SEC chairman Gensler defends Reddit’s right, GameStop investors to ‘smash’ short sellers

Washington’s top stockbroker shows no appetite to crack down on the behavior of millions of retail investors who use forums on Reddit and other social media platforms to coordinate investment strategies, sometimes at the expense of established Wall Street shortsellers.

During an interview on Wednesday, CNBC’s Jim Cramer asked U.S. Securities and Exchange Commission chairman Gary Gensler whether the SEC should step in to prevent a concerted effort by Reddit investors to stop shortsellers betting on popular meme stocks. such as GameStop Corp. ,
and AMC Entertainment Holdings Inc. AMC,

“If three hedge fund members team up to bust a short hedge fund, the 5 million Reddit people would say that’s illegal, but maybe it shouldn’t be,” Cramer said. “If 5 million people decide to destroy a hedge fund that is too short, is that okay? What is within the bounds of what you can do to beat a shortseller?”

GameStop became a popular investment on social media, in part because private investors saw the company as unfairly attacked by short sellers who drove a stock’s price down and risked turning the company’s bankruptcy into a self-fulfilling prophecy.

Gensler declined to comment specifically on the GameStop situation, but defended the right of individuals to speak freely about investment opportunities and persuade fellow investors to copy their trading strategies.

“People come on your show and they advocate buying or selling a security,” Gensler said. “Before we had television, people did it on the radio, now we have different social media platforms.

That’s not just freedom of speech, but it’s part of what makes our capital markets robust, that people can disagree and disagree with the help of the media of the day. But I also think we’re monitoring the markets for fraud, manipulation, pump-and-dump schemes and the like.”