There’s a possibility the SEC might take action to prosecute individuals who have engaged in the stock-buying schemes, according to Mehrdad Samadi, a financial economics professor at SMU’s Cox School of Business. People came in expecting they could buy or sell and not expecting the broker to tell them they can’t.” “I’m not a fan of trading halts or Robinhood telling traders they can’t trade GameStop or AMC. That said, regulators “shouldn’t be paternalistically in telling people when they can trade and cannot trade,” he added. “The pronounced problem is anonymity…It could be an engineered pump and dump.” There’s a form of deception there,” he says. “Someone can go on a forum and say they’re buying a stock when they’re really looking to sell. Mitts argues that there are specific forms of behavior designed to manipulate markets that are “deeply concerning and very dangerous” to the market. But that doesn’t mean there won’t be victims, people who were injured and misled,” he says. “At the end of the day, markets do what markets do: People will buy, people will sell. The SEC, I think, means well but they’ve really just been left behind in terms of technological innovation.” “The SEC has largely been inactive when it comes to regulating trading in connection with social-media campaigns. “The problem is, it’s basically a free-for-all at the intersection of social media and financial markets,” he says. The stock surges instigated by users on the Reddit forum are the flip side of what some short-sellers have done online - trashing stocks anonymously for their own potential gain - for the last decade without any regulatory oversight, Mitts says. “The folks arguing that short-sellers pushed the prices too far down – that may be right, it might be wrong, but if there’s some truth to that maybe it’s a $20 stock instead of a $5 stock.” But this may be a breath of fresh air for some of these companies that were laboring under excessively low valuations,” Mitts says. “The prices are clearly going to deflate. But in the long term, valuations of companies like GameStop and AMC Entertainment may end up settling higher than they otherwise would have. With stock prices unmoored from companies’ financial fundamentals, shares were bound to retreat in the near term, says Joshua Mitts, associate professor at Columbia Law School who specializes in regulation of capital markets. ‘The industry isn’t for certain right now with reopenings. “I wouldn’t be surprised if AMC looked to take advantage further and raise additional capital,” Wold said. However, it may be another few years before the movie theater business returns to pre-pandemic levels. There’s still uncertainty with AMC, to be sure, but analysts are hopeful that the cinema chain will be able to recover in the back half of 2021. Wold argues the long-term concerns are different for AMC Theatres, which hope to see a rebound once the general public re-familiarizes themselves with moviegoing, compared to GameStop, which has seen its irrelevance grow with the rise of online gaming. “That allowed the company to get some cash at a higher price than they would have two weeks ago.” He adds, “It gave AMC added liquidity it wouldn’t have otherwise.” “They were able to benefit from the stock going higher,” Handler says. In return, AMC will issue 44,422,860 Class A shares to Silver Lake, resulting in a $284 million boost. According to a securities filing, the move will lighten AMC’s debt load by $600 million. AMC said on Thursday that Silver Lake opted to convert the $600 million bond it owns into equity. Since the stock is currently trading well above pre-pandemic levels, AMC and investor Silver Lake, a private equity firm, have used the tumult to their advantage. They had too much debt on the balance sheet. “AMC was the only exhibitor at risk of potential bankruptcy. ‘There were a lot of people betting against the company being successful,” Wold says. However, there was an injection of long-term confidence earlier in the week as AMC announced it secured $917 million in financing, enough to get the struggling cinema chain through the ongoing coronavirus crisis. Riley & Co., who also covers AMC Entertainment. It’s just a matter of when.”ĪMC, which was at risk of bankruptcy even before the pandemic, became a target because amateur traders online were looking to influence stocks that were heavily short-sighted, says Eric Wold, an analyst with B. “History would suggest over the long term, true financials and historical valuations will matter. So is this a short-term phenomenon or something sustainable? “Right now, the company’s stock price has been decoupled from financial reality,” he says. “Robinhood investors are a bit of a wildcard,” says Eric Handler, a research analyst at MKM Partners who covers AMC Entertainment.
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