Gamestop Stock Rises Then Falls

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(WUTR-TV) — In January A group of online traders decided to talk back control of the stock market, Gamestop in particular. Several multimillion dollar investors were betting that its value would plummet so through the social media platform Reddit, thousands of small time day traders put in their money to bet against them.

“Because there were a lot of wall street investors who didn’t think that Gamestop was a good company, had weak in a sense fundamentals, weak profits. They were betting that the share price would fall so, they took the other side of that bet by betting that the price would rise and in sense in essence cornered the market.” – Michael Connolly, Assistant Professor, Colgate University

Gamestop increased from roughly 15 dollars to about 350 dollars a share, causing big investors on wall street to lose millions. But a few days the later the stock came back to down to about 50 dollar.

“We saw this rapid increase in the price and then it fell because the fundamentals didn’t support gamestop being worth that much.” – Michael Connolly, Assistant Professor, Colgate University

Because of this, the daytraders ended up losing a lot of money.

“I can say not necessarily illegal but it’s boarderline is that these apps allowed these investors to take really big bets. So basically what they did was they lent them money to then bet that the price will rise. And that is where a lot fo people lost money.” – Michael Connolly, Assistant Professor, Colgate University

Connolly says the online group did what’s called a pump and dump scheme, where you buy the share price low, spread some rumors about it then try to sell it high, which is illegal. The hard part is proving it.

“To link what people were saying anonymously on Reddit with what they actually traded on.” – Michael Connolly, Assistant Professor, Colgate University

Connolly says legal action will depend on whether or not the federal government decides to pursue charges against the investors involved.

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