5 ms·

Not a lawyer, but pump and dump schemes are illegal under existing law: https://www.investopedia.com/terms/p/pumpanddump.asp https://www.investopedia.com/terms/

by tcbawo 6y ago

Not a lawyer, but pump and dump schemes are illegal under existing law: https://www.investopedia.com/terms/p/pumpanddump.asp https://www.investopedia.com/terms/p/pumpanddump.asp Even if the motivation of the 'pump' aspect is perceived to be righting a wrong, consumers left holding the bag will be harmed. The companies involved are intervening to avoid additional liability (they may already be sanctioned for not having safeguards in place). There will most certainly be civil and criminal investigation into the users involved. Although I doubt the government is equipped to investigate the sheer volume of material.

AnthonyMouse 6y ago
The difference here is that the people left holding the bag are nominally the short sellers, not anyone being conned into buying the stock. There is a risk that you could hold it too long, i.e. past when they've closed their positions, but that risk is known up front and you're not deceiving anybody. An interesting resolution to this would be if GameStop would allow the short sellers to close their positions by selling them newly minted shares. The result would be that the company would get all the money instead of the shareholders. But the shareholders own the company. So the share price would only crash by half (from the dilution) instead of 99% or whatever it is now. Which would also have the effect of saving the company.
- BobbyJo 6y ago
  Short sellers aren't holding the bag, they are holding money and owe someone the bag. People who are long are the ones that will suffer when the inevitable crash comes. Also, I don't believe it's legal for a public companies to issue shares to specific parties at sub-market prices. It certainly wouldn't be legal for the to do it if shareholders didn't approve of it.
  - perl4ever 6y ago
    GameStop filed in December with the SEC to sell up to $100M in stock at the market, from time to time. Now it seems like a laughably small amount. I think it is common for public companies to sell stock below market though. If they set a price ahead of time, unlike GameStop in this instance, then the market price will change, right?
    - BobbyJo 6y ago
      The market price will change yes, but companies have legal fiduciary duty to maximize shareholder value. Purposefully selling shares below value to non-shareholders is obviously a violation of that duty.
- woah 6y ago
  Your comment neatly summarizes everything that is incorrect about the conventional wisdom of the past couple days. People think this is somehow “taking money from hedge funds”. When the short squeeze happens (if it happens), do you think that the retail traders who yolo’d their savings (there are many of these) will be the ones to sell at the correct second? No. Maybe one or two hedge funds will declare bankruptcy. The rest will rake in the dough. And a large number of stupid people will find themselves poorer. Personally, I’m not for over-regulation. To some extent, people need to take personal responsibility. But conning the stupid is immoral. The many ill-informed twitterati, pseudo-intellectuals, and political grifters who have taken to cheering a transparent pump n dump will find themselves in an awkward situation in the next few weeks.
  - perl4ever 6y ago
    Can it be transparent, a con, and manipulation all at once?
    - global-citizen 6y ago
      I think you just described a real casino.
  - AnthonyMouse 6y ago
    > People think this is somehow “taking money from hedge funds”. The hedge funds used to have money that plausibly soon they won't. It is taking money from hedge funds. > do you think that the retail traders who yolo’d their savings (there are many of these) will be the ones to sell at the correct second? Or any point before that second but after the price has increased above what they paid? Quite a number of them I would expect. Also, it's possible to use limit orders, so that if a short squeeze happens and causes the price to go up above the limit, the person's shares are automatically sold. Or it could all go wrong in several different ways. It isn't a low risk activity. But if the risks are out in the open, where's the scam?
  - ashtonkem 6y ago
    Never mind the fact that per Matt Levine, chances are that hedge funds are opening new short positions. If you're well capitalized you can make a killing when the price eventually crashes back down to the right price, which we all know it will.
- jessaustin 6y ago
  An interesting resolution to this would be if GameStop would allow the short sellers to close their positions by selling them newly minted shares. AMC did this, both through direct stock sales and through convertible debt. The latter seems easier, because all the work is done ahead of time and when the stock reaches a certain level everything just goes "poof" automatically. https://deadline.com/2021/01/amc-entertainment-silver-lake-swaps-debt-for-equity-as-cinema-chains-stock-surged-1234682417/ https://deadline.com/2021/01/amc-entertainment-silver-lake-s...

by tcbawo 6y ago

AnthonyMouse 6y ago

The difference here is that the people left holding the bag are nominally the short sellers, not anyone being conned into buying the stock. There is a risk that you could hold it too long, i.e. past when they've closed their positions, but that risk is known up front and you're not deceiving anybody. An interesting resolution to this would be if GameStop would allow the short sellers to close their positions by selling them newly minted shares. The result would be that the company would get all the money instead of the shareholders. But the shareholders own the company. So the share price would only crash by half (from the dilution) instead of 99% or whatever it is now. Which would also have the effect of saving the company.

BobbyJo 6y ago
Short sellers aren't holding the bag, they are holding money and owe someone the bag. People who are long are the ones that will suffer when the inevitable crash comes. Also, I don't believe it's legal for a public companies to issue shares to specific parties at sub-market prices. It certainly wouldn't be legal for the to do it if shareholders didn't approve of it.
- perl4ever 6y ago
  GameStop filed in December with the SEC to sell up to $100M in stock at the market, from time to time. Now it seems like a laughably small amount. I think it is common for public companies to sell stock below market though. If they set a price ahead of time, unlike GameStop in this instance, then the market price will change, right?
  - BobbyJo 6y ago
    The market price will change yes, but companies have legal fiduciary duty to maximize shareholder value. Purposefully selling shares below value to non-shareholders is obviously a violation of that duty.
woah 6y ago
Your comment neatly summarizes everything that is incorrect about the conventional wisdom of the past couple days. People think this is somehow “taking money from hedge funds”. When the short squeeze happens (if it happens), do you think that the retail traders who yolo’d their savings (there are many of these) will be the ones to sell at the correct second? No. Maybe one or two hedge funds will declare bankruptcy. The rest will rake in the dough. And a large number of stupid people will find themselves poorer. Personally, I’m not for over-regulation. To some extent, people need to take personal responsibility. But conning the stupid is immoral. The many ill-informed twitterati, pseudo-intellectuals, and political grifters who have taken to cheering a transparent pump n dump will find themselves in an awkward situation in the next few weeks.
- perl4ever 6y ago
  Can it be transparent, a con, and manipulation all at once?
  - global-citizen 6y ago
    I think you just described a real casino.
- AnthonyMouse 6y ago
  > People think this is somehow “taking money from hedge funds”. The hedge funds used to have money that plausibly soon they won't. It is taking money from hedge funds. > do you think that the retail traders who yolo’d their savings (there are many of these) will be the ones to sell at the correct second? Or any point before that second but after the price has increased above what they paid? Quite a number of them I would expect. Also, it's possible to use limit orders, so that if a short squeeze happens and causes the price to go up above the limit, the person's shares are automatically sold. Or it could all go wrong in several different ways. It isn't a low risk activity. But if the risks are out in the open, where's the scam?
- ashtonkem 6y ago
  Never mind the fact that per Matt Levine, chances are that hedge funds are opening new short positions. If you're well capitalized you can make a killing when the price eventually crashes back down to the right price, which we all know it will.
jessaustin 6y ago
An interesting resolution to this would be if GameStop would allow the short sellers to close their positions by selling them newly minted shares. AMC did this, both through direct stock sales and through convertible debt. The latter seems easier, because all the work is done ahead of time and when the stock reaches a certain level everything just goes "poof" automatically. https://deadline.com/2021/01/amc-entertainment-silver-lake-swaps-debt-for-equity-as-cinema-chains-stock-surged-1234682417/ https://deadline.com/2021/01/amc-entertainment-silver-lake-s...