For what it’s worth, I think it’s BS that they temporarily froze. (And, caveat, I’m a securities lawyer that routinely represents wealthy investors and funds.)
It’s a huge leap to make the automatic assumption that Robinhood and other brokers did it specifically to crash the value (leaving aside that putting on hold buying doesn’t crash value in and of itself, there needs to be a mass sell off). That’s definitely the most nefarious possible motive, but there are others. As a threshold matter, the people buying up the majority of the stock prior to yesterday were primarily funds cashing in on the ludicrous run (that admittedly Reddit started). The stock has been skyrocketing in after hours trading for several days, and retail investors don’t have access to that. So, the people that were making the most money were funds that didn’t short it originally. The collective buying power of the wallstreetbets folks that started this just isn’t nearly as significant as the funds involved. So, brokers have no incentive to crash the value if theyre trying to “help Wall Street.” For every firm that sold it short a month ago, there is another firm cashing in on the run.
You’re also seriously discounting the argument that what those redditors did was market manipulation. As a legal matter, you don’t need to trade on inside information to violate the 34 act. It’s the most obvious infringement, but it’s not the only one (pump and dumps, etc). Collusion to change a security’s price to be different than its real value is illegal (
https://www.law.cornell.edu/uscode/text/15/78i). And numerous redditors involved have expressly said they did this intentionally to fuck over Wall Street funds. (Just imagine if funds got together and announced to the world that they were tanking stocks specifically to target retail.)
(You can obviously make the argument that Wall Street does that all the time because they’re all crooks, but as a general matter, the financial markets do tend to generally track fundamentals. There are obviously panics that drive stocks below value and bubbles that artificially increase them, but something like this NEVER happens, at least at this scale.) I’m not saying it’s a cut and dry case, but it’s plausible and shouldn’t be dismissed out of hand.
The fact that it was retail brokerages that temporarily closed (which disproportionately impacted retails ability to continue buying and thereby make more money than they otherwise did) is obviously troubling. But, there is something to be said about the “protecting retail” point. For all the retail investors that made a killing so far, there are going to be an equal if not greater number that lose catastrophic amounts of money when it inevitably plummets back to somewhere near its real value. Protecting the small investor is a fundamental part of the securities laws. It’s baked into both the ‘33 and ‘34 act in numerous places. Last year, amidst the lunacy of the market continuing to go up during the worst economic year since the Great Depression, there were various credits where retail got killed specifically because they had unprecedented access to the markets and didn’t know anything about investing. For gods sake, people bought up Hertz after it filed Chapter 11 because they didn’t understand that equity gets wiped in 99.9999% of cases. It’s also behavior like this (pure speculation) that causes huge crashes. It’s what caused the ‘29 crash and, in large part, the dotcom crash. Wallstreetbets routinely touts absolutely ludicrous investing strategies (its well known that they collectively use the market as a complete slot machine and lose money hand over fist way more often than they make it).
I’m not saying that there wasn’t some back door dealing or attempts to influence (I don’t know for a fact one way or another), but to assume that every retail brokerage is in on a conspiracy to help Wall Street and screw over their primary retail clients is fairly farfetched.
Either way, I think this is going to make a real impact. I’d expect the SEC to issue new regs in the next year or two addressing both short selling disclosure requirements and the somewhat newfound interest in the market by retail. We’ll see.