The man at the center of the Gamestop WallStreetBets controversy, an online trader by the name of Keith Gill, is reportedly being scrutinized by Massachusetts’ regulators.
“Roaring Kitty” was the name Gill went by on YouTube. On Reddit’s WallStreetBets, he posted under the name “DeepF-ingVlue.” Gamestop allegedly soared to $483 a share — creating enormous wealth for some people and massive losses for others — because of Gill’s posts. Or, so the story goes…
David Vs Goliath
Part of the narrative surrounding the GameStop stock surge focused on the idea of the “little people” standing up to the institutional hedge funds who were shorting GameStop. While that “David versus Goliath” story may have encouraged some people to buy the stock, blaming social media users for the run-up could be quite challenging to prove. Regulators would need to determine that there was a deliberate manipulation of the stock in a “pump and dump” type scheme. Meanwhile, some might ask; how is a online trader talking about his or her belief in a company that different than a billionaire hedge fund trader going on financial television with his or her number one stock pick? It’s a fair question. If both the online trader and the hedge fund trader have money on the line and both could benefit from advancing the idea, how is one manipulation and the other is not?
Potential “Bot Activity”
One issue is the potential use of bots in the online chat rooms which could have artificially inflated sentiment. A spokesperson for WallStreetBets told CBS News that the chats had been hit by large amount of “bot activity” and that some posts were being blocked as a result.
Treasury Secretary Yellen Calls Meeting
Regulators are understandably concerned. Treasury Secretary Janet Yellen is meeting today with the SEC, CTFC and the Fed in an effort to address the recently volatility in GameStop and AMC shares (as well as silver) and to ensure that there is proper transparency and fairness in the markets.
Bloomberg reports that the SEC is actively investigation social media posts along with trading data to see whether the posts were part of a deliberate effort to run up prices. Meanwhile, a New York Times report suggests the state of Massachusetts would like to know more about Gill and his former job as a financial wellness educator at an insurance company in Boston.
There is a certain expectation in any market that people are betting on a stock to move higher or lower. As such, there’s literally a certain amount of “buyer beware” when listening to stock advice. After all, doesn’t the individual have some responsibility in knowing what makes sense and what does not? Why would anyone buy a stock just because an online group says let’s get behind it?
Blaming one single person–or even many people–for overly enthusiastic comments about a company would suggest that our ENTIRE market is broken. I mean, shouldn’t a rational individual would want to buy or sell depending on whether he or she believes there’s money to be made on the trade?
That is unless the entire world has gone totally mad… which, these days, could actually help explain A LOT…
It seems to be too simple an excuse to say the massive run-up in GameStop shares was simply a function of overly enthusiastic and encouraging social media posts. Importantly, it’s also not clear that individual online investors (and “Roaring Kitty”) were the only people behind this trade. Was there really NO institutional money? After all, a recent Wall Street journal report alleges that a known hedge fund made $700 million on the GameStop rally.
Investors’ Faith in System Must be Restored
Nonetheless, it’s critical that individual investors have faith and trust in our system. If individuals believe a system is rigged against them — as many now feel as a result of the massive volatility in certain stocks — then, the financial system itself is undermined. As such, Yellen, the CTFC and the Securities and Exchange Commission will need to get to the bottom of what may, or may not have, transpired.
There are many questions that deserve answers.