The Biden administration is sending a clear signal to Wall Street that the industry’s Washington cops are back on the beat. Regulators and federal prosecutors are probing potential misconduct in the GameStop trading frenzy, as the Securities and Exchange Commission moves to restore harsher penalties on wrongdoers.
Attorneys in the Justice Department’s criminal division are conducting a wide-ranging investigation into possible market manipulation from the trading surrounding GameStop, and recently issued a subpoena to Robinhood as part of that, a person familiar with the matter said. The probe, though, appears to be in its early stages.
SEC acting chair Allison Herren Lee in a radio interview earlier this month said the agency already is investigating the matter “from a number of different angles, and they’re very significant.”
Specifically, she indicated the agency is looking into whether brokers such as Robinhood complied with regulations when they limited trading in certain so-called “meme stocks.” And she said the agency is looking for signs of market manipulation amid the trading mania. A Robinhood spokesman declined to comment.
Beyond the GameStop probe, Lee said Thursday that the agency is reversing a policy that shielded financial firms settling charges from further punishment. Under the Trump-era approach, the SEC bundled settlement agreements with waivers that allowed the targeted companies to continue raising money in public markets.
Lee in a statement said the new policy marks a “return to the division’s long-standing practice” and ensures “that the consideration of waivers is forward looking and focused on protecting investors, the market, and market participants from those who fail to comply with the law.”
The same day, the SEC announced it suspended trading in SpectraScience, a defunct company that had seen its stock zoom amid social media chatter. The agency said in a statement that “certain social media accounts may be engaged in a coordinated attempt” to boost the share price of the company, a Minnesota-based business that had not filed any reports since 2017.
The suspension itself was unremarkable. The SEC acted similarly more than 100 times last year. But the agency used the move as an opportunity to remind investors they should “exercise tremendous caution when investing based on social media or a sudden surge of enthusiasm for a particular security, especially where that interest does not appear tied to any news about the company or industry,” Melissa Hodgman, the acting head of the agency’s enforcement division, said in a statement.
Taken together, the SEC’s moves “certainly signal a changing of the guard,” said Philip Moustakis, a former senior counsel in the SEC’s enforcement division now with Seward & Kissel.
But Moustakis also noted that despite invoking the GameStop frenzy in its announcement of its latest trading suspension, the SEC did not halt trading in GameStop itself. He said that signals the agency “made an initial determination that the facts and circumstances here don’t give rise to sufficient concerns about manipulation to warrant a suspension” of that stock or others that saw dramatic run-ups thanks to attention they attracted from amateur investors.
The matter is poised to get further scrutiny in the coming week, when the House Financial Services Committee convenes a Thursday hearing on it. The panel’s witness list so far includes Robinhood CEO Vlad Tenev, Citadel CEO Ken Griffin, Melvin Capital CEO Gabriel Plotkin, Reddit co-founder Steve Huffman, and Keith Gill, the trader with a huge online following who helped set off the GameStop surge.
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