Monday, February 1, 2021
Wow. All I can say is . . . wow. Last Monday, GameStop Corp. was, for me, just a dinosaur in the computer gaming space--a firm with a bricks-and-mortar retail store in our local mall that I have visited maybe once or twice. What a difference a week makes . . . .
Now, GameStop is: frequent email messages in my in box; populist investor uprisings against establishment institutional investors; concern about students investing through day-trading accounts; news and opinion commentary on all of the foregoing (and more); compulsion to inform an under-informed (and, in some cases, bewildered) community of friends and family. This change of circumstances, which is centered on, but not confined to, the volatile market for GameStop's common stock, raises many, many questions--legal questions and factual questions. Some are definitively answerable, others are not.
The legal questions run the gamut from possibilities of securities fraud (including insider trading) and market manipulation, to the governance of trading platforms, the propriety of trading limitations and halts, and the authority and control of clearinghouses. Co-blogger Ben Edwards published a post here last Thursday on the trading halts in GameStop stock, the role of clearinghouses, and the possibility of market manipulation. Others also have written about these and other legal issues--including the role of the U.S. Securities and Exchange Commission as the cop on the beat (see, e.g., here and here).
But there are few answers to these legal queries given that many facts remain unknown. Who are the short-sellers in these stocks? Who are the community members on electronic bulletin boards (and elsewhere) urging active trading in the stock of GameStop and other firms that have been subject to significant short-selling that has led to perceived under-valuation by others in the market? Who are the populist traders actively bidding up the price of these firms? What knowledge do all of these people have about GameStop and the trading of its securities? Assumptions are being made about all of these things and more. However, our current knowledge is limited and, as time progresses, the composition of these groups undoubtedly has changed and will continue to change as traders rapidly enter and exit the market for these securities.
As many of our law schools hold forums on the GameStop phenomenon (UT Law has a roundtable featuring some of your favorite BLPB editors on Wednesday), more legal and factual questions will be raised. The situation will be dynamic, and regulators and policymakers will enter the fray in unknown (and perhaps unanticipated) ways. As I teach Securities Regulation and Advanced Business Associations this semester, all of this will be happening. Some of the topics of conversation would not normally be part of my course plans. But, like others I know who teach business law courses, I am pivoting to meet the need to respond to these evolving circumstances in our securities markets. Throughout, there are many roles that lawyers (and law professors) are playing and will continue to play. I suspect GameStop will be an asset this semester in educating our students on securities law and much more.