They absolutely are not illegal.

Shorts got greedy and got caught out. Should short sellers not have any downside to their trades?

https://www.sec.gov/investor/pubs/regsho.htm. Control plus F "short squeeze". Intentional short squeezes like what is happening in GME is illegal.

Thank you, I’ve been reading about this all day but this is the first time I see this referenced.

I guess the billion dollar question is, legally: does buying stocks in anticipation of a short squeeze, and communicating the same to others, count as manipulation?

> a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

The question I think would rotate around whether this is 'a scheme to manipulate', or simply identifying an opportunity to capitalise on Melvin's greedy position.

> capitalise on Melvin's greedy position

Oh please. As if whoever has their thumb on the social media scale isn't greedy. Greed runs the street in longs and shorts. You can invest modestly by diversifying and avoid all that.

Of course. But the point I'm making is that in my opinion, the demand is being generated by Melvin themselves by having a position with so much risk, it's not artificial demand.

Intentional would be the key word. Would it be easy to prove it was intentional?

I don't know enough about this subject to form an opinion on the legality and morality of what's hapenning right now but if the only rub is whether the squeeze is intentional or not I recommend that you have a peek at the wallstreetbets subreddit right now. It's very much intentional and out in the open.

very interesting link, thank you. The exact language is

> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

It seems like the key question is what qualifies as a scheme. To me, it seems like you need some kind of secrecy or deception.

Also, can you use Clojure to cause a short squeeze, or... [ducks]

Indeed. It was all done out in the open. Someone said "if enough people buy and hold, there will be a short squeeze. For this reason, I'm long GME", which probably doesn't represent a scheme or manipulation, it's just simple facts.

The article doesn’t explain why it’s illegal.

It doesn't need to?

A short squeeze by itself is not illegal. It is illegal to make trades whose sole purpose is to manipulate the price of a stock, though.

This is true. But if you read Reddit and Twitter this week, everyone is making the case to buy and hold to put pressure on short positions. This is an illegal short squeeze.

I can't find any evidence that a short squeeze is illegal. (https://duckduckgo.com/?q=illegal+short+squeeze&t=ffab&ia=we...)

Also: If a big hedge fund shorts a stock, expecting to drive its price down, that's cool. (Search "big short drives down stock price")

But if regular people buy a stock expecting to drive its price up, that's terrible.

Sorry, this position just isn't credible.

Shorting in and of itself has a builtin risk/reward scenario. You're betting on the company's future performance. What's happening here is that people saw that some investors went overboard with shorting, so they started pumping the stock in order to extract money from said investors. Nobody actually cares about Gamestop's actual worth as a company, it's just a metagame effectively. Once the play is over the stock will collapse back.

I don't know if it is or should be illegal but I can see why it raises some questions.

> Shorting in and of itself has a builtin risk/reward scenario. You're betting on the company's future performance.

No, you're betting on the stock's future performance, not the company's future performance. There's an ocean of difference between the two.

If the company does poorly, but the stock price rises, or stays the same (Say, because we're in the middle of a COVID recession, and the printing presses are working overtime), you're going to lose a lot of money.

> Nobody actually cares about Gamestop's actual worth as a company, it's just a metagame effectively.

How do you know that everyone who bought it actually doesn't care about Gamestop's worth? There isn't really any way to prove that every single person (or even a majority of people, or really even a good portion of the people) don't care about GameStop's success and are solely doing it as a metagame.

Well there's the rub, we do need proof and that takes investigation. It's obvious what's going on but we will need to wait for whoever is conning this to leave a trail. It's just a matter of time.

What proof? I'm serious here.

Sure, there's threads on WSB about this, but there's no real way to tie that to actual transactions, and not everyone who has bought stock even contributes to that subreddit, let alone the specific threads about this.

Furthermore, all it really takes is someone saying "I bought stock because I believe in the company". We don't have thought police; unless someone explicitly posts "I, RH account XXX, bought the stock in a concerted effort to short it" there's no real way to prove intent.

I've no idea if any proof can be found in this case. I just know that if someone has won big off this they're likely to continue doing it until caught.

What's wrong with buying a stock you like and never selling it because you like the stock itself? Etherum's NFTs are entirely built around this idea.

What statutes establish the criteria for manipulation?

I heard (from a non-authoritative source) that the coordination on reddit, etc. is not manipulation.

You are continuing to comment, directly or negligently, misinformation without sources.

Please source the following comment:

> by continuing to allow trades, Robinhood was taking on major legal risks

There is no one else sharing this talking point that I can see.

I will continue to call you a shill. Please see my comment history to understand that this user is quite interested in spreading misinformation, and given their previous topics, looks to be being compensated for doing so.

Short squeeze is legal. What are you talking about?

> Please keep in mind that by continuing to allow trades, Robinhood was taking on major legal risks.

Obviously not the reason, since they posted a blog saying they did it to protect consumers from volatile stock.

Wait, this is a pretty gigantic claim that needs some backing. There are examples of the SEC instituting temporary bans on short-selling, but this is the closest thing I can find to your claim.

https://www.sec.gov/investor/pubs/regsho.htm. Control plus F "short squeeze". Intentional short squeezes like what is happening in GME is illegal.

> Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.

It says market manipulation is illegal. It is not particularly clear whether a message board getting excited about a short squeeze does not count as something that "may occur naturally".

They did it because they can't meet their collateral requirements. The fact that they're in bed with Citadel, which owns Melvin Cap., just makes it that much worse.