Gaming GameStop: Faculty Experts Weigh in on Reddit and Meme Trading

Securities law scholars Professors John C. Coffee Jr. and Joshua Mitts offer context and commentary on volatile trading driven by investors who coordinated through social media.

Photo of rising and falling stock prices on a computer

In 2019, Joshua Mitts, associate professor of law, published a paper focusing on the rise of short activism on Twitter and other social media. Last week, his predictions played out in real time as retail investors, led by members of a Reddit community, roiled the stock market through aggressive and coordinated purchases of stock options for companies that had been targeted by short-sellers, including billion-dollar hedge funds. After organizing on social media, individual investors drove up the value of companies, including GameStop, AMC Entertainment, and Nokia.

As broker-dealers like Robinhood and Interactive Brokers restricted users’ ability to trade certain stocks—and the value of those stocks plunged one day later—lawmakers called for hearings and investigations into the trading platforms’ behavior. 

How should securities regulators react to this duel between institutional short-sellers and individual investors? Seeking answers, news outlets across the country sought commentary and legal analysis from Mitts and John C. Coffee Jr., Adolf A. Berle Professor of Law, a longtime leading securities law expert. See more from each professor below.

Joshua Mitts, Associate Professor of Law and Milton Handler Fellow

“The rise of social media platforms like Twitter, Seeking Alpha, Reddit, etc. has led to broader, faster transmission of market-moving information. Today, anyone can post opinions and draw attention to facts concerning publicly traded companies, which may have a profound effect on stock prices. But these very same platforms have given rise to suspicious trading patterns as well.”

—An excerpt from “A Legal Perspective on Technology and the Capital Markets: Social Media, Short Activism and the Algorithmic” by Professor Joshua Mitts, quoted on Fox Business

Bloomberg News

Senate Banking Panel Plans Hearing Amid Gamestop Trading Frenzy

“When hedge funds are going to lose from a trading suspension, they don’t face any lockup like this, any suspension, any halt at the retail level. But when retail investors find themselves locked in, they find themselves unable to exit the trade.” Read more.

Fortune Magazine

Robinhood Is Being Sued Over the Gamestop Meltdown. Do Investors Have a Case?

“These retail investors feeling paranoid about the elites, and that institutions are not looking out for their best interests is rooted in experience. It’s a justified paranoia based on what’s happened historically.” Read more.

Fox Business

Professor Who Predicted Reddit Market Drama: Regulators Have ‘Largely Been Asleep at the Wheel’

“We’re living in a world where a post on a platform like Reddit combined with sophisticated trading machinations can lead to consequences that would have been unfathomable just a few years ago. . . . This is just the latest iteration of what has really been a decade of taking advantage of investors—sophisticated algos, Wall Street professionals, hedge funds that are masters at this, taking advantage of retail investors.” Watch the segment.

NBC News

“Gamestop’s ‘Roller Coaster’ Stock Whipsaws Investors as Online Brokers Restrict Trades”

“The Securities and Exchange Commission has no policy rulemaking on social media and trading. The SEC should have data scientists sitting with every enforcement lawyer to very quickly in real time identify actors who may be doing shady things, and immediately intervene to stop bubbles like this from happening.” Read more.


Taking Stock of GameStop

“The concern is that we are seeing a repeat of 2008. We are seeing the repeat of Wall Street looking out for itself. It’s doing so by applying different rules to retail investors that cut them off from the opportunities that professional traders have.” Watch the video.


AMC Theatres Shares Just Plunged More Than 50%. What’s Next for Stocks Roiled by Reddit?

“At the end of the day, markets do what markets do: People will buy, people will sell. But that doesn’t mean there won’t be victims, people who were injured and misled. . . . Someone can go on a forum and say they’re buying a stock when they’re really looking to sell. There’s a form of deception there. The pronounced problem is anonymity. . . . It could be an engineered pump and dump.” Read more.

Vice News

Experts Say Robinhood’s GameStop Fiasco Likely Caused by Lack of Cash

“We have to remember they’ve just been sued. It’s a big lawsuit by their customers who were trying to buy stock and were unable to. Probably one of the reasons why [the statement] is so confusing and kind of unclear is they’re deliberately leaving it ambiguous so they can then argue in their lawsuit without having boxed themselves into a particular story in the blog post.” Read more.

John C. Coffee Jr., Adolf A. Berle Professor of Law

“You are looking for the evil needle in the huge haystack of uninformed, deluded fools. As for ‘squeezing the shorts’ (which is also manipulative), that too is possible, but it is easier to make money by just riding the roller coaster up and seeking to sell at the top.” —Professor John C. Coffee Jr. in Quartz.

Barron’s Online

“GameStop Stock Drops After SEC Announcement. An Expert Says the Agency’s Statement Means Little for Now.”

“[The SEC’s statement] isn’t saying anything in particular. I think it says we’re not asleep at the wheel. We’re not going to tell you what we’re doing, but we want you to know we’re watching.”

“There’s nothing harder to prove than manipulation. You’ve got to sort the needle out of the haystack.” Read more.

Bloomberg News

“GameStop Frenzy Is Not Fraud: Columbia Professor”

“This is completely an unprecedented phenomenon. This is kind of the proletariat of American investors rising up in a revolt to overwhelm the aristocrats—the hedge funds—that were trying to dominate the price and short it.” Watch the video.


Bloomberg News

Gensler Is Poised to Confront Stock Market Hit by Historic Mania

“I expect that [Securities and Exchange Commission candidate for chairman Gary] Gensler will stick to the usual role of sounding like a stern parent and will not seek special rules to chill the market.” Read more.

BNN Bloomberg

Expressing Good Faith That the Market Will Go Up Endlessly Isn’t Fraud: Securities Lawyer

“It’s one thing to try to regulate the professionals, but this is a problem of regulating investors themselves. We have a new generation of investor, the small retail investor. They used to be the proletariat of the investment world. They’ve sort of revolted and marched on the aristocrats and seized the Bastille.” Read more.

Financial Times

GameStop Mania: Why Reddit Traders Are Unlikely to Face Prosecution

"If you are telling people to buy a company in bad faith, that is manipulation. But these people are true believers; there is nothing illegal about making wildly optimistic statements.” Read more.


Good Luck Proving Reddit Traders Did Anything Illegal by Pumping Gamestop

“There is no theory of liability under the federal securities laws that is harder to prove than manipulation. You are looking for the evil needle in the huge haystack of uninformed, deluded fools. As for ‘squeezing the shorts’ (which is also manipulative), that too is possible, but it is easier to make money by just riding the roller coaster up and seeking to sell at the top.” Read more.