On Reddit and Discord, Digital Day Traders Took On Wall Street

By any reasonable measure, GameStop should not be in the news. The retailer is obsolescent. A relic of an earlier time when video games, consoles and accessories were mainly purchased in brick-and-mortar stores. But an army of digital day traders, through collective action on Reddit’s WallStreetBets subreddit and a related Discord server, thinks differently. This group props up a series of companies—including GameStop, Blackberry, AMC Theatres and Bed Bath & Beyond—that each held stronger financial positions and cultural significance in earlier decades, with the purpose of making loads of money and sticking it to the man. When hedge funds decided to short-sell GameStop stock, buyers active on Reddit and Discord countered toward the end of last week by buying shares and options en masse to drive the share price up. That forced a “short squeeze,” a phenomenon in which the stock’s short sellers had to reinvest in the company by buying new shares. Doing so is intended to offset their short-term losses. GameStop’s stock price shot up from under $18 at the start of the new year to more than $400 on Thursday morning before stumbling later in the day. The aforementioned brands being targeted—including even the shell company that owns Blockbuster’s intellectual property—experienced similarly unusual gains. All of this comes at the expense of short-sellers, cast as a collective Goliath against an unlikely war with a battalion of digital Davids. The case tests the limits of coordinated speech and action on the internet with a common goal of sticking it to Wall Street. The limits of free speech online Online stock talk is nothing new. Still, the scale and influence of this latest effort are perhaps unprecedented. “It’s like these guys that were on the Yahoo message boards in 2001 had sons who are living in their basements and are doing the same things their dads did,” said Jerome Tomas, who worked on cyber crime enforcement at the U.S. Securities and Exchange Commission (SEC) from 2001 to 2005. Now a partner at law firm Baker McKenzie, Tomas and his colleague Perrie Weiner told Adweek that they have not seen any evidence of illegal activity by the people active on WallStreetBets. Nevertheless, they outlined when speech online could become illegal activity. Securities fraud, the charge brought for “pump and dump” schemes, typically requires the publication of false statements or documents intended to manipulate the stock price. Weiner said when the SEC pursues any enforcement, “it would definitely be for market manipulation,” a tougher case to prove. It requires the government show that individuals intended to—and successfully influenced—a stock in an artificial way. But the openness of this social media campaign complicates a potential government case. “Fraud and manipulation require deceit and, therefore, require secrecy,” Tomas said. “So these are either the worst fraudsters in the world or the best fraudsters in the world because they’ve literally said, ‘I am going to do this and see if you can stop me.’” There’s an argument that it’s not fraud, he said, just “dog-eat-dog capitalism.” The SEC would not comment on a possible investigation. Currently, Reddit and Discord said they would cooperate with authorities conducting any criminal probe. While there is industrywide hand-wringing about the role of social media platforms in policing their platforms, Reddit and Discord face little legal liability, numerous tech policy and securities law experts told Adweek. John Reed Stark led the SEC’s Office of Internet Enforcement from 1998 to 2009. This entire ordeal feels very familiar to him. “I still can’t decide if this is nostalgic for me or I’m experiencing PTSD,” he said Wednesday. Stark doesn’t know exactly what he’d do if he were in his old job, though he said he would certainly start investigating the trades around GameStop. “I guess I would be Kennedy-esque about it,” he said.” I would get the 15 smartest people at the Commission in a room, and we would have a vigorous debate about whether to do a trading suspension.” Digital collective action enters new era On the WallStreetBets forums, the anonymous users portrayed it as a moral victory, not merely a financial one. “People are rooting for [WallStreetBets] because it's not a big institution, organization, or even a hive mind,” a community moderator posted on Twitter Wednesday night. Rather, these individuals “are tired of being run over by the big guys.” Dipanjan Chatterjee, vp and principal analyst at the market research firm Forrester, said he sees the movement as “emblematic of the shift in power from the institutions to the people.” He likened it to an incident this summer in which TikTok users flooded former President Donald Trump’s campaign rally RSVPs, inflating attendance expectations. But digital collective action isn’t always funny, a reality made clear by an election cycle teeming with disinformation and conspiracy thinking. Douglas Rushkoff, a CUNY/Queens professor and media theorist, called the WallStreetBets saga “joyful economic pranksterism,” though it’s driven by similar anti-establishment sentiment and using similar online tools as more dangerous digitally organized action, like the attack on the U.S. Capitol earlier this month. “You look at a lot of the posts on Reddit, and they’re saying this is a real company with 50,000 low-wage workers that’s being undermined by these fucking hedge fund[s]," Rushkoff said. "So what these kids on Reddit are doing is kind of hoisting these people by their own petards.” Stark said he once held disdain for short sellers when he joined the Commission in 1991, but has since found a more sympathetic way of thinking about them. “These people are an important part of the marketplace,” a senior SEC official once told Stark. “When a company is being overvalued and being pumped up and being promoted in a bad way, these are the people who are out there trying to show the truth about a company.” ‘This is nowhere near over’ By Thursday, the mood had changed slightly. Discord initially shut down its WallStreetBets server, though a company spokesperson said it was for “continuing to allow hateful and discriminatory content after repeated warnings.” The company emphasized it was not due to “financial fraud related to GameStop or other stocks.” A new server was established Monday by WallStreetBets users, and Discord confirmed it is working with those WallStreetBets members on Thursday. After platform-wide outrages on Wednesday, Reddit’s volunteer moderators, seemingly overwhelmed with activity given the surge in nearly 1 million users in 24 hours, temporarily made the community private before opening it back up again. Investment app Robinhood, one of the main instruments of the movement, restricted trading for GameStop, leading to widespread outrage online from traders and lawmakers such as Sen. Ted Cruz and Rep. Alexandria Ocasio-Cortez. GameStop stock bounced around, but has sustained significant losses through the day. GameStop has not commented publicly. Chatterjee said the company would be wise to put its head down marketing-wise until the volatility subsides. But there’s no telling when the bubble surrounding GameStop or other affected companies will actually burst. The ordeal has caused market-wide instability and promises to be a crucial early test for SEC chair nominee Gary Gensler when he is confirmed by the Senate. Despite the mood shift, there’s still an all-or-nothing herd mentality that pervades WallStreetBets, similar to the kinds of headstrong prognostications that have been endemic to cryptocurrency chatter in recent years. Rob Allam, a well-known former Reddit moderator where he is known by the username GallowBoob, explained that WallStreetBets was originally a place for in-group jokes and memes about the finance sector, but gradually became a serious hub for investment advice. Now, the group has united under a new mission. “They all have that same voice: ‘We are here to fight injustice and expose the system.’ These causes go a long way.” On Twitter, Allam tweeted a screenshot of a top post on WallStreetBets. The post struck on a common theme: growing up poor, living paycheck to paycheck and sticking it to the man. Despite increased media attention and the loss of its Discord channel, WallStreetBets users seem as committed as ever to seeing through what they started. “Reddit is not slowing down, they are making it personal and are rallying everyone under a united and familiar cause,” Allam tweeted Wednesday night. “This is nowhere near over.”

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On Reddit and Discord, Digital Day Traders Took On Wall Street

Users attempt to 'fight injustice and expose the system'

Scott Nover

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