Every amateur investor dreams of hitting it big on the stock market. Like winning the lottery, many believe that if they make one good investment, they will never have to work again. This was the case for many of the armchair investors of GME stock last week.
While overall stock market growth was sluggish, GameStop shares soared over an astounding 1000% during the initial trading frenzy, egged on by the Reddit forum r/wallstreetbets. This captivated the attention of investors, the media and even the White House as they had never seen such a massive effort from individual investors to increase a single company’s market value.
Suddenly, a $5 investment into GameStop became worth over $350 at its peak. Individual investors were delighted to see such a quick turnaround and now found that their investment portfolios were suddenly flush with thousands of dollars. Wall Street, however, was not happy.
As GME shares kept skyrocketing, Robinhood announced that they were halting trades in GME and AMC stock, citing “recent volatility.”
Users of Robinhood suddenly found that they were no longer permitted to buy shares in GME and AMC and that they were only allowed to sell. Overnight, the value of GME shares plummeted and investors were outraged.
Some investors, like 10-year-old Jaydyn Carr, managed to pull out their investments early and make a nifty profit off of the whole ordeal. Others, however, were sticking by the rallying cry, “Hold the line” on r/wallstreetbets and lost thousands.
Brandon Parker, a junior computer science major at UNC Charlotte, was invested in GME on Robinhood and pulled out at the last minute before the freeze came into effect. He says that Robinhood’s actions have shaken his faith in the platform and believes they colluded with hedge funds who were being short squeezed.
“The initial response from Robinhood seemed to be that they were concerned about people putting their money into a volatile stock—and then they limited stock buying and said people don’t know how to use their money. Even though there was valid financial reporting on wallstreetbets that was well informed. I don’t think their intentions were actually because they were worried about people losing money. This leads me to believe it’s more of an issue of Robinhood and maybe the hedge funds [colluding],” Parker said.
“I’d like to see lawsuit from people on wallstreetbets or anyone who invested in GME on Robinhood. An investigation by the SEC won’t result in any real action being taken.” Dr. Yuanshan Cheng, an assistant professor of finance and expert in investments at Winthrop, says that hedge funds engage in market manipulation but they are seldom successful.
“Hedge funds are not that regulated. All kinds of open-ended funds or foundations will raise money from the public are regulated; they have to tell you what they are doing. Hedge funds act on behalf of some people with more than $1 million… They don’t have to tell you what they are doing. They try to manipulate it [the stock market] but it’s very hard to define manipulation… I think they would try to manipulate the market to some extent, then not get caught. But they don’t really have a lot of success.”
Prominent GOP and Democrat leaders such as Ted Cruz and Alexandria Ocasio-Cortez have denounced Robinhood’s actions, calling the company’s decision to not allow for investors to buy shares market manipulation and have called for an SEC investigation.
However, the legality of Robinhood’s actions are uncertain and the company fervently denies any collusion occurred. Some observers like Dr. Cheng believe that the company should not be allowed to tell investors what to do with their money and a class action lawsuit should be filed.
“I think personally that’s a legal issue. We should have a class suit against them—I put money over there and we had a contract. We can go back to the contract and it seems I could have made more money out of this. I think it’s illegal. I believe in free speech and freedom that’s why I come from China to the US,” Cheng said.
Robinhood has since lifted the trade restrictions and the SEC has released a statement saying, “The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
The SEC fell short of naming Robinhood specifically but it is clear that Robinhood will be investigated. Robinhood’s reputation as an online investing platform has taken a major beating in the week following their decision to freeze GME and AMC trades. Over one hundred thousand negative reviews of Robinhood on Google have been removed and the FTC announced that they had received over 100 complaints about Robinhood.
The company will be facing immense public backlash in the weeks to come.
Photo by Emma Crouch
