Washington’s top stock market cop is showing no appetite to crack down on the behavior of millions of retail investors who use forums on Reddit and other social media platforms to coordinate investment strategies, sometimes at the expense of established Wall Street short sellers.
During a Wednesday interview, CNBC’s Jim Cramer asked U.S. Securities and Exchange Commission chair, Gary Gensler, whether the SEC should step in to prevent a coordinated effort by Reddit investors to “smash” short sellers who bet against popular meme stocks like GameStop Corp. /zigman2/quotes/203755179/composite GME -0.30% and AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC +1.67%
“If three hedge fund members work in concert to smash a short hedge fund, the 5 million Reddit people would say that’s legal, but perhaps it shouldn’t be,” Cramer said. “If 5 million people decide to smash a hedge fund that’s short, is that ok? What’s within the bounds of what you can do to smash a short seller?”
GameStop became a popular investment on social media in part because retail investors saw the company as being unfairly attacked by short sellers who were driving down the price of a stock and risked making the company’s failure a self-fulfilling prophecy.
Gensler declined to comment specifically on the GameStop situation, but defended the right of individuals to speak freely about investment opportunities and to convince fellow investors to copy their trading strategies.