Biden Administration To Look At GameStop Legal Questions As Lawmakers Rally For Change On Wall Street

Topline

President Biden’s top economic advisor said Sunday morning that the new administration will look at the potential legal issues surrounding this week’s stock market saga involving a handful of heavily shorted small stocks, as lawmakers continue to press for answers on why the Reddit traders who stormed the market to drive up their prices were treated more harshly than the heavily vilified hedge funds that engage in short selling of stocks. 

Key Facts

Sen. Elizabeth Warren (D-Mass.), who has called for a Securities and Exchanges Commission (SEC) review of how the meme stock market surges were handled, including Robinhood’s decision to limit trading in them, rallied against what she described as a double-standard on Wall Street during a Sunday morning interview with CNN’s “State of the Nation.” 

“What’s happening with GameStop is just a reminder of what’s been going on on Wall Street now for years and years and years,” said Warren, once again advocating for an investigation and emphasizing the need for a “market that is transparent, level, and that is open to individual investors.” 

Fellow progressive Sen. Bernie Sanders (I-Vt.) echoed Warren’s calls for a broader investigation while speaking on ABC’s “This Week,” saying: “I think we have to take a very long hard look at the kind of illegal activities and outrageous behavior on the part of the hedge funds and other Wall Street players.” 

Biden’s top economic advisor Brian Deese, who serves as the director of the National Economic Council, sought to provide assurance that the SEC was on the case during an appearance on NBC’s “Meet the Press,” explaining the commission is “focused on understanding fully what happened here” with a “focus on protecting retail investors and also the integrity of the market.” 

When pressed about any legal crackdown on short-selling, Deese did not rule it out but said “we’re going to look at those issues and certainly understand fully this particular episode and the broader questions there.” 

Crucial Quote 

“Our immediate focus here is on taking the action we need to put a floor under this economic crisis,” said Deese. 

Chief Critic 

“Robinhood suddenly flipped the switch and said ‘small investors are not going to get access to the market but do not worry, the billion dollar hedge funds will still have access to the market,’” said Warren. “You can’t do that … It can’t be trying to help the hedge funds at the same time it pretends that it’s trying to help individual investors.” 

Key Background 

Lawmakers from both sides of the aisle have condemned Robinhood’s decision to limit retail traders who coordinated their bets on the Reddit board WallStreetBets, successfully squeezing billions of dollars from a handful of Wall Street hedge funds that had sold short shares in the money-losing companies on the bet that their prices would decline. Along with Rep. Alexandra Ocasio-Cortez (D-N.Y.), Sanders and Warren, numerous Republicans including Sens. Ted Cruz (Tex.), Pat Toomey (Pa.) and Mike Lee (Utah) all joined the chorus of complaints. Robinhood has defended its decision to first temporarily bar users from purchasing certain stocks, including GameStop while its share price was skyrocketing, and then impose limitations on purchases, arguing that it had to be done to “protect the firm and protect our customers.” 

Further Reading 

“Dow Plunged 1,000 Points This Week After Reddit Traders Stormed The Stock Market–What Happens Next?” (Forbes)

The Hedge Fund Genius Who Started GameStop’s 4,800% Rally Now Calls It “Unnatural, Insane, And Dangerous” (Forbes)

Robinhood Raises $1 Billion In Emergency Funds As Platform Struggles With Reddit-Fuelled Trading Surge (Forbes)

Warren Demands SEC Response To GameStop Frenzy After It Vows To Protect Retail Traders From ‘Abusive Or Manipulative’ Activity (Forbes)

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