Market Manipulation Is Like Pornography: You Know It When You See It
Figuring out what’s legal and illegal in the GameStop case is not going to be easy.
In a 1964 decision, U.S. Supreme Court Justice Potter Stewart said he would not attempt to define hard-core pornography, and “perhaps I could never succeed in intelligibly doing so.” He famously added, “But I know it when I see it.” It’s kind of like that with market manipulation: What’s legal and what’s illegal is in the eye of the beholder. That will make it hard for the Securities and Exchange Commission to bring cases against the people behind the spectacular short squeeze on GameStop Corp. shares.
“More than eighty years after federal law first addressed stock market manipulation, federal courts remain fractured by disagreement and confusion about manipulation law's most foundational questions,” Merritt Fox of Columbia University Law School, Lawrence Glosten of Columbia University Business School, and Gabriel Rauterberg of the University of Michigan Law School wrote in 2018 in an article in the Yale Journal on Regulation.