activist investors do. They actively spread rumors that will help their positions.

https://assets.pershingsquareholdings.com/2020/03/26122842/P...

How is this not market manipulation?

That is -not- what an activist investor is. An activist investor is someone that buys a large enough portion of a company in order to have a say in board operations, etc (even liquidation.) You can go on air and talk up your company, ever CEO, etc does that. That is expected. What he did was talk down positions he was going into. That is not activism.

> It's called activist investing.

I'd be really interested in learning more about the Olympic level mental gymnastics one has to go through to write this off as O.K. but then turn around and say that a bunch of random people on an open public forum saying to buy an over-shorted stock is market manipulation. They don't even have the purchasing power to make a difference here.

I remember, a few years back, that Musk made news because he shut down someone asking questions in a public earnings report. The press was giving him a lot of flack about it. Then I kept reading, and found out the person who was trying to ask those questions represented a firm(s) that had large short positions on the stock, and was trying to cause the stock to dip. Musk knew what was going on, and headed it off. Seemed like he made a good call, but then the press made THAT the story instead.

> There is literally, and has been for a long time, a website that tells you the short interest in a stock. It's sole purpose is to help people find short squeezes. That's why you have stats like "days to cover."

Again, I am not a lawyer, I am not your lawyer, and this is not a legal interpretation or legal advice; just my personal opinion.

Motivation and intent are the main factors in determining manipulation. So there are two cases:

1. A trader buys stock, seeking to profit, because they believe that a short squeeze may be incoming soon.

2. A trader buys stock, seeking to profit, because they intend to drive the stock price up, thereby causing a short squeeze.

(1) is legal (in my understanding; see the disclaimers above). (2) is not. They differ in their intents. The first one is "legitimate" demand, the second is "artificial."

Now, it's difficult to prove intent in court. And clearly, many people in WSB legitimately are buying the stock because of (1). But there are some who are doing (2). They have plausible deniability, though, and that's why it's unlikely that anyone in WSB will be successfully prosecuted without more concrete evidence.

What is artificial about buying a stock and encouraging others to buy it?

Because the encouragement affects the outcome of your own investment instead of "happening on its own".

So no one should be allowed to speak for or against buying or selling stocks they own?

> Bill Ackman went on CNBC last year in near tears saying the end was coming, helping stocks continue their nose dive.... How is that allowed?

It shouldn't be allowed without proper disclosure on their actual positions. The SEC has prosecuted people in the past for making public statements while taking the other direction without proper disclosure.

I believe that this should be investigated by the SEC, but it likely may not since, at the direction of the Trump administration, the SEC has instead focused their efforts on other financial crimes.

> The SEC has prosecuted people in the past for making public statements while taking the other direction without proper disclosure.

There a difference between "This stock is going down. (I buy long because I know something I'm not saying)" and "This stock is going down. (I buy short because I believe what I say)"

This is essentially Reddit saying "This stock is going up, so buy options to exacerbate that and to profit." No misrepresentation.

If the SEC doesn't like this, they should fix the underlying market structure that makes this action possible. Effectively: what allows the traders to create leverage by abusing / forcing brokers to take specific actions.

Or just give up and accept that by digitizing markets we're past the rubicon to smart trading and predatory pack algorithms being successful.

First, I am not arguing that WSB is engaging in fraud or misrepresentation, as is alleged with Ackman. That is entirely different from the activity I am alleging is being done on WSB (by a subset of posters).

> This is essentially Reddit saying "This stock is going up, so buy options to exacerbate that and to profit." No misrepresentation.

I see threads where WSB is saying "This stock is going up, and if we make it go up more, hedge funds & market makers will have to buy more stock to cover their short positions, and therefore it will go up even further [and we will make more money]." That's the manipulative part — creating artificial prices to induce even more demand.

I think it's the "manipulative" that's debatable here, because the manipulation is effectively being done by a second party.

Is it manipulation if you're so predictable that an action by me causes you to always act a certain way? And I profit when you take that action?

If hedge funds refused to cover their shorts (I'm probably using the wrong terminology) and left them open, this wouldn't be an issue, no? Or, conversely, if market makers refused to sell options on overly volatile stocks / stocks being manipulated?

> Is it manipulation if you're so predictable that an action by me causes you to always act a certain way? And I profit when you take that action?

It depends, but approximately, yes if there was any intent to exploit that fact. See spoofing, other prosecutions for creating short squeezes, etc.

https://dealbreaker.com/2012/06/phil-falcones-alleged-piggis...

The rationale is that markets are better for participants when their prices are accurate and reflect true supply and demand. Price manipulation subverts that, so the SEC disallows it (except in some cases where manipulation is explicitly allowed for historical reasons).

> refused to cover their shorts (I'm probably using the wrong terminology) and left them open, this wouldn't be an issue, no?

This is imprecise; hedge funds might cover short positions to hedge further losses, or because their prime broker might require them to maintain a certain margin (to reduce counterparty risk). I have no experience in institutional investing, so that's a guess.

> Or, conversely, if market makers refused to sell options on overly volatile stocks / stocks being manipulated?

Market makers will increase a premium for options on "overly volatile stocks." If the risk is too high, then they may stop selling the options altogether. But the problem is — it's difficult to predict which next stock WSB might start manipulating. That's another issue. If regulatory agencies don't step in and prevent this type of manipulation, the premiums on all retail-adjacent options will be higher because of the increased risk and fear that a capricious WSB crowd might turn on a MM. That's bad for people who use options "correctly" — not for gambling, but as a way to hedge and reduce risk.

I personally believed that stocks would continue at depressed valuations for the duration of the pandemic, yet bought during the crash because I knew there would be a recovery. I don’t think those actions are contradictory. (And of course I wound up being surprised how quickly prices recovered.)

You weren't a huge fund manager on TV talking down the market in real time while having your firm buy. A lot of people vested around last March, that's completely different than trying to scare people out of positions on national TV so that you can get into the position at a lower price.