Elizabeth Warren on GameStop: SEC needs to get off their demons and do their job

“We don’t really know who all the players are in all of this – if there’s a lot of money on both sides,” Warren told Dana Bash on Sunday at “State of the Union”. “That’s why we need an SEC investigation.”

Market observers were largely sympathetic to traders who bet on stocks such as GameStop (GME) after being promoted by a group of Redditors on the subreddit WallStreetBets, which now has more than 7.5 million followers. Hedge funds and other short sellers lost huge amounts after betting against the stocks targeted by the Redditors.

Still, Wall Street also benefited from the power surge in GameStop’s stock. The 1,600% growth this month was not only made possible by retail investors using free trading apps, such as Robinhood. Hedge funds covering their bets and other deep-pocketed investors contributed to the stock price surge.

For example, Warren notes that when Robinhood, TD Ameritrade and other brokers had access to AMC (AMC), GameStop and similar stocks, Wall Street players could trade those stocks.

She called Robinhood’s decision to flip the switch and prevent users from buying GameStop in the middle of a trading session “just wrong.”

“It can’t try to help the hedge funds while at the same time pretending to help individual investors,” said Warren, admitting she’s not sure Robinhood did – there’s not enough information in an opaque market.

That’s why Warren believes the SEC should investigate the GameStop saga: to ensure that a range of players don’t manipulate the market, treat it like a casino, and keep everyday investors from participating in the free markets.

“Understand, what’s happening with GameStop is just a reminder of what’s been happening on Wall Street for years and years and years now. It’s a manipulated game,” she said. “We need a market that is transparent, flat, and open to individual investors. It’s time for the SEC to go crazy and do their job.”

Warren said Wall Street and Corporate America have taken advantage of retail investors for years by buying back shares – artificially inflating the value of their stock prices – and unfair arbitrage clauses that benefit broker-dealers. She reiterated her call to end share buybacks and called for a more active and powerful SEC.

The SEC must “grow a backbone” and enforce its own rules, she said.

“The truth is, the hedge funds, many of the giant companies like the fact that markets are not efficient,” she said. “They love to be able to manipulate these markets because they get better returns and lose individual investors.”

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