GameStop Surge Tests Scope of SEC’s Manipulation Rules – WSJ

WASHINGTON—Bullish day traders have rallied together to buy shares of GameStop Corp. in recent weeks, driving up the price more than 10-fold and prompting complaints that the frenetic activity is manipulative.

The frenzy has played out on public websites such as Reddit’s WallStreetBets, where small investors brag about their gains and exhort others to buy more shares and options. That transparency could make it easier for regulators to levy claims of manipulation, which historically has been a difficult offense for regulators to prove.

“If they are all egging each other on using a social-media platform, they are effectively engaged in a crowdsourced pump-and-dump scheme,” said Daniel Hawke, a partner at Arnold & Porter Kaye Scholer LLP.

The traders “are making no effort to conceal their apparent intent to manipulate the price of the stock,” added Mr. Hawke, a former chief of the Securities and Exchange Commission’s market abuse unit.

The two-week rally in shares of GameStop, once one of the most heavily shorted stocks, has captivated the stock market. The winners have been smaller investors whose feverish buying has also pushed up prices of AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc. The losers have been some hedge-fund managers and other contrarian investors who had bet against the future of the struggling videogame retailer.

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