Shares of video game retailer GameStop Corp surged nearly 700% over the past week as retail investors piled into the stock, appearing to be urged on by bullish posts in popular online forum Reddit as opposed to any fundamental changes in the company’s finances or prospects.
Over the past week, a collective of individual traders on Reddit’s r/WallStreetBets community sent GameStop stock to astronomical heights in an experiment to stick it to hedge funds, which had sold the stock short.
At the beginning of this year, GameStop was trading at $17. By Wednesday afternoon, it was over $340, valuing the unprofitable company at more than $25 billion.
This has enraged hedge funds, and much of Wall Street, with calls for regulation.
U.S. law bars the dissemination of false or misleading information with the aim of manipulating investors into buying or selling securities, as seen during a rash of “pump and dump” schemes during the early 2000s dot.com boom.
Regulators are likely to explore whether Reddit was used in a similar way after thousands of messages hyped up the stock and urged other investors to hold on to their shares or buy more.
The subreddit is composed largely of “literate, engaged, working, poor to middle-class” people, according to u/onemanstrong’s post on the subreddit, r/wallstreetbets.
Wild swings in GameStop’s shares led the New York Stock Exchange (NYSE) to halt trading in the company several times this week. On Wednesday, the Massachusetts state regulator, William Galvin, called on NYSE to suspend GameStop for 30 days to allow a cooling-off period. “This isn’t investing, this is gambling,” he told Reuters in an interview. “This is obviously contrived.”
