Experts anticipate SEC probe of GameStop trading fluctuations

Securities regulators are likely closely monitoring the surge in GameStop Corp. and other stocks and will probe the trading if they determine there’s fraudulent intent behind it, experts said Wednesday.

Shares of the video game and consumer electronics retailer soared 93% on Tuesday and are up more than eightfold for the month. The activity, spurred by investors on the online forum Reddit who are taking long positions on GameStop stock that has been shorted, has catalyzed purchases of shares in other vulnerable companies, such as Bed Bath & Beyond Inc. and AMC Entertainment Holdings Inc.

The gyrations have likely caught the attention of the Securities and Exchange Commission and other regulators.

“I’m sure they’re all taking a look at this,” said Thomas Gorman, a partner at Dorsey & Whitney and a former senior counsel in the SEC Division of Enforcement. “There’s too much trading and too much volatility.”

[More: Advisers ponder systemic risks to markets as GameStop stock spins out of control]

SEC staff is likely parsing the trading to see if there’s deliberate manipulation or collateral effects more broadly on stock prices, said Howard Fischer, a partner at Moses Singer and a former SEC trial counsel.

“The less likely there is fraudulent intent behind [the trading], the less likely the SEC is to intervene, unless they really think this damages the integrity of the market,” Fischer said.

An SEC spokesperson declined to comment.

William Galvin, the top securities regulator in Massachusetts, is tracking the GameStop trading.

“This is certainly on my radar,” Galvin said in a statement to Barron’s. “I’m concerned, because it suggests that there is something systemically wrong with the options trading on this stock.”

A spokeswoman for Galvin said he was not immediately available for comment.

If the GameStop phenomenon is just a lot of trading, then the role of regulators is to maintain an orderly market, Gorman said. But the fact that volatility surrounding GameStop has spread to other stocks could raise regulatory eyebrows.

“I would think that could be a real concern,” Gorman said. “That looks more like a manipulator.”

A securities attorney who asked to remain anonymous because his firm has worked with GameStop said the SEC should take enforcement action.

“This is pretty cut-and-dry market manipulation,” the attorney said. “The SEC has to act here. They have to think about this through an enforcement lens.”

Bloomberg News contributed to this story.

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