Sen. Elizabeth Warren is 'deeply concerned' with GameStop action, demands SEC to step in

Sen. Elizabeth Warren (D-Mass.) wrote an open letter to the United States Securities and Exchange Commission on Friday that gives the impression she is siding with hedge funds and wants the regulatory body to investigate the events leading up to the 1,700% surge in GameStop Corp. (NYSE: GME).

Expressing concern

Warren is a member of the U.S. Banking, Housing, and Urban Affairs committee. She wrote in a letter to SEC Acting Chair Allison Herren Lee that she is “deeply concerned” that “casino-like swings” in GameStop’s stock poses a risk to the “fair, orderly, and efficient” function of the stock market.

GameStop’s stock experienced a “dramatic surge” in recent days as the direct action of anonymous Reddit traders directly targeting heavily shorted stocks, she wrote. The fluctuation in stock prices is evidence that private equity groups, hedge funds, big and small investors, are all treating the stock market like a casino.

Turning the stock market into a casino ignores the impact on the company itself, the communities it operates in, its workers, and consumers.

“The recent chaos reveals a clear distortion in securities markets, with benefits accruing to investors that do not clearly benefit the company’s workers, consumers, or the broader economy,” she wrote.

SEC has a mandate

The SEC is tasked with protecting investors, ensuring a fair, orderly, and efficient market, and creating an investment environment that is “worthy of the public’s trust,” the letter continued. As such, the SEC must review recent activity in GameStop and other companies to “ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders.”

The SEC should identify gaps in existing securities laws and explore ways where the commission can improve its enforcement capabilities.

“The public deserves clear answers about how federal regulators define market manipulation, how investors may have profited from potential manipulation, and what the SEC will do to mitigate these practices,” she wrote.

Four questions to answer

Warren concluded with four questions the SEC should answer:

1. Did the shift in GameStop price reflect a “fair, orderly, and efficient” market?
2. Does GameStop’s price swing present any concerns for the broader financial systems?
3. What steps will the SEC take to make sure asset prices reflect proper intrinsic and fundamental values?
4. What steps will the SEC take to better define market manipulation?