How Redditors Shook Up Wall Street

A band of Redditors took on Wall Street and other investors that resulted in spikes in the value of shares in several companies.

WallStreetbet is a popular subreddit where members talk stock market and give tips to other members. Earlier this week members of that sub began talking up shares of stock in GameStop, a videogame retailer. Encouraging one another to buy shares of the stock, investors on Wall Street watched as the stock rose from under $3 a share to more than $360.

It was an example of the power of social media that financial advisor and 10 year Wall Street veteran Jay Srivasta of Future Wealth LLC says, is not entirely unheard of.

“It’s happened before,”

It isn’t the first time a group of average Joe stock market investors affected the market Srivasta said from his office in California. “I mean in the late 2000s when the internet bubble was in play, the message boards were the tool,” he recalls.

Of course, social media is much bigger these days than message boards from 2005. The WallStreetBets sub has, as of Thursday afternoon, well over 4 million members. 

Srivasta explains that those users identified a company that wasn’t seeing much in the volume of trades and began buying a large number of shares which made the price go up.

“And then what happens is the people who are shorting the stock, people on the other side have to cover, and then you get more momentum and that builds up,” he said.

Once the scheme worked with GameStop those same Redditors sought to spike other stock prices. Nokia, BlackBerry, Naked Brands, AMC were all mentioned on the sub-Reddit and all four saw their stock values rise. Not to the same extent as GameStop however.

Volume in some of those stocks jumped from several thousands of transactions to 500-million in a matter of 24 hours. Hedge funds that shorted those stocks lost millions.

Robinhood, one of the more popular apps for trading stocks among non-investors stopped trading on GameStop and other companies and by Thursday was only allowing investors to sell, not buy new shares.

Srivasta says manipulating the market is illegal, but it’s unlikely anyone will ever be charged. “The thing is, it’s very hard to prove,” he said. “You think about Reddit, it’s all anonymous users and there’s nobody you can really pin down and say ‘hey, you’re the one who started the damn thing. You can’t do that. So it’s going to be hard for the SEC, but again, you’ve got to remember, these are small fringe groups.

Reddit also temporarily shut down the r/wallstreetbets and Discord banned its channel for violating its terms of use.

By the close of day on Thursday, AMC, BlackBerry, GameStop and Nokia had all seen double-digit losses while Naked Brand was up 26%.

Sirvasta warns others that taking advantage of a pump and dump scheme is risky. 

“I would strongly recommend investors not to do these kinds of funny games,” he said. “It’s the easiest way to get separated from your money and if it’s retirement money you’re playing with, it’s even worse.”