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Federal regulators look into Reddit plan that skyrocketed GameStop stock

INDIANAPOLIS (WISH) — A social media thread has caused quite the disruption on Wall Street.

It’s a Reddit thread that is believed to have caused a falling company’s stock to be up 788% over the past five trading days and made many small investors thousands of dollars.

GameStop shares have gone from $17 earlier in January at one point to reaching $350 a share over the past week. The rise started online and has become a war between hedge funds and trading apps.

A subgroup called “Wall Street Bets” seems to target short sellers. The subgroup shows thousands of people cultivating a plan to drive up the price of GameStop shares.

“Retail investors and specifically young investors have outfoxed many Wall Street professionals,” said Chuck Trzcinka, a finance professor at Indiana University and a former U.S. Securities and Exchange Commission employee.

People carried out their investments on game-trading apps such as Robinhood. The plan has worked so far. Many users have posted their earnings in the group, with some making hundreds on the deal others profiting thousands.

“Whether a group of small investors, I mean we are talking not much money, coordinating on social media platforms, that is a new situation,” Trzcinka said.

He explained how this all would work. “What happens is when many of these Wall Street professionals saw the prices go up, they decided to make money assuming it would go down, so they took what is called a short position — selling them and hoping to buy them back at a lower price.”

The big question to many wanting to get in on the deal: Is this market manipulation or is it just playing the game?

“If they could prove in court that somebody coordinated, drove the price up, then bailed out, that is market manipulation,” Trzcinka said.

The SEC announced it is launching an investigation looking into the matter.

It’s not just GameStop who is seeing a bump in stock prices. Similar situations seem to be happening with Blackberry and AMC Entertainment, which are also mentioned in the Wall Street Bets Reddit group.

“There were 30 stocks that hit their circuit breakers today and they were all relatively small,” Trzcinka said.

If the SEC determines that this is market manipulation, experts say those involved could be facing triple damages. Experts say that the downfall of this plan is that the conversations are happening on a public platform, which allows anyone to see the conversation and pull out before the stock drops.

Statement

“We are aware of and actively monitoring the on-going market volatility in the options and equities markets and, consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants.”

U.S. Securities and Exchange Commission on Twitter

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