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Comment by kmeisthax | Hacker News Reader

If I were running a financial brokerage I'd totally do this, too. It's not a matter of "helping my hedge fund broker friends", it's a matter of "how do we keep the SEC off our backs". Remember: Robinhood is already being charged with securities law violation for giving their customers a raw deal on order execution.

We usually don't see distributed market manipulation like this, but I wouldn't be surprised if a shitton of people buying GameStop to squeeze a short-seller breaks securities law. Does it feel good to get one up on a hedge fund idiot that was trying to manipulate GameStop the other way? Yes - but this is, at best, financial vigilantism.

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> Does it feel good to get one up on a hedge fund idiot that was trying to manipulate GameStop the other way? Yes - but this is, at best, financial vigilantism.

Hedge funds do this to each other every day. Why is it suddenly wrong when it’s retail investors on the other side of the trade?

I truly do not understand the naïveté of arguments like these. Only the wealthy should be allowed to game the price of assets and rip each other off?

> Hedge funds do this to each other every day.

Do you have a source for this?

Start with Matt Levine or Michael Lewis if you want to see how games are played.

For eg, here’s an insane one from last fall on negative oil futures:

https://www.bloomberg.com/opinion/articles/2020-08-04/some-p...

If it were not so shorting wouldn't be considered high risk...

short positions are inherently higher risk than long positions because your upside is finite, and the downside is unbounded.

(this is why you might want to... hedge your shorts.)

If you remove the short squeeze part. It is still a pump and dump. Someone is going to be holding the bag when the stock comes back down. That is going to be retail investors.

I'm still shit at these things, but so far, I seriously cannot understand how hedge funds get away with "shorting", but people doing the same thing in reverse is market manipulation. From this (admittedly naive) POV, this sounds like double standards.

Holding a short position (selling before you buy) or a long position (buying before you sell) are both valid and legal trading decisions on their own. Market manipulation arises out of context. When you start tweeting about how you should totally sell a stock that you have a short position on, then you start stepping into illegal behavior.

In other words, the capital firm that got short-squeezed by the idiots at /r/WSB were also doing something illegal. It's not the case that the short is legal but the longs aren't. Alternatively, if the argument is that /r/WSB isn't market-manipulating, they just think the stock is undervalued, then the hedge fund can use the same argument. "We think this stock is overvalued so we shorted it" is how they'll explain it to the SEC.

And that's not an invalid position: GME has been suspiciously overvalued way before any of the parties involved started holding positions. It's a retail-heavy business in pandemic season with multiple year-over-year same-store sales cuts. What that means is that, for each one of their stores, on average, they sold 30% less product in Q3 2020 than they did in Q3 2019. And even if you think, "oh, that's just the COVID economy, they'll be back"; Q3 2019 sales were already 20% down from the year before. This is a company nobody wanted to buy games from even before a novel coronavirus decided to close a good chunk of their stores.

The fun fact about that above explanation is that it provides plausible deniability for someone trying to juice the market in a particular direction. Hell, if /r/WSB hadn't caught the hedge fund with their pants down, they probably would have gotten off scot-free. However, the financial vigilantes dumping fat stacks into GME don't have the same kind of excuse - they explicitly coordinated in public fora to manipulate stock price, so it's an easy target for an SEC that really doesn't get the budget necessary to prosecute the complex kinds of financial crimes they're tasked with.

So, from a legal perspective, both parties are in the wrong. From an enforcement perspective, /r/WSB is a soft target.

So definitely double standards.

I think you missed most of the story. The stock was massively undervalued before attracting the attention of WSB. The first posts were when it was valued less than the cash it was holding.

On top of that, you have the beginnings of a takeover by a successful e-commerce CEO and potential for real turnaround.

That would have been enough on its own for WSB longs to jump in, but then the hedge funds shorted over 100% of the stock making it the perfect powder keg for this explosion.

The same thing in reverse isn't market manipulation. Buying call options or the stock itself is legal.

What can be market manipulation is to collude with others to move a stock price not because you believe it is worth a different amount, but because you predict others will react to the movement you create. That applies to collusion involving shorts (bear raids) too. Proving the collusion and the artificial price bit is the difficult bit

It's not only that - the current price of AMC, GME, etc... are being manipulated artificially.

This is text-book illegal activity.

There is no logical derivation of GameStop's financial books that would warrant the kind of stock price it has.

It is very very clearly market manipulation, and these exact sorts of manipulations are commonly prosecuted.

The price of GME is due to a squeeze. The shorts have to get out. People know this. They are refusing to sell. Manipulation but legal.

There’s nothing illegal about buying a stock, or even voicing your opinion about a stock.

If only value investing was legal, the stock market look and operate very differently to today.

Edited to add: ultimately the law should be there to prevent fraud, not to restrict capital ownership and financial autonomy to a handful of cronies. You know, what they call a free market.

Incidentally, if this had been a properly regulated market to begin with, the price inflation would not have been possible.

If you're able to rally people on social media is that manipulation? I'm not so sure.

I think it's very risky for the investors but I don't know whether the SEC has stuff that would cover this.

And even if there were a law, if you somehow have your thumb on the social media hype button then how would you enforce that law? Makes me think nothing unruly is going on, just a bubble that will inevitably collapse and make Musk etc. rich once more just like during the dot com era. Some people only know how to make money through theft and I'm not surprised we've found ourselves here after the last 4 years.

Yea - i'm confused on what the definition of manipulation is here.

If i tell you GME has a new product line that will increase their wealth 10x - that seems like manipulation. If i say to you i'm buying GME and you should too, with clear disclaimers that this isn't financial advice but rather a meme - i don't think i manipulated you.

By "normal" definition manipulation requires some about of deception/etc. I don't think "anyone" (within obvious reason) is being manipulated here. It's very clear what the community is buying into.

So i come back to what "manipulation" is defined as in the stock sense. Is it meaningfully different?

"This is text-book illegal activity."

Is it? If I have the money to put a short squeeze on someone by myself, with my own money, is that illegal? Isn't that what some people do all the time with smaller numbers?

(honestly asking)

Coordinating millions of people to pump a stock so that a short squeeze will occur is very different from you doing it on your own.

Pump and Dump schemes have been illegal forever. This is no different.

This is not a pump and dump. In PnD, there is an element of subterfuge - the people you are selling to are unaware of what is going on. In this play, all actors are fully informed of what is going on. I mean, maybe some people don't really understand the details, but the majority of people here aren't buying GME because they think it'll keep going up; they all know it's overvalued, but they don't care, because the goal is only partially to make a profit. 'Pump and dump' isn't illegal per se, what is illegal is lying about fundamentals or circumstances to influence stock price. That is not what is happening here.

Furthermore, if you're arguing that it's illegal because it's done in group, then I don't understand what legal basis you are using for that. I also don't understand why you'd say it's "very different" from doing it on your own. I can't think of anything else off the top of my head that legal to do on your own, but illegal in group (some things are more illegal in a group, but that's not what we're talking about)

No this is EMH at work. Main street has realized that they can attack short positions which are unnatural in size. And they intend to get paid for doing it.

Hedge funds are so used to being the only tool on the block, they overextended, and for the first(?) time the retail side is fighting back.

The professional investing world have so many advantages over main street that it's not even funny. They've got everything from frontrunning, colocation, free money, and leverage(10x), 'unsophisticated' investors only can dream of this. And when they do go belly up, tax payers bail them out, meanwhile the bonus machine keeps churning.

But it is funny and good when main street actually catches them with their hand in the cookie jar.

How is this different from Bill Ackmans attack on Herbal life? https://www.youtube.com/watch?v=bQc6L4ieMwo

How is this different from all the FUD Tesla has gotten over the years? Which CNBC has happily broadcast for years. https://www.youtube.com/watch?v=a-YgFDAroeI

> How is this different from Bill Ackmans attack on Herbal life?

That was shorting. That is LEGAL.

> How is this different from all the FUD Tesla has gotten over the years?

Tesla was specifically investigated by the SEC when it tried to push short sellers out - and they paid an undisclosed fine for that ILLEGAL activity.

> There is no logical derivation of GameStop's financial books that would warrant the kind of stock price it has.

Is there a requirement for stock prices to be logical? Wouldn't that would ban all sorts of hft trades?

Coordinating a short position and shorting over 150% of the available stock is not market and price manipulation?

What about Tesla? It's incredibly overvalued and in the same boat essentially.

Why is one okay but not the other? Right because rich people with connections are the ones being burnt right now.

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