SEC investigators search social media posts for signs of GameStop fraud

The Securities and Exchange Commission is reviewing social media posts for signs of possible fraud in insane trading of GameStop and other companies’ shares, according to a new report

The SEC’s investigation into online posts is being conducted along with a review of trading data to determine if such posts were part of a manipulative attempt to raise share prices, Bloomberg News reported Wednesday, citing people familiar with the matter.

The ‘meme shares’ fueled by Reddit forum WallStreetBets have raised share prices for a number of previously disadvantaged companies, including GameStop, which shot up 1,600 per cent in January before wiping out 70 per cent of its value this week.

GameStop shares closed a modest 2.7 percent at $ 92.41 on Wednesday, but remain almost 80 percent lower than their high of about $ 483 last week at the peak of the frenzy.

It was not immediately clear whether the target of the SEC investigation was the small investors who promoted GameStop in a fight against large hedge funds, and whether the agency suspected larger investors of manipulating social media behind the scenes.

An SEC spokesman did not immediately respond to a request for comment.

Users of the WallStreetBets forum mocked the SEC’s potential move to investigate it, sometimes in rough terms.

“To the SEC lawyer who reads this: I like to cover myself with grease and pretend to be a snail,” one wrote.

‘Hello to all the new SEC interns. I bought 11 more shares yesterday / today. I just like the stock, ‘wrote another.

Experts believe that it is difficult to prove fraud against someone because he has a share, unless the person is lying about the company in some way.

“It’s not a crime to go to a website and say, ‘I think the stock is going to rise,'” Brad Bennett, a former chief regulator at the Financial Industry Regulatory Authority’s mediation regulator, told Bloomberg.

“If people choose to follow you, it’s not a crime or a crime either,” he added.

Earlier in the week, SEC acting chairman Allison Herren Lee said the agency was working for hours to eradicate potential market manipulation in market volatility.

Lee said in an interview with National Public Radio earlier this week that the current situation could be a little more challenging than the typical work of the SEC.

Users in the Reddit forum, WallStreetBets, encouraged the purchase of GameStop, AMC and other shares and caused short-term rise in shares.

Shares in GameStop rose nearly 400 percent last week and have since fallen about 80 percent from last week’s highs.

U.S. security law prohibits the dissemination of false or misleading information aimed at manipulating investors to buy or sell securities, and regulators are expected to investigate whether Reddit was used to do so.

Meanwhile, Lee will meet with Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission, possibly as early as Thursday, a Treasury official told Reuters.

Yellen asked to discuss recent volatility and whether trading with fair and efficient markets is consistent.

It was not clear whether a meeting could lead to action, but experts expect that the focus will also fall on the growing role that non-banking companies such as hedge funds play in the financial markets, while retailers make a showdown.

‘Final boss fight. It will happen tomorrow with Yellen, SEC and the Federal Reserve, ‘reads one Wednesday report on Reddit. “They’re either going to try to stop the party, or they’re looking for money to pay us and not ruin everything at once.”