Elizabeth Warren Defends Hedge Funds, Asks SEC to Investigate Reddit Investors

Jared Evan

Elizabeth Warren wrote a letter to the SEC  which demanded an explanation for why the SEC had not cracked down sufficiently on supposed “market manipulation”,  as a response to this week’s dramatic surge in stock prices from several stocks, which Hedge Fund managers have gambled on as money losers and had invested in as short-sells.

Many small-time investors organized on a Reddit message board and collectively started buying stocks of companies that are currently some of the most popular stocks to “sell short”, such as GameStop, BlackBerry, Bed Bath Beyond, and Blockbuster. This resulted in a huge price increase of these stocks.

Short selling is a fairly simple concept—an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and returns it to the lender. The difference between the sell price and the buy price is the profit, explained by Investopedia. If the stock gains in price, the possibilities of loss for the investor are endless.

“Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability,” Warren wrote. “Today I told the SEC to explain what exactly it’s doing to prevent market manipulation.”

“I am deeply concerned that these casino-like swings in the value of GameStop and other company shares are yet another example of the gamesmanship that interferes with the ‘fair, orderly, and efficient’ function of the market,” Warren stated in the letter.

“There is a troubling lack of clarity regarding who the major market participants are in this case and the degree to which their activities may be coordinated” Warren wrote in regard to Reddit traders that she described as “cloaked in anonymity.”

Senator Warren has built a career around being tough on billionaires and allegedly for the “little guy”. Many critics have pointed out that Warren is rushing to the defense of the hedge fund managers in this case and is looking to investigate the consumer investors from Reddit message boards