GameStop Stock Manipulation: A Case of Market Manipulation

Understanding the Short Squeeze and its Consequences

In January 2021, the stock market witnessed a dramatic surge in the value of GameStop Corp. (GME), a popular video game retailer. This surge was largely driven by a coordinated effort by individual investors on Reddit's WallStreetBets forum, who banded together to buy up GME shares in large quantities.

The Short Squeeze and Its Impact

The rise in GME stock prices was fueled by a phenomenon known as a short squeeze. Shorting a stock involves borrowing shares and selling them with the intention of buying them back at a lower price later on. When the underlying stock price rises, short sellers are forced to buy back their shares at a higher price, leading to significant losses. The short squeeze on GME caused a spike in its stock price, from around $17 at the beginning of 2021 to a peak of over $483 on January 28th.

The short squeeze had a major impact on the broader financial market. Some hedge funds, who had large short positions in GME, suffered heavy losses. Additionally, the rapid rise in GME stock prices raised concerns about the stability of the market and triggered increased scrutiny from regulatory authorities.