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> What SEC rule is WSB violating? Market manipulation. Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in

> What SEC rule is WSB violating? Market manipulation. Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in a personal gain. Buying stock with the intention of causing a short squeeze can be interpreted to fit that definition. I believe that WSB is creating artificial demand to try to "screw over" certain institutional investors. I am not a lawyer; this is not a legal interpretation. > Apparently, the sort of crappy market manipulation that led to the 2008 Volkswagen "short squeeze" or the 2010 "flash crash" is absolutely fine because it was driven by traders. How were they "absolutely fine?" You do know that regulators attempted to prosecute the traders/executives responsible for the 2008 VW short squeeze [1], and successfully prosecuted a trader for the 2010 flash crash [2]? For the VW short squeeze, regulators were not able to find evidence that the traders involved intended to cause a short squeeze or engaged in any artificial demand; they actually demanded the stock because they sought to take over VW. This is also evidenced by the fact the Porsche sold stock on the open market once they released that a squeeze was happening [3]. [1] https://www.ft.com/content/ad782326-ed02-11e5-888e-2eadd5fbc4a4 https://www.ft.com/content/ad782326-ed02-11e5-888e-2eadd5fbc... [2] https://en.wikipedia.org/wiki/2010_flash_crash https://en.wikipedia.org/wiki/2010_flash_crash [3] https://www.ft.com/content/0a58b63a-4294-3e07-8390-c3aabef39a26 https://www.ft.com/content/0a58b63a-4294-3e07-8390-c3aabef39...

baybal2 6y ago
> Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in a personal gain. Every purchase influences the market, and results in gain, otherwise people would not be buying, and selling things. Every purchase, is a market manipulation by the definition.
- tylerhou 6y ago
  > Every purchase, is a market manipulation by the definition. Well, I don't think this would hold up in court. Both the SEC and courts have made a distinction in the past between "real demand" (i.e. demand motivated because you think the stock is undervalued) and "artificial demand" (i.e. demand that is not based on any underlying analysis, but instead motivated because you intend to trigger other market mechanisms, including coverings of short positions). Like most legal definitions, the actual definition is hazy, and courts may have established legal tests. Read Matt Levine for a nuanced analysis [1]. Again, not a lawyer, this isn't legal advice. [1] https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
  - baybal2 6y ago
    And every time, an effort to judge whose demand is more real that other ends up with absurd, scandalous legal rulings. They should not be. These guys have full understanding how laughable it the attempt to judge somebody by pretending the judge/bureaucrat can peer into somebody's mind, and yet they do it.
    - tylerhou 6y ago
      > pretending the judge/bureaucrat can peer into somebody's mind But historical cases don't peer into people's minds. They look at evidence, such as texts in chat rooms that show clear intent to manipulate. See the Libor scandal chats [1], where one trader wrote "its just amazing how libor fixing can make you that much money" and "its a cartel now in london." I think it's unlikely that the SEC will be able to successfully prosecute WSB traders, though, due to lack of evidence. It's also probably not even worth their time. [1] https://www.buzzfeednews.com/article/matthewzeitlin/why-banks-want-to-get-their-traders-out-of-chatrooms https://www.buzzfeednews.com/article/matthewzeitlin/why-bank...
emteycz 6y ago
It's not market manipulation if it's true.
- deleted 6y ago
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partiallypro 6y ago
> Market manipulation. Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in a personal gain. Buying stock with the intention of causing a short squeeze can be interpreted to fit that definition. I believe that WSB is creating artificial demand to try to "screw over" certain institutional investors. I am not a lawyer; this is not a legal interpretation. Bill Ackman went on CNBC last year in near tears saying the end was coming, helping stocks continue their nose dive...all the while he was buying tons and tons of stocks which he turned into billions. How is that allowed but people on a message board sharing positions and high number of short floats isn't? There is literally, and has been for a long time, a website that tells you the short interest in a stock. It's sole purpose is to help people find short squeezes. That's why you have stats like "days to cover."
- tylerhou 6y ago
  > Bill Ackman went on CNBC last year in near tears saying the end was coming, helping stocks continue their nose dive.... How is that allowed? It shouldn't be allowed without proper disclosure on their actual positions. The SEC has prosecuted people in the past for making public statements while taking the other direction without proper disclosure. I believe that this should be investigated by the SEC, but it likely may not since, at the direction of the Trump administration, the SEC has instead focused their efforts on other financial crimes.
  - jdavis703 6y ago
    I personally believed that stocks would continue at depressed valuations for the duration of the pandemic, yet bought during the crash because I knew there would be a recovery. I don’t think those actions are contradictory. (And of course I wound up being surprised how quickly prices recovered.)
    - partiallypro 6y ago
      You weren't a huge fund manager on TV talking down the market in real time while having your firm buy. A lot of people vested around last March, that's completely different than trying to scare people out of positions on national TV so that you can get into the position at a lower price.
d1sxeyes 6y ago
This is not artificially influencing the stock price. Buying a stock believing it will increase in value is basically the point of the stock market. Believing it will increase in value because it's been over-shorted is a legitimate reason to ascribe value to it. > The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security". It is my opinion that this demand is not artificial, it is genuine, although caused by factors other than the inherent value of the stock itself. If this is considered to be 'creating an artificial price', I don't see how a position where 140% of the shares of a company are shorted could not be, meaning significantly wider implications than just a single subreddit.
paulie_a 6y ago
You never need the disclaimer about not being a lawyer. Ever
- tylerhou 6y ago
  Since I am not a lawyer and therefore unfamiliar with the potential liabilities I might incur by not including that disclaimer, I would rather cover my ass. https://law.stackexchange.com/questions/683/usa-is-i-am-not-a-lawyer-disclaimer-generally-necessary https://law.stackexchange.com/questions/683/usa-is-i-am-not-... Also, are you a lawyer, and is that legal advice? :)
  - paulie_a 6y ago
    Sure and yes it is. There are no repurcussions for not having that antiquated disclaimer. Which wouldn't hold up even if there was some magic that allowed a case to be brought

baybal2 6y ago

> Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in a personal gain. Every purchase influences the market, and results in gain, otherwise people would not be buying, and selling things. Every purchase, is a market manipulation by the definition.

tylerhou 6y ago
> Every purchase, is a market manipulation by the definition. Well, I don't think this would hold up in court. Both the SEC and courts have made a distinction in the past between "real demand" (i.e. demand motivated because you think the stock is undervalued) and "artificial demand" (i.e. demand that is not based on any underlying analysis, but instead motivated because you intend to trigger other market mechanisms, including coverings of short positions). Like most legal definitions, the actual definition is hazy, and courts may have established legal tests. Read Matt Levine for a nuanced analysis [1]. Again, not a lawyer, this isn't legal advice. [1] https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
- baybal2 6y ago
  And every time, an effort to judge whose demand is more real that other ends up with absurd, scandalous legal rulings. They should not be. These guys have full understanding how laughable it the attempt to judge somebody by pretending the judge/bureaucrat can peer into somebody's mind, and yet they do it.
  - tylerhou 6y ago
    > pretending the judge/bureaucrat can peer into somebody's mind But historical cases don't peer into people's minds. They look at evidence, such as texts in chat rooms that show clear intent to manipulate. See the Libor scandal chats [1], where one trader wrote "its just amazing how libor fixing can make you that much money" and "its a cartel now in london." I think it's unlikely that the SEC will be able to successfully prosecute WSB traders, though, due to lack of evidence. It's also probably not even worth their time. [1] https://www.buzzfeednews.com/article/matthewzeitlin/why-banks-want-to-get-their-traders-out-of-chatrooms https://www.buzzfeednews.com/article/matthewzeitlin/why-bank...

emteycz 6y ago

It's not market manipulation if it's true.

deleted 6y ago
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deleted 6y ago
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partiallypro 6y ago

> Market manipulation. Loosely, market manipulation happens when you artificially influence the price of a stock, resulting in a personal gain. Buying stock with the intention of causing a short squeeze can be interpreted to fit that definition. I believe that WSB is creating artificial demand to try to "screw over" certain institutional investors. I am not a lawyer; this is not a legal interpretation. Bill Ackman went on CNBC last year in near tears saying the end was coming, helping stocks continue their nose dive...all the while he was buying tons and tons of stocks which he turned into billions. How is that allowed but people on a message board sharing positions and high number of short floats isn't? There is literally, and has been for a long time, a website that tells you the short interest in a stock. It's sole purpose is to help people find short squeezes. That's why you have stats like "days to cover."

tylerhou 6y ago
> Bill Ackman went on CNBC last year in near tears saying the end was coming, helping stocks continue their nose dive.... How is that allowed? It shouldn't be allowed without proper disclosure on their actual positions. The SEC has prosecuted people in the past for making public statements while taking the other direction without proper disclosure. I believe that this should be investigated by the SEC, but it likely may not since, at the direction of the Trump administration, the SEC has instead focused their efforts on other financial crimes.
- jdavis703 6y ago
  I personally believed that stocks would continue at depressed valuations for the duration of the pandemic, yet bought during the crash because I knew there would be a recovery. I don’t think those actions are contradictory. (And of course I wound up being surprised how quickly prices recovered.)
  - partiallypro 6y ago
    You weren't a huge fund manager on TV talking down the market in real time while having your firm buy. A lot of people vested around last March, that's completely different than trying to scare people out of positions on national TV so that you can get into the position at a lower price.

d1sxeyes 6y ago

This is not artificially influencing the stock price. Buying a stock believing it will increase in value is basically the point of the stock market. Believing it will increase in value because it's been over-shorted is a legitimate reason to ascribe value to it. > The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security". It is my opinion that this demand is not artificial, it is genuine, although caused by factors other than the inherent value of the stock itself. If this is considered to be 'creating an artificial price', I don't see how a position where 140% of the shares of a company are shorted could not be, meaning significantly wider implications than just a single subreddit.

paulie_a 6y ago

You never need the disclaimer about not being a lawyer. Ever

tylerhou 6y ago
Since I am not a lawyer and therefore unfamiliar with the potential liabilities I might incur by not including that disclaimer, I would rather cover my ass. https://law.stackexchange.com/questions/683/usa-is-i-am-not-a-lawyer-disclaimer-generally-necessary https://law.stackexchange.com/questions/683/usa-is-i-am-not-... Also, are you a lawyer, and is that legal advice? :)
- paulie_a 6y ago
  Sure and yes it is. There are no repurcussions for not having that antiquated disclaimer. Which wouldn't hold up even if there was some magic that allowed a case to be brought