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SEC investigators hunt through posts on social media and Reddit looking for signs of fraud in 'meme stock' frenzy - as GameStop shares RISE after plunging 70% earlier this week

 The Securities and Exchange Commission is reviewing social media posts for signs of potential fraud in frenzied trading of GameStop and other companies' shares, according to a new report

The SEC's examination of online posts is being done in tandem with a review of trading data to assess whether such posts were part of a manipulative effort to drive up share prices, Bloomberg News reported on Wednesday, citing people familiar with the matter. 

The 'meme stock' rally fueled by the Reddit forum WallStreetBets inflated stock prices for a number of previously downtrodden companies, including GameStop, which skyrocketed 1,600 percent in January before wiping out 70 percent of its value this week.

GameStop shares closed up a modest 2.7 percent on Wednesday, at $92.41, but remain down nearly 80 percent from their peak around $483 last week at the height of the frenzy. 

GameStop shares closed up a modest 2.7 percent on Wednesday, at $92.41, but remain down nearly 80 percent from their peak around $483 last week

GameStop shares closed up a modest 2.7 percent on Wednesday, at $92.41, but remain down nearly 80 percent from their peak around $483 last week

It was not immediately clear whether the target of the SEC investigation was the small investors who have promoted GameStop in a battle against big hedge funds, or whether the agency suspects bigger investors of manipulating social media behind the scenes.  


A spokesperson for the SEC did not respond immediately to request for comment.

Users of the WallStreetBets forum mocked the SEC's potential move to investigate them, at times in crude terms.

'To the SEC lawyer reading this: I like to cover myself in lube and pretend I'm a slug,' wrote one.

'Hello to all the new SEC interns. I bought 11 more shares yesterday/today. I just like the stock ok,' another wrote. 

Experts say that it is hard to prove fraud against someone for talking up a stock, unless the person lied about the company in some way. 

Users of the WallStreetBets forum mocked the SEC's potential move to investigate them, at times in crude terms

Users of the WallStreetBets forum mocked the SEC's potential move to investigate them, at times in crude terms

'It's no crime to go on a website and say, 'I think the stock's going to go up,' Brad Bennett, a former enforcement chief for brokerage regulator the Financial Industry Regulatory Authority, told Bloomberg. 

'If people choose to follow you, none of that's a violation or a crime either,' he added. 

Earlier in the week, the SEC's acting chair Allison Herren Lee said the agency is working 'around the clock' to root out any potential market manipulation in the market volatility. 

Lee said in an interview with National Public Radio earlier this week that the current situation may be a 'little bit more challenging' than the SEC's typical work.

Users in the Reddit forum WallStreetBets have been encouraging buying of GameStop, AMC and other stocks, causing short-term surges in shares. 

Shares of GameStop rallied nearly 400 percent last week and have since tumbled about 80 percent from last week's highs.

Lee will meet with Yellen (above) and the heads of the Federal Reserve and the Commodity Futures Trading Commission, possibly as soon as Thursday

Lee will meet with Yellen (above) and the heads of the Federal Reserve and the Commodity Futures Trading Commission, possibly as soon as Thursday

An employee talks with a customer at a GameStop shop in New York City on Saturday

An employee talks with a customer at a GameStop shop in New York City on Saturday

U.S. securities law bars the dissemination of any false or misleading information aimed at manipulating investors into buying or selling securities, and regulators have been expected to explore whether Reddit was used to do so.

Meanwhile, Lee will meet with Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission, possibly as soon as Thursday, a Treasury official told Reuters.

Yellen has asked to discuss recent volatility and whether trade has been consistent with fair and efficient markets.

It was not clear if a meeting could result in action, but experts expect focus to also fall on the ever-larger role played by non-bank firms such as hedge funds in financial markets, while small traders are bracing for a showdown.

'Final boss fight. It's happening tomorrow with Yellen, SEC and Federal Reserve,' read one Wednesday post on Reddit. 'They are either going to try and stop the party or they are looking for money to pay us and not crash everything at the same time.'


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