The 2008 recession is not really a comparable event to the current GME short squeeze. It was rather a broad series of events, most of which were unfortunately legal, some of which were probably not.
In that case I would be in favour of charging the ratings agencies with fraud, and possibly the financial regulators with gross incompetence.
Edit: I don't see it as "big guys vs small guys". I see it as "law abiding people vs not".
So my reaction is not "its unfair to prosecute the little guy," but rather "we didnt get those criminals but at least we can get these criminals."
I'm not sure I see a clear line in there to call any of it illegal.
First off, not all "market manipulation" is illegal. If it was, a company announcing a new product would be "market manipulation", because it impacts the stock price. But I think you're right that the line is definitely grey in a lot of situations. And really, that's why we have courts.
> Do you think that something like "Elon Musk tweets the word 'bitcoin'" can/should actually be charged as market manipulation?
If Elon Musk had just bought a whole bunch of bitcoin, then tweeted it out, and then sold his newly acquired bitcoin, then yes. He 100% knows that what he tweets affects markets, and attempted to directly benefit from it. If you want to argue that he doesn't know that his tweets affect the market, the SEC has already determined that it does based on the "TSLA private at 420" situation.
> What about people selling their newsletter of stock tips?
Market manipulation requires actual market manipulation. I dno't believe that "attempted market manipulation" counts (but I may be wrong). All of these newsletter attempts fail, so there's nothing to really charge.
If any of these newsletters actually have a measurable effect, or if the person sending them is buying-sending-selling (at a profit), then yes, it is market manipulation.
> What about printing an article in Bloomberg suggesting that XYZ is undervalued/overvalued for $reasons
This is kind of what Bloomberg does, and they typically have arguments in both directions (which I think kind of evens it out). That being said, true information, with real evidence, is not illegal market manipulation. DFV's initial "due diligence" and legitimate bull case are not illegal market manipulation.
> What about some nobody on reddit posting to wsb to say let's go to $321!
Now you're getting grey. I'm not qualified to answer. This answer will likely be very similar to whether or not something is "inciting a riot", and will be super context-dependent.
But note that this is different than saying "GME is going to $1000 because of <totally false and made up reasons>" (especially if you already have a position, and if you make a profit as a result of the market that you influenced. Remember, if you don't actually influence the market, then it doesn't count.
But whether or not you succeeded in influencing the market can easily be determined after-the-fact. Just because you get away with it in the moment, doesn't mean no one will look back.
> What about being paid to tell clients what you think they should invest in?
If this is your job, you are likely licenced in some way, and the rules are likely different.
> What about telling other users on reddit for free what you think they should invest in?
I think the answer here is the same as the WSB-specific question
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Feel free to disagree with me, these are just my opinions, and again, context matters.
> If you want to argue that he doesn't know that his tweets affect the market, the SEC has already determined that it does
The SEC found that as CEO his public statements are considered official announcements, but that doesn’t really say anything about him “being able to affect the market” in general. I believe that would not actually be market manipulation because he was telling the truth - the regulations require fraud or misstatement (lies). They don’t technically require statements to have evidence or even be true, because people can be wrong.
> But note that this is different than saying "GME is going to $1000 because of <totally false and made up reasons>"
Exactly. Telling other people to invest in something because you believe they can make money at it is not market manipulation so long as you believe what you are telling them.
Where people think WSB could get into trouble is actually purchasing the shares - because what is perhaps illegal is the act of making a trade to drive up the price for short sellers and make them buy back stock - and some of them may have said things that show this intent.
However this version of manipulation is a very unclear concept - the plain reading of the law makes general trading to make money basically illegal, so it has been heavily interpreted by the courts and there is actually a circuit split on whether any otherwise valid trade can be illegal because of intent.
https://projects.iq.harvard.edu/files/financialregulation/fi...
I believe there is also thought that this concept could get some people in trouble.
There are a fair number of "sounds right but actually aren't" accusations floating around about GME (along with complete garbage[0]); if you know that these are false statements when syaing them (which in some cases is definitely provable), then you could be in a bind.
[0] I think the most striking example of "complete garbage" that I've seen (but unfortunately can't find any more) is a set of claims that Microsoft is going to acquire GameStop to turn all GameStops into XBox E-Sports lounges. I mean, could it theoretically happen, yes, but I don't think that anyone believes that at all. That's the kind of boiler-room style shit that used to be considered clear-cut fraud.
However:
1) It's still not too late to go after those people. Some NY DA should make his career on this.
2) The biggest financial crime ever has been the years of unmitigated QE which has consistently taken money from the income-earning class and handed it to the wealthy asset holding class. This is a bigger travesty than all other financial crimes. Not clear what to do about it, there is nobody you can vote for who thinks it should end.
Is it "illegal price manipulation" even if it's done completely out in the open for everyone to see? (I'm seriously asking this question).
I feel like laws governing market manipulation imagine secret collusion among actors that one might reasonably assume are either competing with one another or pursuing their interests independently.
But in this case, the actors are entirely transparent with their motives. Anyone can go see what they're up to. Figuring out why these stocks suddenly went through the roof required no formal investigation at all, as far I know; it didn't take long to figure out why it was happening.
I also wonder whether those motives are even an issue here. Certain people in the system might be legally bound to be truthful with their clients, they might be required to pursue their clients' interests faithfully, and so forth. But isn't it true that as an individual investor, I am perfectly free to invest in stocks based on my horoscope, my initials, random throws at a dartboard, or anything else?
In other words, are the "lulz" illegal here? Is it illegal to not be "serious" with the market (whatever that means)?
Let's suppose there's a massive oil spill tomorrow. Everyone goes on reddit and says, "Hey, let's destroy this company by executing the following actions with the following securities . . ." (let's assume this is possible for a moment). Is that "market manipulation?" Is that illegal? Is that "abusive" (as the SEC puts it)? After all, in that case, they are trying to abuse the company for reasons they regard as entirely rational and reasonable, and they're doing it for all to see.
[edits for grammar and clarity]
In both cases I guess you could say "Yes." and I might agree, but I do not believe it rises to the level of illegality.
I could see the SEC looking at this, deciding that it represents collusion and should not be allowed and clawing back the "ill gotten" gains.
Blockchain based settlement anyone?
Anyone who told others to buy and hold with promises of short covering and higher prices is party to market manipulation, and it is absolutely, definitely illegal. Whether they'll be able to unmask and charge people behind the anonymity of WSB is another question though.
A good lawyer can argue that these people are exercising their first amendment right of free speech. They are not reporting false data and most of these people commenting have "average" net worth not millions/billions.
Its also very hard to prove to a jury that a message from such an average joe on a message board is enough to form a "scheme" with million other readers on wsb.
And, anyone who bought shares or told someone to buy shares with the intent of driving up the price also did something illegal - but it's something that is done constantly and considered a fundamental part of the market, either as an attack on a company in the classic hedge fund short->bankruptcy or, more benignly, like buying up shares of a takeover target slowly so people don't notice you are interested and buy it, which would raise the price.
That gets posted to remind people that WSB is a bunch of random people on the internet. They have no duty to anyone.
Seriously, market manipulation goes on all the time at grandiose scales and at small scales. This time, it's probably a handful of people who had critical mass and the mass is following suit.
If you analyze and act on a market based on an analysis, you are manipulating the market, period. HFT for example happens at time scales never conceived before and are almost undoubtedly market manipulation. The only way not to manipulate the market is to not interact with it.
It really becomes this arbitrary pointing game where subjectivity is thrown into play and favors are called as to who is or isn't breaking the rules. Yes, there are some more established less arbitrary examples of manipulation strategies, but if anyone thinks for a second these are the limit of options available to manipulate investor perceptions, they're naive.
And to spin this further, in the world of growing disinformation or selective information herding campaigns by foreign governments and political organizations swaying elections in the US, how do you deal with those sorts of targeted campaign strategies that are almost undoubtedly, in my opinion, used to manipulate markets as well?
If we can't pinpoint actors threatening the fundamental security of our nation, how do we hope to deal with this in regulating financial systems where blatant abuse is left to pass already.
Bank analysts are constantly putting out "ratings" on stocks, price targets, etc. Articles all over the internet and tv are saying to buy this stock or that.
What I find strange is that if all the WSB subreddit just put their money into their own wsb-fund that just bought up all the heavy shorted stocks and did exactly the same thing, they'd call the fund manager a genius.
Market manipulation and pump and dump schemes should refer to the spread of dishonest information in order to move a stock price. But things like short-interest is a public number and the hedge funds self-admitted to being short these stocks--it's not like they went around saying "I got a secret tip that a hedge fund is very short this stock, let's buy it".
Shouldn't it be obvious that just taking the opposite trade to a hedge fund can't be market manipulation, unless taking the same side as a hedge fund would also be market manipulation?
If that were true the hedge funds that shorted GME and then released their reports on why they thought it was going to go down would have been operating illegally already.
Or, more generally, any CEO making public statements about their company performance.
Pretty sure you need some extra spice to make it illegal, such as falsifying information.
The appropriate thing to do is for the SEC to subpoena Reddit and RobinHood, correlate trades with posts to prove intent to manipulate the price (which IS illegal), and charge every individual with market manipulation.
Just like any other individuals guilty of market manipulation (Libor riggers, Navinder Sarao, etc).
Robinhood should probably also be investigated for abetting this, although it's a gray area.