MARKET MANIPULATION OR JUST DUMB MONEY? The GameStop Stock Spike and What Happens Next

A Note by Samuel Barder

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On December 9, 2019, GameStop Corp. revealed a troubling third quarter earnings report.[1] Net sales had dropped 30% compared to the same time in 2019, and the company was operating at a $63 million loss for the quarter.[2] The next day GameStop shares (“GME”) tumbled by 20% to close at $13.66 per share.[3] On January 27, 2021, the stock closed at $347.51 per share, a 1,735% increase from since the beginning of the year.[4] Two days before GME peaked at $483.00 per share during morning trading.[5] How did this happen?

The rapid rise in GME shares pitted pros against joes as institutional players, hedge funds, and investment professionals lined up on one side and retail investors, online traders and small brokerages, on the other.[6] One prominent investor said the retail investors, often labeled “dumb money” by Wall Street professionals,[7] were playing a “loser game” and didn’t “have any idea what they [were] doing.”[8]

When the dust settled and GME closed at $53.50 per share on February 4, the picture became clearer: Wall Street investors had shorted the stock, betting on its price to drop below its already dismal December price.[9] Retail investors, spurred by a Reddit forum called “Wall Street Bets,” and celebrities like Elon Musk, had continued to buy shares.[10]

The spike in GME prices has reportedly opened a probe into potential market manipulation.[11] On March 5, 2021, the House Financial Services Committee convened a hearing on the events, and the stock trading app Robinhood, which halted trades at one point during the trading frenzy, faced questioning.[12]

This note will argue the GameStop spike did not involve market manipulation, and further, that retail investors should not lose access to Reddit and other forums as they continue to find and exploit stock market vulnerabilities. Part II discusses Wall Street Bets, the forum that sparked GME’s rise, the dynamics of a short squeeze, and why investment professionals bet on stocks to plummet further. Part III will analyze the legal and regulatory landscape of market manipulation, Congressional Hearings in February of 2021, and the unique position of Robinhood within this saga. Part IV will argue the SEC should not use the GameStop spike to increase regulation of retail investors, and instead professional investors should choose their own course of action, either by altering their trading habits, or continuing to make higher risk financial decisions; government should not be on either side of this new battle.  Part V will conclude.

[1].               Catherine Thorbecke, Gamestop Timeline: A Closer Look at the Saga that Upended Wall Street, ABC News (Feb. 13, 2021, 5:00 AM),

[2].               Id.

[3].               Id.

[4].               Philip van Doorn, Here Are the Biggest Short Squeezes in the Stock Market, Including GameStop and AMC, Marketwatch (Feb. 1, 2021, 9:02 AM),

[5].               Matt Phillips, GameStop Craters Again as the ‘Meme Trade’ Unravels, N.Y. Times (Feb. 4, 2021),

[6].               Matt Phillips & Taylor Lorenz, ‘Dumb Money’ Is on Gamestop, Beating Wall Street at Its Own Game, N.Y. Times (Feb. 4, 2021),

[7].               Id.

[8].               Hannah Knowles, Billionaire Blasts Robinhood Market as Jon Stewart, Others Herald GameStop Stock Rebellion, Wash. Post (Jan. 29, 2021, 5:00 AM),

[9].               Phillips, supra note 5.

[10].              Phillips & Lorenz, supra note 6.

[11].              Ben Winck, GameStop Rally Is Reportedly Under Federal Investigation for Possible Market Manipulation––and Robinhood Has Been Subpoenaed, Market Insider (Feb. 11, 2021, 2:54 PM),

[12].              Nathaniel Popper, Grilled in the Hearing, Robinhood’s Chief Apologizes for Limiting GameStop Trades, N.Y. Times (Mar. 5, 2021, 11:40 AM),