Market Extra: Meme stocks stumble after GameStop discloses SEC probe into the frenzy

Looks like Gary Gensler might be doing more than just watching meme stocks.

GameStop Corp.

disclosed late Wednesday that the U.S. Securities and Exchange Commission has asked for its cooperation with an investigation into the unprecedented volatility its stock has seen in recent months. The company also suggested it’s not the only one being probed.

“On May 26, 2021, we received a request from the Staff of the SEC for the voluntary production of documents and information concerning a SEC investigation into the trading activity in our securities and the securities of other companies,” GameStop disclosed in its 10-Q quarterly earnings filing.

“This inquiry is not expected to adversely impact us,” the retailer said.

Despite stronger sales in the fiscal first quarter, a smaller $66.8 million loss and GameStop announcing the long-anticipated naming of a new chief executive officer and chief financial officer, its stock fell by as much as 13% in after-hours trading, before recovering some ground.

It wasn’t alone. Shares of AMC Entertainment Holdings Inc.

fell as much as 8.3%, BlackBerry Ltd.

5.2%, Koss Corp

1.3%, and Nokia Corp.

0.9% in extended trading following the news, with many investors already bracing for SEC commissioner Gensler to take a closer look at the meme stock phenomenon.

The newly-appointed Wall Street top cop on Monday signaled that meme stocks were on his radar when the agency stated that “SEC staff continues to monitor the market in light of the ongoing volatility in certain stocks to determine if there have been any disruptions of the market, manipulative trading, or other misconduct.”

While one of the SEC’s primary roles has been to protect retail investors, some investors gathered on social media platforms Wednesday afternoon sounded less than overjoyed by potentially more oversight of meme stocks.

Several posts on Reddit boards even questioned if the SEC investigation might be concentrated on naked shorting of meme stock shares, which might mean more trouble for hedge funds and market makers. Others responded with skepticism.

“Gary Gensler released statements about reviewing payment for order flow,” said TheIncredibleNurse on Reddit board Superstonk. “We heard them before but now seems [more] official. Maybe the SEC will do something [after all], eventually, once they close Pornhub.”

There also were more rallying efforts, with a focus on GameStop’s positives and looking past the poking around from the nation’s biggest financial regulator.

“Some of y’all haven’t been here since Jan and it f-cking shows,” scolded oXyounceXo. “This is nothing. Buckle up and fu-king hodl.” 

GameStop declined to comment.

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