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I've been a member of the subreddit r/wallstreetbets for some time now, it's this hilarious cult-like community that jokes about investment gains / losses and people celebrate making / losing money on the stock market. Recently it's gained millions of followers and there's a massive movement going on, you've probably seen it all over the news.

Is this illegal? How far, exactly, can people go, verbally, with publishing their positions before Reddit can be sued or fined by the SEC, or the individuals posting the content cited?

To clarify the verbiage I'm talking about, here are some examples of top recent posts on the subreddit that promote buying or holding GME stock: (Sorry about any explicit language)

Title:

Guy living in his truck update: $600 -> 130k in 16 days. If I can hold you can f*cking hold 💎 💎 💎

Title:

THEY ARE BLEEDING AND THEY ARE DESPERATE!!!!!

Comments:

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Title:

6M in GameStop GME. Following through. Can’t stop, won’t stop, lift off

Title:

Billboard in Oklahoma City, OK! If someone can rent out a billboard for GME you can hold your shares!!! 💎 🖐!!!! (Left watermark for credit)Billboard in Oklahoma City, OK! If someone can rent out a billboard for GME you can hold your shares!!! 💎 🖐!!!! (Left watermark for credit)

Content:

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Title:

Used some of my GME tendies to buy Nintendo Switches from Gamestop, then donated them to a Children's Hospital.

Comments:

enter image description here

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Lying about a stock position can be a form of securities fraud, for example in a pump and dump scheme giving false information to the public (e.g. on Reddit) about a stock after buying it at a cheap price to "pump" its value to sell it later. Saying that people should buy a stock and hold it because it harms specific short sellers of that stock is probably not fraud - US law protects speech which is not false statements of fact in almost all contexts. However, specific statements about how much someone has made investing in the stock could be illegal if the statements are untrue (looking specifically at the person claiming they turned $600 into $130,000 in 16 days). It's also possible that some of the users of the subreddit are professional investment advisors and their statements would have to come with certain disclosures per SEC rules, but it's hard to tell from SEC's FAQ whether that applies to statements made anonymously.

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There is a classic investment scam known as "pump and dump". In this maneuver a person or group buys a stock or other investment. Then the person arranges for or agrees with others to publish or communicate positive comments about the investment or hints or suggestions of good news about it. These comments are false or highly misleading. But some believe them, and buy the stock, and the stock price goes up, often by a large amount. The scammer sells the investment at a profit. This type of scheme is illegal, whether done by one person or a large number of people.

It has been alleged that the Gamestop discussions are a form of pump and dump. (See this news story.) If that could be proved, they would be illegal. Such schemes are not protected by the First Amendment in the US, any more than false advertising is. I have no idea if these discussions are or are not such a scheme.

It is the essence of a pump and dump scheme that the statements are false or misleading, and that they are intended to unfairly raise the price of the investment. Mistaken opinion or excessive but honest enthusiasm is not such a scheme.

Section 230 of the Communications Decency Act generally protects an interactive service from being regarded as the speaker or publisher of content posted by a user or a different content provider. This is sub-section (c) (1). But subsection (e) (1) "No effect on criminal law" says:

Nothing in this section shall be construed to impair the enforcement of section 223 or 231 of this title, chapter 71 (relating to obscenity) or 110 (relating to sexual exploitation of children) of title 18, or any other Federal criminal statute. (emphasis added)

Securities scams are federal crimes, and so come under 47 USC 230 (e) (1). If a social media site knowingly assisted in such a scheme, section 230 would not insulate it from liability.

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  • The statements in this answer are likewise broader than the law justifies, in my view. The answer claims Section 230 would not apply because the speech in question is a crime, but what criminal law has been violated?
    – bdb484
    Jan 31 at 18:04
  • @bdb484 I said that Sec 230 would not apply IF a criminal act could was established, and a site knowingly aided such a crime. Some crimes can be committed via speech, fraud in particular. Would you claim that knowingly assisting a fraud would be protected by section 230? Feb 1 at 1:39
  • I think you're putting the cart before the horse. Section 230 isn't relevant until there's a crime, and you haven't identified a crime; you've just said this speech "is illegal." But a statement of opinion about whether people should buy or sell can't support a fraud charge. What law criminalizes this speech?
    – bdb484
    Feb 1 at 2:04
  • 1
    @@bdb484 I never said the speech was illegal. I said it had been alleged that it was part of a P&D scheme, and if that could be proved, that would be illegal., I will find the specific law involved there, probably tomorrow. Particularly the comments by some on the amount of gains they have made, if false, could be part of a P&D, those are not statements of opinion. Feb 1 at 2:20
  • Fair enough; I read the initial paragraph as saying that this was a P&D scheme, but I see that I misread. I just updated my answer to include the relevant statutes, and an explanation of why I don't think they apply to this case.
    – bdb484
    Feb 1 at 2:31
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The First Amendment is basically the beginning and end of the answer.

Things get a bit more tricky when you're dealing with the corporation itself or its officers promoting their stock, but for stockholders, your freedom to advocate for a stock is about equal to your freedom to advocate for a political candidate.

Even if there were something wrong with what the users were writing, Reddit would be immune from liability under Section 230 of the Communications Decency Act.

Other answers focus on the possibility of liability for pursuing a pump-and-dump scheme, but by my reading, the federal laws governing these schemes would not apply in this case, for two reasons:

  1. The laws the SEC uses to prosecute these crimes, 15 U.S. Code § 77q and 15 U.S. Code § 78j govern only schemes perpetrated by the party *selling * the stock; advocacy to buy or hold by other shareholders.

  2. Even if you wanted to get creative and say that shareholders are technically owners of the company and therefore responsible for selling other shares, both of the sections above require that the sale be made through the use of deliberately false statements, which is not what we have here, generally speaking. Instead, we have a bunch of yoohoos on the Internet offering their opinions about whether people should buy, hold, or sell. It might be different if someone started reporting that Game Stop was about to be acquired by Microsoft, but statements of pure opinion (e.g., "you should buy") are protected by the First Amendment.

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  • The statements in this answer are broader than the law justifies, in my view. Jan 30 at 23:54
  • @DavidSiegel Interesting. I've heard of pump-and-dump schemes, but I don't think I've heard of a prosecution of mere shareholders for something like this. I can imagine the argument I'd make in response to a First Amendment defense, but I don't think it would fly. Have you seen successful prosecutions in similar contexts?
    – bdb484
    Jan 31 at 18:00
  • I am not sure what you mean by mere shareholders. The scammers in pump-and-dump schemes are almost always shareholders, and are usually not company officials, although sometimes they are. They're often large holders. Most verified P&D schemes are not quite like this situation, as far as I know, and do not involved as many people. But social media allows a few people to appear to be many. and that's fairly new. P&D has often involved scammers trying to fake a wide groundswell of opinion. The essence of P&D is false or misleading statements of purported fact. Honest views are not P&D Feb 1 at 1:27
  • To prosecute for P&D the govt would need to establish intent, which would include proof of falsity or clearly misleading statements. If that were established, I doubt a 1st Ad defense would work, any more than it would to a charge of fraud or theft by deception. In any case to say that the 1st is "the beginning and end of the answer." is too strong. False speech in a commercial context gets much less protection than political opinion. So the comparison you make to political advocacy is IMO incorrect. Feb 1 at 1:35
  • A person holding the stock and trying to induce others to buy and hold it might be hoping to run up the price so as to sell later. A person making claims about how much s/he has profited from the stock is making purported statements of fact. Such statements could be false, unlike statements of pure opinion. Feb 1 at 17:57

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