Congress plans to hold hearings on short sellers, digital trading platforms, and WallStreetBets, which are pumping GameStop stock 25 times.
GameStop’s stock (GME) price hit nearly $ 500 per share Thursday after a week of meteoric spikes from WallStreetBets community users on Reddit and boosted by other retailers.
These mundane traders forced a GME short seller to close out and accept a billion dollar loss, suggesting Wall Street does not have a monopoly on controlling the stock market. On Thursday, Robinhood and other retail platforms suspended buying GameStop as well as AMC and other stocks pumped by WallStreetBets for the past few days.
The question now is how the US government will react. Starting Thursday afternoon, several lawmakers were planning hearings on the situation.
House Committee Chairwoman Maxine Waters, D-Calif., Said in a statement that hedge funds “have a long history of predatory behavior,” which she described as unacceptable.
“As a first step to curb these abusive practices, I will convene a hearing to investigate recent activity regarding GameStop (GME) stocks and other affected stocks, with an emphasis on short selling, online trading platforms, gamification and theirs systemic impact on our stocks lies in capital markets and retail investors, ”she said.
She added that hedge funds need to be dealt with, although she doesn’t seem to be looking at WallStreetBets users or other retail investors who have pumped a bunch of stocks at sky-high prices.
Details were not immediately available for the Senate committee hearing.
Financial regulators may be less well equipped to respond to the trade or the suspensions.
Fox Business reporter Charles Gasparino reported that the SEC plans to investigate whether Reddit commentators have manipulated the stock market to pump GameStop and other stock prices of the company. However, it is unclear what these regulators could actually do.
A lawyer with experience in the securities markets, who asked for anonymity because of a lack of clarity on the issue, told CoinDesk that the SEC doesn’t have much leeway in this situation.
“What are you going to do? Prevent people from having chat rooms on a social media site? This is not even a pump and dump as a pump and dump is a centralized effort by a handful of parties to move inventory”, the attorney said, “This is a whole community effort, hundreds of people, or maybe thousands of people putting in a few dollars here and there, and it works.”
CoinDesk reached out to the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), and the Securities and Exchange Commission (SEC). The FTC declined to comment. The CFPB referred CoinDesk to the SEC, which also refused to comment.
White House press secretary Jen Psaki referred reporters to an SEC statement monitoring the situation during a press conference Thursday.
When asked if President Joe Biden or the government would look into Robinhood’s actions, Psaki said, “He receives frequent briefings from his business team, but we have nothing left for you … I have nothing more for you.”