While market manipulation is illegal in the United States and is clearly outlined in security and antitrust laws, it seems that the SEC continues to turn a blind eye to hedge funds that may be bending the rules and retail investors are becoming increasingly frustrated with the lack of discipline from the SEC.
Earlier this year Securities and Exchange commission Chairman Gary Gensler has proposed a few new changes to the SEC’s “Form Private Fund (PF)” rules that would boost the requirements for Private fund and hedge funds to disclose information. However, retail investors are starting to feel like Gensler’s moves are all for show and that these new rules mean nothing if the SEC fails to enforce them.
Journalist Jon Stewart recently interviewed SEC chairman Gary Gensler and retail investors were pleased to see Stewart put Gensler in the hot seat. In the beginning of the interview, Stewarts asked Gensler, “Is the SEC the best system?” Gensler responded by saying while he has complete faith in the system, he does to some extent believe it is flawed and does not adequately serve the American people. While it’s great that Gensler can admit that, it would be better if he can do something to fix it. Online retail investors have taken to Twitter with the hashtag #doyourjob and #garydoyourjob.
In January of 2021 we saw the price of Gamestop (GME) skyrocket and increase more than 1900% in a period of just a few days. After the shocking price jumps the SEC had a report on the incident and a congressional hearing took place and summoned firms to testify. Ultimately no one was held responsible for the fiasco that unfolded when brokerages stopped retail investors from having the ability to buy shares of the meme stock, causing prices to fall.
In the interview Jon Stewart pointed out that one issue that seems obvious. The clear issue is that when companies are caught violating the laws and regulations, it seems most of the time they simply pay a fine rather than get any jail time. Citadel for example has been fined at least 58 times — which appears to just be the cost of doing business at this point. The largest penalty for Citadel Securities was a $22 million dollar settlement. One would think if the repercussions were greater it would deter companies from violating regulations. Retail investors have suggested many alternative repercussions, such as increasing fines, revoking licenses, jail time, and forcing companies to pay in any profits they made from the violation.
While Jon Stewart’s interview was applauded by retail investors, there still is a need for more pressure to be put on Gensler and the SEC if retail investors want to see real change. While the SEC has made a number of probes into Hedge Funds in recent months for trading activity investigations, nothing seems to go anywhere.In the past Elon Musk, Adam Aron and Charles Payne have all expressed their concern for the lack of accountability from the SEC. The SEC was created to maintain an honest and fair market, but it seems like they’ve not been fully committed to that duty.