KSL INVESTIGATES

Gephardt: Former SEC Official Says GameStop Investors Could be In Legal Trouble

Jan 28, 2021, 6:30 PM | Updated: 7:22 pm

SALT LAKE CITY, Utah – It’s sort of a grassroots investment scheme. Coordinating through social media, a whole bunch of people got together and invested in GameStop, a company that’s been losing money like crazy. 

The investors didn’t do it because they think GameStop is going to suddenly become relevant in the marketplace. They did it to put the screws to rich people who were betting that the stock price was going to drop.

It worked. The stock price skyrocketed, and some rich investors lost their shirts.

Now those involved in the scheme could be in trouble. 

Brent Baker is an attorney with Parsons Behle, and before that, he spent 13 years working for the Securities and Exchange Commission. He said federal regulators will be looking into whether the investors manipulated the stock price.

“Manipulation, which is fraud, is doing anything to artificially affect the price of a stock,” he said. 

Buying or selling stocks is perfectly legal, and in doing so, the price of a stock can be inflated or deflated, sometimes by quite a bit. That’s Wall Street 101. When people coordinate to, say, make a company’s stock price reflect that the company is healthier than it really is, that’s a no-no. 

Baker said it’s clear to him that people coordinated and, in doing so, likely broke the law.

“Posting with the intent to harm a stock, it’s absolutely illegal,” he said. So is investing with the intent of hurting other investors if it’s coordinated,” Baker said. 

Depending on the amount of money lost, he said people could face fines or even jail sentences. 

“I’ve worked on multiple criminal matters based on behavior that is less severe than what I see here,” he said. 

The Biden administration has confirmed that regulators are investigating, and several stockbrokers have suspended trading of the GameStop stock. 

Investors are now targeting other companies on which hedge fund managers have bet the stock price will go down, including Blackberry and AMC Theaters.

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Gephardt: Former SEC Official Says GameStop Investors Could be In Legal Trouble