Elizabeth Warren criticizes SEC for “market manipulation”
Sen. Elizabeth Warren, D-Mass.
Tom Williams | CQ Appeal, Inc. | Getty Images
Senator Elizabeth Warren on Thursday berated the Securities and Exchange Commission, blaming the regulator and its failure to act for a chaotic, days-long flash of market speculation.
“We need an SEC that has clear rules for market manipulation and then has the backbone to enforce those rules,” Warren said. “To have a healthy stock market, you have to have a cop on the beat.”
“That should be the SEC,” she added. “You have to step up and do your job.”
The SEC did not immediately respond to CNBC’s request for comment.
The Massachusetts senator joined CNBC after wild stock deals forced popular trading app Robinhood to restrict access to the soaring stocks at the center of the controversy.
Warren, a longtime Wall Street critic, spoke to CNBC’s “Closing Bell” when individual traders visited Reddit, Twitter and other social media platforms to protest Robinhood’s drive to curb trading in stocks like GameStop and AMC Entertainment.
But she made it clear that she’s not a huge Robinhood fan either.
Robinhood and similar companies that incentivize enrollment and force customers to sign arbitration clauses are not helping create healthy market conditions, she said.
These arbitration clauses, she said, protect Robinhood, “if that is found [it] really betrayed you. It never gets published, there will be very little that you can do about. “
Public outrage over Robinhood came after the California-based broker announced earlier Thursday that it would prevent customers from buying additional shares in companies like GameStop and moving theater operator AMC Entertainment. Customers can continue to sell these stocks from their current portfolio.
Investors in the disrespectful WallStreetBets Reddit have sought to “squeeze” short sellers to cover their bets on such stocks and have sparked a wave of volatile trading in recent sessions as a result. Many of these retail investors triggered the brief press from Robinhood’s popular trading app.
Video game retailer GameStop is up 250% this week, AMC is up 145%, and headphone maker Koss, another “squeeze” target, is up a whopping 1,100%.
Robinhood’s decision, allegedly motivated by “extraordinary volatility in the markets,” sparked criticism on both sides of the political corridor.
For his part, Warren said she was skeptical of any narrative linking current trading to a classic “David versus Goliath” story in which a group of retail investors battle a colossal hedge fund empire.
“That’s the problem: how do you know who is manipulating the stock at this point?” She asked. “Are you quite sure there aren’t wealthy people on either side? That hedge funds didn’t move in on the side of the people who raised the price of GameStop?”
Rep. Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for “more regulation and equality” and challenged the fairness of preventing individuals from buying.
“While retailers blocked the purchase of GameStop in some cases, such as Robinhood, hedge funds were allowed to continue trading the stock,” said Khanna.
By buying GameStop or AMC stock or calling options, retail investors have forced investors to bet against the stock, known as short sellers and often hedge funds, to cover their positions by repurchasing stocks to avoid further losses .
When this happens on a massive scale, it can create a feedback cycle and spike in the stock price.