February 5, 2021
Authored by: Vicki Westerhaus, Ashley Ebersole and Eliot Robinson
Like KC Chiefs quarterback Patrick Mahomes eating green beans in a recent commercial, even though he “100% [doesn’t] like them,” it appeared the Reddit r/WallStreetBets group that banded together to buy GameStop shares “100% don’t care” about market risk and potential investment losses.
Inspired by social media cheerleaders, thousands of small investors acted with irrational exuberance, driving the share price from less than $20 on January 15, 2021 to $483 on January 28, 2021 before it closed that day below $200, and plummeted more than 40% to $53 on February 4.
Average investors watched in disbelief as trading markets were turned upside down by investors who appeared to ignore financial and other disclosures, disregarding the risks of possible complete loss of their investments.
Understandably, the executives of GameStop and some players on the social media investor radar screen have so far declined to comment. The social media blitz was completely outside control of the issuer’s management and they likely don’t have sufficient information to attempt to explain it. To wit, one of GameStop’s reactions to the inexplicable volatility was to restrict trading in its shares.
Regardless of how this saga ultimately ends for GameStop, it has raised important questions like whether a company should keep its trading window closed even after earnings are announced and the company has disclosed all material nonpublic information. Normally, there “ought not” be any liability concerns for an issuer in such a situation, but that could be risky when judged in hindsight. Large