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Warren sends letter to SEC over GameStop-Reddit-Robinhood saga, calling for regulation

Senator Elizabeth Warren.Stefani Reynolds/Bloomberg

Senator Elizabeth Warren sent a letter to the chairperson of the Securities and Exchange Commission Friday, asking that the group explain to Congress and the public what they are doing to address the recent market activity surrounding GameStop and other companies.

The Massachusetts senator wrote that the SEC, which oversees the stock market, has failed to control “years of distortion in securities markets,” exacerbating wealth inequalities. She is asking that the SEC respond to her questions by Feb. 5.

“The Commission must review recent market activity affecting GameStop and other companies, and act 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,” Warren wrote in her letter.

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The incoming chairman of the Senate Banking Committee, Sherrod Brown of Ohio, has already said the panel will hold hearings on the GameStop trading activity.

The video game retailer’s stock is surging because a group of investors — some inspired by a Reddit forum — are trying to squeeze the hedge funds and other professional investment firms that have large short positions in the stock; that is, bets on the company’s downfall. The campaign, which is largely taking place through stock trading apps like Robinhood, has worked, so far. At least one hedge fund has closed out its short position to minimize further losses, and GameStop’s stock has gone ballistic, closing Thursday near $200, up from less than $10 earlier this year.

Warren has said she thinks the root of the issue is broader than the current saga. She told CNBC Thursday afternoon that “we need an SEC that has clear rules about market manipulation and then has the backbone to go in and enforce those rules.”

“The whole point of having a stock market is so that people across this country, around the world, can invest... so businesses have the money they need to grow and to prosper,” she said. “Instead, what has happened is it has turned into a casino.”

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In the case of GameStop trading, Warren said “it appears” there are people trying to manipulate the stock market, but she said it is not clear whom.

“People are liking to tell a David versus Goliath story, but are you entirely sure that is right?” Warren said Thursday. “Are you entirely sure that there aren’t wealthy people on both sides? That hedge funds haven’t moved in on the side of the people who bid up the price of GameStop?”

But she’s not a fan of the Robinhood platform, either, which has made it easy for first-time investors to invest, but also restricted trading in several companies today, citing “market volatility.” Warren told CNBC such platforms need to be subject to more regulation to make them fair to users.

The SEC declined to comment for this story, but in a statement Jan. 27 it said the agency is “actively monitoring the ongoing market volatility.”




Anissa Gardizy can be reached at anissa.gardizy@globe.com. Follow her on Twitter @anissagardizy8.