Trading in 15 more stocks was suspended on Friday as SEC fears that social chatter and speculation are driving perilous market conditions.
SEC Targets 15 Stocks Driven by Social Media Frenzy
The Securities and Exchange Commission (SEC) has gone after stocks it has deemed too unpromising to merit the social media frenzy that has been built around them. The regulator is trying to possibly stave off another GameStop scenario that cost hedge funds billions of dollars.
Speaking on Friday, SEC enforcement division, acting director Melissa Hodgman explained that trading in 15 companies had been stopped for fears of artificially driving market prices up. Blue Sphere Corp., a penny stock, was among those, with its value increasing exponentially following a lively social media campaign pushing its value up as highlighted in a recent Bloomberg report.
SEC explained that the regulator was looking to preemptively restrict trading in dubious stocks in order “to safeguard the public interest.”
The regulator has been prompted by the GameStop saga, which featured an army of grassroots traders led by a moderator at the WallStreetBets sub-Reddit forum who subverted market expectations and caught hedge funds short-selling the games retailer’s stock by surprise.
Reports put the losses accumulated by short-sellers at $20 billion at least. In light of that, SEC has stepped up its efforts in delisting what it described as moribund companies from exchanges to prevent a repeat of that scenario. To this end, SEC is moving into the fathomless sea of penny stocks with companies who have very little actual value or the prospect of generating any actual value.
Addressing the Issue of Non-Existing Value
Speculation has seized the trading day order, too, with profitless companies generating staggering interest through pumped-up hopes with little substance to back them up. According to Bloomberg, in February alone, 90 billion shares were exchanged on platforms similar to OTC Markets Group, which targets pink sheet securities.
The interest in small stocks that could turn an actual value is driven by social chatter on Stocktwits and Twitter, pushing companies such as Blue Chip to relative prominence but without necessarily guaranteeing the company’s actual ability to deliver.
SEC has not been idle too. In the wake of the Robinhood/GameStop trading frenzy, the regulator intervened, ordering Robinhood to suspend further trading lest it leads to more speculative damages.
In one similar case, SpectraScience Inc. marked 633% growth at the beginning of 2021, forcing SEC’s hand to step in and suspend the company, citing lack of reporting by the company for years prior. The regulator explained that “social media accounts may be engaged in coordinated attempt to artificially influence.”
SEC, though, is not going ahead and suspending accounts willy-nilly. Rather, the regulator has very good reasons to do so, citing years of inactivity and recent speculation about companies that have shown no sign of movement.
The regulator may suspend trading for a period of up to 10 days and prohibit the solicitation of buying or selling action until such a time that reporting requirements are met. In essence, SEC is trying to prevent gambling with stocks, which is the right call.