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Warren calls on SEC to crackdown on market manipulation, explain GameStop rally

Warren calls on SEC to crackdown on market manipulation, explain GameStop rally
© Greg Nash

Sen. Elizabeth WarrenElizabeth WarrenLawmakers react to guilty verdict in Chauvin murder trial: 'Our work is far from done' World passes 3 million coronavirus deaths Poll: 56 percent say wealth tax is part of solution to inequality MORE (D-Mass.) on Friday called on the Securities and Exchange Commission (SEC) to explain how it will address the wild swings in stock prices and whether recent rallies for GameStop and other stocks are the result of market manipulation.

Warren said in a letter that it is “long beyond time for the SEC” to crack down on dangerously speculative stock trades and get to the bottom of this week’s surge in stocks targeted by online traders.

"These wild fluctuations are just the latest indication that many private equity firms, hedge funds, and other investors, big and small, are treating the stock market like a casino, giving little consideration to the companies, communities, workers, and consumers that may be affected by these risky bets," she wrote.

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"The recent chaos reveals a clear distortion in securities markets, with benefits accruing to investors that do not clearly benefit the company's workers, consumers, or the broader economy."

Warren called on the SEC to investigate several aspects of the recent rallies in GameStop, AMC Entertainment, Tootsie Roll, BlackBerry and other companies that were heavily shorted by hedge funds. These stocks are among several targeted by members of Reddit forum r/WallStreetBets, as well as traders inspired by them.

The SEC said earlier Friday that it will investigate why certain online trading platforms blocked users from purchasing highly volatile stocks and if illegal market manipulation spurred the recent surge.

While defenders of the Reddit traders have pitched the rallies as a David and Goliath battle against the Wall Street elite, Warren and other advocates for stricter financial rules have expressed deep concerns about the potential implications and who is truly behind the rally.

“The Commission must review recent market activity affecting GameStop and other companies, and act to ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders,” she wrote.

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“To protect and restore public trust in sound securities regulation and enforcement, the Commission must identify gaps in existing securities laws and rules and ways in which the Commission can improve its enforcement capabilities.”

Warren asked the SEC to explain why GameStop shares rallied, if the surge was in response to GameStop’s fundamental value, how much impact short sales and Reddit users had on the surge and whether the increases posed systemic risks to financial markets.

She also asked the SEC to outline how it plans update and implement new rules to define market manipulation.