SEC suspends trading of SpectraScience amid buzz on social media
The financial watchdog feared the risk of a new trading frenzy based on social media as these platforms can tempt unaware investors to invest with fear of missing out and then finding themselves holding the bag.
The Securities and Exchange Commission has suspended trading in SpectraScience Inc. (OTC: SCIE), an inactive company, amid odd and unusual online promotion of the company’s securities and recent trading activity.
“The SEC’s trading suspension order states that since late January 2021, certain social media accounts may be engaged in a coordinated attempt to artificially influence the share price” of the inactive Minnesota-based corporation. During the same period, the share price and trading volume of the stock increased despite no activity or news regarding the firm.
SpectraScience is delinquent in its reporting, having not filed any periodic reports since 2017, and that its most recent website and phone number are non-functional, according to the regulator, which issued an alert warning investors in late January 2021.
The financial watchdog feared the risk of a new trading frenzy based on social media as these platforms can tempt unaware investors to invest with fear of missing out and then finding themselves holding the bag.
Melissa Hodgman, Acting Director of the SEC’s Division of Enforcement, said: “This is a reminder that investors 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.”
The SEC has the legal authority to suspend trading in a stock for 10 days and prohibit broker-dealers from soliciting investors again until certain reporting requirements are met.
Regarding social media activity towards trading, the Financial Industry Regulatory Authority is likely investigating the social media activity of brokers tied to the GameStop stock-trading frenzy, which could ultimately lead to scrutiny of firms’ supervisory procedures and require fine-tuning of their compliance policies.
“Social media may be a new medium, but FINRA’s rules on communicating with the public are still applicable,” the regulator states in guidance posted to its website. “The rules protect investors from false, misleading claims, exaggerated statements, and material omissions.”
The erratic trading that sent GameStop’s share price soaring to a high of $483 on January 28 before crashing down was fueled in part by a Reddit board where users promoted the stock to counter Wall Street firms that had bet against it. After weeks of wild fluctuations, the stock closed Tuesday at just over $50.
No wrongdoing has yet been shown. But Boston-area Reddit user and registered broker Keith Gill, who posted under the name “DeepF—ingValue,” was issued a subpoena Monday to appear before the securities unit of the Massachusetts Secretary of the Commonwealth later this month.
