SEC wages war against ‘meme stocks’, suspends 22 securities
These 22 securities were being promoted on social media with the only purpose of inflating the price. The typical pump and dump scheme now being perpetrated on social media on a mass scale.
The Securities and Exchange Commission has suspended trading in the securities of 22 companies as the regulator wages war against market manipulation through social media.
Under the federal securities laws, the SEC can suspend trading in a stock for 10 days until certain reporting requirements are met. None of the issuers has filed any information with the SEC or OTC Markets, where the companies’ securities are quoted, for over a year, according to SEC.
This has led the regulator to suspect that market manipulation was taking place. These 22 securities were being promoted on social media with the only purpose of inflating the price. The typical pump and dump scheme now being perpetrated on social media on a mass scale.
Melissa Hodgman, Acting Director of the SEC’s Division of Enforcement, said: “The SEC’s recent suspensions of trading in nearly two dozen securities – including 15 today – are one facet of our ongoing efforts to police the market and protect investors. We proactively monitor for suspicious trading activity tied to stock promotions on social media, and act quickly to stop that trading when appropriate to safeguard the public interest. We also remind investors to exercise caution and do their diligence before investing generally, including in companies promoted on social media.”
The SEC suspended trading in the securities of Bebida Beverage Co. (BBDA); Blue Sphere Corporation (BLSP); Ehouse Global Inc. (EHOS); Eventure Interactive Inc. (EVTI); Eyes on the Go Inc. (AXCG); Green Energy Enterprises Inc. (GYOG); Helix Wind Corp. (HLXW); International Power Group Ltd. (IPWG); Marani Brands Inc. (MRIB); MediaTechnics Corp. (MEDT); Net Talk.com Inc. (NTLK); Patten Energy Solutions Group Inc. (PTTN); PTA Holdings Inc. (PTAH); Universal Apparel & Textile Company (DKGR); and Wisdom Homes of America Inc. (WOFA).
The SEC also recently issued orders temporarily suspending trading in: Bangi Inc. (BNGI); Sylios Corp. (UNGS); Marathon Group Corp. (PDPR); Affinity Beverage Group Inc. (ABVG); All Grade Mining Inc. (HYII); and SpectraScience Inc. (SCIE). Each of these orders stated that the suspensions were due at least in part to questions about whether social media accounts have been attempting to artificially increase the companies’ share price.
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.
“We have to recognize that trading will change”
While the SEC increasingly supervises trading-related social media activity, many within the industry question whether ‘meme stock’ trading will become a thing rather than just hype. What has been established is that social media platforms can disrupt institutional money.
“We have to recognize that trading will change, said Philippe Ghanem, Executive Chairman of SquaredFinancial. “There is a wave of growing anger, for example, that private traders will not be allowed to invest in a series of high-profile IPOs of companies which are of their generation, like Wise (Transferwise), Darktrace, Deliveroo, and PensionBee. These deals are limited to institutions. These are not gambling, but the traders accused of gambling are excluded. The concern is that when the odds are set in favour of a few, then it is fine. But if the odds are changed the few get upset. ”
“Millennials and GenZs are the traders of the future. They work through different media and in different ways and have power in numbers. Social media allows the instant democratization of information which, if it is correct, can make or break markets. The way the markets have responded is to try and ringfence the past instead of looking at ways to build the future, which is not sustainable.”
The SEC has made no allegation of market manipulation about GameStop
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. 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.”