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News Analysis Jan 29, 2021 12:41 PM EST

Elizabeth Warren targets retail investors in letter to regulators about GameStop stock market phenomenon

"To what extent did online message boards, such those on Reddit, or broader social media amplification impact the fluctuation of GameStop’s prices?" Warren inquired. "Did any of these practices violate existing securities laws?"

Elizabeth Warren targets retail investors in letter to regulators about GameStop stock market phenomenon
Noah David Alter Toronto

This article was published more than 1 year ago, information might not be up to date.

Democratic Senator Elizabeth Warren penned a letter to the Securities and Exchange Commission on Friday asking them to address concerns regarding the recent fluctuation in the price of GameStop and other publicly traded companies which experienced massive inflows of investment this week.

While the influx began with a large number of investors on the subreddit r/WallStreetBets who realized that GameStop was being heavily shorted by a hedge fund known as Melvin Capital, the price surge quickly shook the world of finance and other investors began investing into affected stocks.

Some stock trading platforms such as TD Ameritrade and Robinhood garnered controversy as they restricted their users from purchasing stocks in affected companies, leading many to charge that the companies were manipulating the stock market in favour of hedge funds, at least one of which has lost billions as a result of the price surge, and against independent investors.

"To what extent did online message boards, such those on Reddit, or broader social media amplification impact the fluctuation of GameStop’s prices?" Warren inquired. "Did any of these practices violate existing securities laws?"

The letter immediately sparked criticism from supporters of the Redditors, who reject the idea that they violated any laws. While some industry leaders have charged that the actions of the Redditors amounts to a pump-and-dump scheme, no evidence has surfaced to suggest that such a scheme had been coordinated. Critics of Warren's move have charged that she is targeting independent investors while working in favour of billionaires.

The criticism is unusual for Elizabeth Warren, who has branded herself as a progressive who fights against the influence of Wall Street.

Warren also inquired into whether the actions of Melvin Capital in shorting the stocks of GameStop constitutes illegal activity. While shorting stocks has been heavily lambasted by critics of Wall Street, who suggest that such investments are nothing more than betting against the success of Americans, the SEC has long determined that such actions are not illegal.

The Massachusetts Senator did not inquire into the legality of Robinhood and TD's decisions to prevent their users from purchasing these stocks or whether that constitutes stock manipulation despite the former company currently facing a class-action lawsuit over their conduct.

The fluctuation in GameStop stocks raises "obvious questions about public confidence in the market and those trading in it," Warren wrote. "I am writing to seek information on how the SEC intends to address these concerns and prevent these and future incidents of potential market manipulation."

The SEC has already declared that they are "monitoring" the situation, although they did not specify what actions they will be taking, if any.

President Joe Biden's Press Secretary Jenn Psaki also stated that the government, including Treasury Secretary Janet Yellen, is monitoring the situation as well. This led to allegations of conflict of interest against Yellen, who has been paid $800,000 in speaking fees by Citadel LLC, the company which bailed out Melvin Capital in the wake of the stock surge and which carries close financial ties to Robinhood.

Democratic Senator Sherrod Brown, who will be chairing the Senate Banking and Housing Committee, has stated that he will be holding a hearing on the matter.

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