GameStop Actors Could be Criminally Charged Says Former Senior SEC Counsel, Who Serves as a Lawyer for Broker/Dealer Fraud

Nick Morgan believes chances of obtaining prosecutions are quite slim but very possible

Could there be criminal charges against any of the actors involved in the wild ride taken by GameStop? Federal prosecutors are reportedly looking at possible violations of securities laws during the recent market-bending event.

Nick Morgan, a former SEC senior trial counsel who is now a litigation partner with law firm Paul Hastings, believes the chances of prosecutions are slim, though not unexpected.

“Given the amount of attention this issue is receiving, it is not surprising that criminal authorities are investigating,” says Mr. Morgan. “They will have a higher burden of proof than the SEC, which can only bring civil claims, and the criminal authorities and civil authorities will be working with the same evidence.”

Mr. Morgan notes that the SEC did not suspend trading of GameStop even when the stock was going to the moon, fueled mostly by manic enthusiasm on online message boards. That was not the case with another recent run-up of a company called SpectraScience.

“The SEC has shown it is capable of suspending trading of a stock being touted on social media when there is evidence of violations of the federal securities laws,” he says. “In suspending trading of SepctraScience, the SEC cited ‘since late January 2021, certain social media accounts may be engaged in a coordinated attempt to artificially influence SCIE’s share price.’ We have seen no such allegation by the SEC about GameStop.”

Mr. Morgan is a partner in the Los Angeles office of Paul Hastings and a member of the firm’s investigations and white-collar defense team. In addition to his SEC experience, he served as a Special Assistant US Attorney for the Southern District of California.

Mr. Morgan handles complex securities litigation in state and federal courts and represents clients in government investigations and white-collar matters. During his time at the SEC, he served as lead counsel in matters including the prosecution of insider trading, investment adviser fraud, revenue recognition fraud, broker/dealer fraud, mutual fund market timing, and market manipulation.

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