It is aimed at the people who shut down buying GME, then tried to create a downward trend at unusual low volumes to try to scare the wallstreet bets crowed into abandoning their positions in GME to allow short positions to recoup their gigantic losses.
It failed mind you. The shorts are still bleeding and the GME hold is continuing though just at a slightly reduced price.
Retail investors who have bought GME can afford to wait out the antics of hedge funds, but those funds are on borrowed time to try to turn the loss of a century into some kind of win, or they are done for good. Ask yourself, who do you think is trailing the borders of legality? A teen who goes “hmm GME at 100$? Sure why not, I’ll take 10” or the hedgefond manager calling all his friends to stop trading because his fund is going bankrupt on a stupid bet he made that he would have gotten away with if it wasn’t for those meddling kids.
This is QAnon/Kraken/Dominion level crankery. The MAGA types are happy to believe in voter fraud conspiracy theories with no evidence because they hate the Democratic party, and here you are doing literally the exact same thing here except replacing "Deep State" with "hedgefond managers".
People like you make fun of the QAnon-types but you're just as willing to indulge in deranged evidence-free conspiracy theorizing as long as it accommodates your ideological priors.
Shorting more than 100% of the stock is excessive and irresponsible. That figure is not a conspiracy theory: it is public information that the SEC releases monthly.
Whether hedge fund managers did make a call to their buddies is not the only thing in question here (although the SEC will surely determine the truth). Shorting a stock drives the price down and, while this is no less legal than buying a stock, the question is whether shorting 136% of the stock counts as outright manipulation. Reddit kids have done nothing but pop an artificial bubble, they did not participate in manipulation; as the hedge fund managers and their buddies claim.
> QAnon
I have yet to see the baby cookbook or other evidence of their ridiculous claims.
The parent commenter claimed that brokerages were colluding to drive the price of GME down to benefits the shorts. That is QAnon-level evidence-free conspiracy theorizing. The clearing houses were demanding more collateral and brokerages couldn't afford or didn't want to put it up.
> whether shorting 136% of the stock counts as outright manipulation
I refer you to the snarky top comment about how all the Dunning-Kruger victims who claim manipulation do not actually know what manipulation is. Shorting a stock is not manipulation and neither is lots of people deciding to short a stock. 136% of the stock is shorted because a lot of people were shorting it, not because Some Guy decided to single-handedly short 136% of the float.
> Reddit kids have done nothing but pop an artificial bubble
So GameStop was an artificial bubble at $10 but not at $500? Really?
IB claimed to have hiked margin to 100% which is a reasonable response. However, I have heard from many sources that they in fact rejected buy orders even with cash - which, if true, and I have every reason to believe so, makes any explanation about margins and technical reasons seem ridiculous.
There is surely some deeper non public reason that every single retail broker - but no single institutional broker - stopped accepting GME buys but kept honoring sells. It might or might not be a call from hedge fund buddies, but it is still likely illegal.
When I was working at a hedge fund, I once executed a few hundred mil notional on a supposedly anonymous exchange, taking advantage of an obvious counterparty mistake.
Within 10 minutes, I got a call from said counterparty, telling me that next time I do that, they’ll make sure I’m kicked off the exchange.
Anonymous my ass. Legal my ass. And yet, it happened - I’m sure I wasn’t the first or the last - the other side kept making those mistakes. I stopped taking advantage of them. This kind of behavior is rampant in Wall Street. Only difference is it has been done now in the open, very visibly, and with thousands - perhaps tens of thousands - identifiable victims.
The problem is that when hedge funds get in trouble they do not go to jail, are not prohibited from doing business and the penalties (fines) are ineffectively weak.
Given the track record of holding the powerful accountable is terrible, I don’t think this is directed at hedge funds but is a warning to the little people.
> The problem is that when hedge funds get in trouble they do not go to jail
Criminal prosecution is held to a much higher evidentiary standard than civil fines. Almost all market related crimes, including manipulation and insider trading, require mens rea. Proving state of mind beyond a shadow of a doubt is really difficult to do. Especially when the defendant is sophisticated enough to know the law and have access to high-quality legal advice.
Any US Attorney would absolutely love to have the feather in his cap of sending a billionaire hedge fund manager or investment banker to prison. Hell, the reason Rudy Giuliani is a household name is because he managed to do that. But no prosecutor is going to bring a case that he has no chance of winning.
Given that it makes much more sense to target enforcement with civil fines rather than criminal prosecution. You can tie up your resources to fight expensive, hard to prosecute criminal cases. Or you can quickly settle for reasonable fines, and cover many more cases with the same set of limited resources.
It’s common for hedge funds (and more importantly, the people who run them) to be prohibited from doing business. “Barred from the securities industry” is the term typically used if you’re looking for examples.
It's clear that everyone should be lawyering up depending on what positions they had when they started pumping this idea to the masses. That said, I'm a big believer in "a fool and his money". If there are hedge funds or retail investors out there who, perhaps, didn't understand all the risks of what they were doing, protecting them from their folly only causes more problems in the future.
As horrible as this sounds, now is the time to let everyone fail. Hard. If we don't, no lessons will be learned.
IANAL, but to me it seems like it would be very difficult to convict retail investors of investing in a stock they believe has value and then telling other people they invested in a stock they believe has value. Unless there are chat records of a few redditors coordinating an astroturf campaign while twirling their mustaches or whatever, I don’t see how this could be aimed at retail.
Regulated entities who have access to tools or information not available to retail investors, or who applied financial pressure to manipulate access to the markets, or did not disclose conflicts of interest...that seems like a much easier case to make.
It's also not as if hedge funds are employing thousands of welders or craftsmen. These are high risk financial strategies by people who qualify as professional traders - "I didn't know" isn't an excuse anymore. If they lose the game, they get to eat their losses.
We will probably see a few retail traders get burned, and I suspect anyone wanting to do trading in the future is going to have to fill out more disclaimers.
Maybe not hedge funds but I estimate that the majority of what laypeople call "hedge funds" are not hedge funds. There are tons of firms that just run money for ordinary people. At my old firm they have shorted blackberry in thousands of individual margin accounts, and those accounts are losing money on paper and might have to realize losses in order to rebalance their risk.
I'd have some questions if my low risk or medium risk investment firm was making large shorts. Shorts are very risky for a whole bunch of reasons - which is also why they can be high value. Don't get me wrong, I'm sure every high risk fund can find at least one pensioner invested in them, but if your firm is well known for shorting then you can't pretend to be anything but high risk/high reward.
These aren’t large positions and that is the point. If a short position that was 2% of your account suddenly becomes 10% of it, now you have a problem, and the problem wasn’t caused by a wrong investment thesis, it was caused by a mob of kids online.
The big traders probably have friends in high places, so I suspect they're going after WSB and not wall street who caused the issues in the first place.
I know of cases from the Danish market where the financial service authorities went for people who had tried driving the price up in a pump and dump scheme for a small penny stock. Using internet forums and a couple of trading accounts.
They made a few thousand dollars and got months in jail for it.
The problem with wsb is that it has gotten so big and there are too many involved at this point.
It's not really that the government can't go after WSB. Sure they're not going to prosecute 2 million degenerates, but it's not like they can't round up 50 of the big names to make a statement.
It's that there's really no appetite in the federal government for going after retail traders. Retail trading as an industry took a very long time to build and ham-fisted enforcement could tank it harder than a few lawsuits ever could.
Make no mistake, this was going to happen eventually. There's infinite ability to gather information, infinite ability to share it. Retail collusion was inevitable. The people who built the industry knew it was going to happen. They prepared for it. Everyone, including the SEC, knew it was only a matter of time before something like this happens.
Denmark did that because there's much greater financial regulatory capture than there is here.
With the amount of media attention WSB has been gaining, this is setting itself up for "Wall Street versus The People" situation. It may be politically tough to go against the retailers now, particularly mid-pandemic and with all the other political comorbidities US is suffering from.
It's been that for a while. Lots of people on social media have been framing it as another Occupy Wall Street, except this time they've figured out how to make the elites hurt. There's plenty of people who don't care how much they lose when it bursts, because Wall Street is set up to lose more.
This is not about "Wall Street versus The People" or WallStreet vs Retail (small investors) it is about federal securities laws. And you know where the law is? In court. I think court needs to decide whether what is WSB doing illegal or legal.
If after bubble pops it's shown that an elite group of WSB traders made huge profits while a large amount of retail traders lost their entire investment, I think there's going to be plenty of public appetite for nailing the market manipulators to the wall.
There is no "probably." It is well-known that people leave their civil servant jobs at regulatory industries, after putting in their time, and bring their know-how and connections to big banks and hedge funds in return for cushy salaries.
There is an NPR (National Public Radio) show called "This American Life" and several years back it had an episode devoted to this. They interviewed regulators. The big banks, for instance, will have an office on site for a regulator. The pull is to "go native" at some point.
Is that aimed at "professional hedge funds" or self-proclaimed "autists" in an internet forum?