Legal expert discusses SEC’s role in overseeing meme stocks
- SEC should have imposed a trading suspension in the case of GameStop.
- SEC's mission is to protect all investors whether they are retail or institutional investors.
- What’s happening in AMC is not necessarily different from what we witnessed with GameStop.
Jacob Frenkel, Dickinson Wright partner and a former Senior Counsel in the SEC’s Division of Enforcement, was on CNBC earlier today to discuss the role of SEC in overseeing the meme stocks.
Earlier this year GameStop Corp. (NYSE: GME) saw extreme volatility in a frenzy fueled by Reddit forum WallStreetBets. The stock is still up almost 14 times year-to-date. Now we are seeing a similar story playout in the stock of AMC Entertainment Holdings Inc (NYSE: AMC). AMC stock is up 4.5 times over the past month.
SEC completely dropped the ball in GameStop
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According to Frenkel, it all boils down to the mission of the securities regulator. The SEC exists to protect investors and maintain a fair, orderly and efficient market.
While talking about the volatility in the shares of GameStop, he said:
“You had a company moving through circuit breakers time and time again. I think it was ten circuit breakers over two days. I think the SEC completely dropped the ball in Gamestop.”
He further added that in his opinion the SEC should have imposed a trading suspension. The purpose of a trading suspension is to protect public interest.
The stock could have resumed trading right away but it would have set a precedent to deter market participants from manipulation, if there was any.
SEC’s mission is to protect all investors
Frenkel went on to say that the SEC’s mission is to protect all investors whether they are retail or institutional investors.
“I don’t think it should be creating regulations that micromanage or micro-regulate trading. I think, on the other hand, there was a very different issue in GameStop, which hopefully the SEC is looking at, which is whether there was actual stock manipulation involved,” he said.
What about AMC?
Frenkel doesn’t think what’s happening in AMC is necessarily different from what we witnessed with GameStop and suggested that SEC has to be taking a close look at AMC.
“I think it clearly failed in its mission because in GameStop it had the opportunity to say when a company trades completely out of control, we have a stop mechanism that we can put in place,” said Frenkel
He added that it’s important from the market protection perspective for the SEC to be investigating what’s going on in the stock market and bring enforcement cases if there is a violation.