Possible corruption: Gamestop case reaches the judiciary

Status: January 30, 2021 2:49 p.m.

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In the dispute between hobby investors and hedge funds over speculation with Gamestop shares, the judiciary is now intervening. Courts want to check whether the broker’s trading restriction was correct.

Did the “gambler war” over the Gamestop share lead to illegal collusion between brokers and hedge funds? The first judicial authorities are now investigating this question in the USA. Texas Attorney General Ken Paxton announced on Friday (local time) that he had requested information from Robinhood and a number of other online brokers to find out whether everything was right with the paperwork restrictions by Gamestop and a few other companies .

There are apparently agreements between hedge funds and trading platforms and web servers to ward off threats to their market dominance. Wall Street companies should not restrict public access to the free market for their own benefit, the prosecutor said. “It stinks of corruption.”

Hobby gamblers organized in online forums had driven the price of the Gamestop share up dramatically in the past few days – until the trading restrictions of brokers like Robinhood stopped the profit path. Hedge funds that bet on the collapse of ailing companies made extremely high losses. Hence there is a suspicion that the trading platforms have their backs free and discriminate against small investors compared to large Wall Street investors.

US politicians are also outraged

Robinhood and Co., who enjoy great popularity with young retail investors, deny this. Company boss Vlad Tenev had announced via CNBC that restrictions were used to protect his own company and its customers. But the outrage is not only widespread among the investor community, but also in politics. New York Attorney General Letitia James also wants to investigate.

Democratic Senator Elizabeth Warren told CNBC that the stock market has become a casino. Manipulators would drive the market up or down to make a profit: “Billionaires and some hedge funds are now complaining loudly that they are not the only ones making money when the manipulation works.”

Hedge funds act as so-called short sellers by selling the stock short: They borrow the stock and sell it in the hope of being able to buy it back later at a lower price.

“Super Gau”

There is also serious criticism of the brokers in Germany. Marc Tüngler from the German Association for Protection of Securities Holdings (DSW) told the Funke media group’s newspapers: “The fact that neobrokers are now suspending trading in the shares is the worst case scenario. In such an intense situation, they deprive investors of the basis to act freely to be able to. ”

The question arises as to the basis, stressed Tüngler. If the possibility for Robinhood’s step is recorded in the terms and conditions, the broker will suffer reputational damage. “If it is not recorded, we have a serious legal problem.”

Class action lawsuits and mass complaints

The Green EU politician Sven Giegold also sees a risk for the stock exchanges in the EU. “We shouldn’t wait until there are similar problems in the EU,” he warned the editorial network Germany. There are currently large short positions in European companies such as Varta and Evotec. “To me this suggests that the short selling rules introduced after the great financial crisis are not effective in ensuring market integrity.”

On Friday, the papers of Gamestop closed with 68 percent plus, those of the cinema chain AMC, which is also the focus of speculation, increased by 54 percent. On Thursday, trade restrictions had been eased at least somewhat. But investors have become so frustrated with Robinhood that well over 20,000 of them have already joined a class action lawsuit via a special app.

The US Securities and Exchange Commission had reaffirmed before the start of trading that it would investigate the events surrounding the gamestop hype. The SEC promised to protect retail investors if the facts point to manipulative trading activities. The supervisory authority will ensure “fair, orderly and efficient markets”.

In view of the great excitement, the agency set up an extra online form and also urged investors concerned to contact the SEC by email or telephone hotline. According to the financial network CNBC, 4,000 complaints had already been received on Friday afternoon.