citing suspicious activity and social-media chatter. So let me get this straight insider trading is still rampant on Wall Street but is the SEC is shutting down trading because neophytes are chatting online or are the hedge funds and big boys worried they might get “had” again or have to share the wealth? https://www.cnbc.com/2018/02/14/insider-trading-is-still-rampant-on-wall-street-two-news-studies-suggest.html
“U.S. regulators are engaging in the stock market’s version of whack-a-mole — racing to suspend shares of companies with dubious prospects that have been hyped to the moon on social media.”
“The federal securities laws allow the SEC to suspend trading in any stock for up to ten trading days when the SEC determines that a trading suspension is required in the public interest and for the protection of investors.”
The protection they are concerned with is that the stock prices are artificially inflated because of stock promotion on social media. So they are concerned that the Twitter and Reddit crowd and whoever else on social media might be talking up some obscure company and that company’s stock.
““We proactively monitor for suspicious trading activity tied to stock promotions on social media, and act quickly to stop that trading when appropriate to safeguard the public interest,” Melissa Hodgman, acting director of the SEC’s enforcement division, said in a statement.”
Charlie Munger, Warren Buffett’s longtime business partner and vice chairman of Berkshire Hathaway is not happy about these new kids on the block. I like Warren Buffet. I respect him for his work ethic, temperament, and philanthropic heart https://www.aarp.org/money/investing/info-2020/warren-buffett-at-90.htm
So why is his long time business partner grumbling?
‘The frenzy is fed by people getting commissions and other revenues out of this new bunch of gamblers, and, of course, when things get extreme, you have things like that short squeeze … and it’s really stupid to have a culture which encourages [so] much gambling in stocks by people who have the mindset of racetrack bettors and, of course, it will create trouble, as it did.’
His comments were made in reference to the GameStop pandemonium that gripped Wall Street last month and sent the stock to the moon and back and ended with a suspension of trading by the online trading platform Robinhood.
“The famously plain-spoken Munger made his comments in reference to the GameStop short selling chaos that gripped Wall Street a month ago, as an army of individual investors congregating on social-media platforms like Reddit and Discord, rattled the broader market by upending the short bets of professional investors.”
“The episode resulted in a hearing last week before the House Financial Services Committee, where the head of the popular trading platform Robinhood defended a decision in late January to temporarily restrict trading in so-called “meme stocks,” including GameStop GME, -6.43% and AMC Entertainment Holdings AMC, -3.38%. GameStop exploded back into the news Wednesday as trading in the stock, which doubled in value on the day, was repeatedly halted.”
On Friday the SEC once again stepped in to rescue Wall Street from what they believe are the hooks of the Reddit crowd and other aspiring investors who merely want a piece of the American Dream that institutional investors get a piece of every day. https://www.thebalance.com/how-to-legally-manipulate-stock-prices-3140856
“Manipulating stock prices can happen quite easily, and it takes place more often than you might think. Achieving it in a perfectly legal way is not necessarily difficult, depending on how much trading power an entity has.”
“Individual stock investors don’t have ready access to these types of market-manipulating techniques and, consequently, often end up being on the losing end of these schemes. In this situation, a little knowledge can go a very long way.”
What’s fair is fair. Isn’t it? Why can a hedge fund guy do what they do and the average Joe can’t go online and essentially try to do the same thing?
“Many ways exist to accomplish the same result of driving market prices in a certain direction. This technique might seem pretty basic, but it works and it’s relatively simple to accomplish. Here’s what takes place. Suppose a big institutional investor in hedge funds, mutual funds, and insurance companies zeroes in on a stock that it owns and begins selling it off.”
“As the large investor dumps the stock onto the market, the price will naturally begin to take a nosedive. Other investors might start to panic, and then begin to unload the stock as well. As a result, the stock’s popularity, and of course price, continues to fall.”
“At some point, the institutional investor decides that it’s time to jump back into the market and it begins an aggressive buying program to acquire new shares of a given stock. Soon other investors notice that the stock’s price has begun to rise again, and they also begin to buy up the stock so they can ride the price up and make a profit.”
Let’s see what Reddit has to say about what happened on Friday. It did not seem like much. They seemed unfettered.
210114:1:12 days ago·edited 2 days ago
Do they really think that this will scare us.
why do you think it was meant to scare you? they’re just shutting down penny stock pump and dumps. only like two of those are above 10m market cap and one isn’t even at 50k.
Some bullshit that is. But if they stop trading, everyone just waits the ten days and carries on as usual
It was just penny stocks. No one seemed to be concerned and with all the searching I did on Reddit I could not find much else in the way of discussion about Friday’s suspension. It was investment as usual and discussion was about just that.
“Penny stocks are shares of small companies that are more loosely regulated than major public companies, and typically trade with high volatility. The Wolf of Wall Street film centered on a similar scheme to pump up penny stocks in the 1980s.”
“In Friday’s action, regulators are venturing further into one of the market’s rowdiest districts, targeting penny stocks driven into price and volume frenzies by incessant social media pumping. Frenetic trading, often in profitless companies, on lightly regulated broker networks is perhaps the most extreme example of speculative excess in the 2021 market, a landscape that has also included the SPAC craze and soaring cryptocurrencies.”
One stock in particular stood out. Blue Sphere went from “obscurity to a viral sensation” and caught everyone’s attention.
“Blue Sphere saw a increase in short interest during the month of January. As of January 29th, there was short interest totaling 208,000 shares, an increase of 67.7% from the January 14th total of 124,000 shares. Based on an average trading volume of 1,739,474,800 shares, the short-interest ratio is presently 0.0 days.”
“Blue Sphere’s stock was trading at $0.0001 on March 11th, 2020 when Coronavirus reached pandemic status according to the World Health Organization (WHO). Since then, BLSP shares have increased by 13,800.0% and is now trading at $0.0139.”
“Blue Sphere is one of many stocks that vaulted from obscurity to viral sensation — and on any given day there have been a dozen similar stories. Oftentimes, chatter on social media sites like Stocktwits and Twitter and other online chatrooms presages takeoff. It’s happening as retail traders equipped with zero commissions at brokers have swelled to 23% of stock trading volume, up from 20% last year, according to Bloomberg Intelligence.”
Another company under the watchful eye of the SEC was SpectraScience Inc. https://www.facebook.com/SpectraScience/
This medical equipment supplier, headquartered in San Diego, surged 633% in 2021. When I researched their website I found the domain host only.
“Two weeks ago the SEC suspended trading in SpectraScience Inc. — a firm that had surged 633% in 2021 to just over two-tenths of a cent before the halt. The SEC’s order noted that while the company hadn’t filed reports in years and its phone number doesn’t work, “social media accounts may be engaged in coordinated attempt to artificially influence” its share price. SpectraScience volume surpassed 3.5 billion shares on a single day in late January as the stock surged 167%.”
One of the problems is that none of the companies suspended Friday have filed any information with the SEC for over a year. So the question begs is the suspension in the public interest and for the protection of investors who may not know what they are doing when they hype up these companies?
The problem is the playing field is not level. The big boy hedge fund guys do it legally and get rich and leave the little guy on Main Street behind which makes it understandable that this is happening. No one wants to get left behind. So how can Wall Street and investing become equitable for all? That is the question and a question for Congress.
“While most users are seeking to make quick gains by beating Wall Street, others have taken up the GameStop stock trading as an anti-establishment move. The at least temporary victory of Redditors over the big guys at Wall Street has displayed the power of virality over the traditional professional analysis seen on Wall Street.”When you are able to feel like you’re a rebel going against the establishment, that’s a very powerful emotion,” said Smith.”You read the language on the message board, it’s very ‘us against them.’ That’s so powerful.”
Maybe one day it will be all for one and one for all and that is true power when everyone has a piece of the pie.
Author: Sherri Margolin (Dark Matters)
Disclosure: I/we have no positions in any stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation from any stock companies for this article. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.