Legal Law

A not so free market

Last month, Reddit users sent a billion-dollar message to hedge funds, investment banks, and the U.S. economy in general: They don’t control the market. On a large scale, and in response to Reddit’s WallStreet Bets forum, Reddit users have taken GameStop stock price to astronomical levels, resulting in small individual shareholders making hundreds of thousands of dollars and causing massive losses to hedge funds on the stock shorted.

The reaction from Wall Street and the US government has made one important thing clear: while the US is supposedly built on a free market, the market can only be manipulated and benefited by the rich.

One easy way to see this is how hedge funds work. Hedge fund managers meet in Davos or in Michelin-starred restaurants to talk about the market and to talk about weaknesses and areas that can be used to their advantage. If these discussions lead to massive profits for an individual, or the hedge fund in general, they will be praised and seen as outsmarting the rest of the market.

But isn’t that exactly what happened to Reddit, just on an online platform and perhaps more importantly because ordinary people for want of a better word? Over the past six months, with no one looking, 2.3 million Reddit users analyzed the market, met online and discussed how to exploit the market’s weaknesses and blind spots. Yet the response from Wall Street, the government, and even online trading platforms like Robinhood designed to help individuals trade has been outrageous. How could it be that ordinary people figured out how to use the stock market?

The Reddit GameStop acquisition raised many regulatory issues, many of which are legitimate concerns, such as: B. Whether it is legal or ethical to collude to raise stock prices, and what does it mean to collude to raise stock prices. For example, when Elon Musk tweets about a particular stock, it affects that stock’s share price almost instantly. Before Elon Musk, the next day Warren Buffett talked about a stock, the price went up. Still, Reddit users reporting on GameStop and its potential were seen as collusion.

If our market is truly free, everyone should be able to manipulate it as often as they can or want. However, if it is to be controlled and stable, hedge funds, investment banks, and the like must be controlled alike. Because the only difference between what happened to GameStop and what hedge funds do every day is who did it.

Maya Cohen is an associate at Balestriere Fariello and has a background
in international law and arbitration. She focuses her practice on
complex litigation from investigations to legal proceedings and appeals. You can
You can reach them by email at [email protected]

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