Wallstreetbets: Breaking The Law Or Not?

The r/WallStreetBets subreddit community has been accused of breaking the law by manipulating the stock market. In January 2021, the group of mostly young, amateur investors banded together to drive up the stock price of GameStop, creating a short squeeze that forced hedge fund Melvin Capital to buy more GME stock to cover its position. While it is not clear whether the actions of r/WallStreetBets are illegal, there have been some legal repercussions, with at least two class-action lawsuits filed against the online brokerage app Robinhood, which restricted trading of GameStop and other volatile stocks during this period.

Is pumping stocks like GameStop, AMC and more illegal?

Pumping stocks like GameStop and AMC has been called a "pump and dump" scheme by both traders and outside experts. Typically, a pump-and-dump scam occurs when fraudsters boost a company's stock price by sharing positive but fake information. Scammers buy up the shares at a low price before spreading false rumours that drive the stock price higher and encouraging other investors to invest. When the stock hits a high point, the scammers sell their shares, leaving unsuspecting investors holding much less valuable shares.

However, in the case of GameStop, many retail investors, especially those tuned into the WallStreetBets subreddit, say they bought up the company's stock because they wanted to squeeze hedge funds that had been betting GameStop would collapse. Some traders also saw Chewy CEO Ryan Cohen's recent purchases of GameStop stock as a sign that the company was ripe for investment.

According to Eric Chaffee, a law professor who specialises in securities laws and regulations at the University of Toledo, whether or not this situation is illegal depends on the reason behind the actions. If it is just people stating their opinions very loudly, it is not illegal. However, if it is a concerted effort, either intentionally, knowingly, or recklessly, to manipulate the value of the stock, it is a violation of securities laws.

Proving that driving up the price of GameStop stock was a concerted effort with the intent to defraud would be challenging. As of now, there is no concrete evidence that GameStop is a classic case of a pump-and-dump scam. However, the current highs of the GameStop stock are not likely to last, and when investors start selling, there will be some left holding a bunch of much less valuable shares.

Is WallStreetBets guilty of financial fraud?

WallStreetBets is a subreddit that describes itself as "Like 4chan found a Bloomberg Terminal." In other words, it's a group of internet users interested in making money on the stock market. It can often be hard to decipher what is real and what is a joke on the board, making the whole subreddit an entertaining mess.

In January 2021, members of the WallStreetBets subreddit drove up GameStop's stock price in a battle with the hedge fund Melvin Capital. Redditors coordinated to buy GameStop options en masse, creating a "short squeeze" that forced Melvin Capital to buy GME to cover its position. While it is not exactly clear how much Melvin Capital lost, CNBC reported that "Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up its finances."

In October 2024, a user on the WallStreetBets subreddit exposed potential fraud and conflict of interest by the moderators of the subreddit. The user alleged that one of the moderators, u/jartek, was using their position to promote their or their friends' companies and steal users' money. The user also alleged that the moderators may have used their positions to pump up weed stocks that they or their friends owned.

In February 2025, members of the WallStreetBets group on Reddit reportedly lost at least $2 million in a cryptocurrency scam. Victims were given the chance to buy a fake token called WSB Finance but never received it. They were told to send cryptocurrency to a specified address and then contact a "token bot" to receive their coins. However, the coins were never delivered, and the victims received another message from the bot telling them to send the same amount of crypto again or lose their initial investment.

While there have been allegations of fraud and misconduct by members and moderators of the WallStreetBets subreddit, it is unclear whether any of these actions constitute financial fraud. The definition of financial fraud varies by jurisdiction, and it is not always clear whether the actions taken by WallStreetBets members fall under this definition.

Is the use of profane bro-code, like faggots delight, illegal?

The use of profane language, such as the term "faggots delight," may be considered offensive and inappropriate, but it is not inherently illegal. The legality of such language can vary depending on the context and the specific laws in a particular jurisdiction.

In the United States, the First Amendment protects freedom of speech, including offensive and vile speech. While some may consider the use of "faggot" as a slur or epithet offensive and unacceptable, it does not fall under the legal definition of profanity or obscenity that is unprotected by the First Amendment. According to Suzanne Goldberg, the director of the Center for Gender and Sexuality Law at Columbia University, obscenity typically relates to "prurient interests" or sexualized dimensions that are deemed unprotected due to their obscene nature. However, the use of "faggot" in the context described is more of a nasty insult rather than an appeal to sexual interests.

While hate speech is generally protected under the First Amendment, there may be specific circumstances where the use of such language could contribute to a hate crime or be considered disorderly conduct. For example, in Texas, disorderly conduct is partially defined as using "abusive, indecent, profane, or vulgar language in a public place" that tends to incite an immediate breach of the peace. Therefore, while the use of "faggots delight" on its own may not be illegal, combining it with threats or promises of physical harm could escalate the situation and potentially lead to legal consequences.

The r/WallStreetBets community on Reddit, known for its profane bro-code, has gained attention for its impact on the stock market and its unconventional approach to investing. While the use of profane language may be common within the community, it does not necessarily indicate illegal activity. However, it is important to note that the group's actions, such as their campaign to influence the stock price of GameStop, have drawn scrutiny and sparked discussions about the ethical and regulatory implications of their activities.

Is WallStreetBets breaking the law by coordinating a short squeeze?

It is argued that WallStreetBets is not breaking the law by coordinating a short squeeze. There is no coordination or illicit activity taking place. It is no different from a boomer analyst writing an op-ed about a stock being undervalued, and people buying it as a result. Financial advice is not manipulation, especially when there is no coordination or hierarchy.

Market manipulation requires that one engages in trading or apparent trading with the intention of convincing others to purchase the stock, i.e. by tricking them. No such trickery is apparent in the case of WallStreetBets. People are buying the stock because they think it is a hilarious meme and then posting publicly on Reddit that that’s why they’re doing it. There is nothing illegal about buying a stock and telling other people, "I own this stock and you should buy it because it would be funny if you did."

WallStreetBets is legally 'manipulating' stocks in the market while being protected by the 1st Amendment (aka Freedom of Speech). The SEC is currently looking into the lawfulness of what happened with GME, but it seems like this share price pump has been entirely legal. The users on the WSB message board can provide their opinion about a stock no matter how weak their reasoning. This is what short-selling Wall Street investment groups do. They put on a short position in a stock, then come out with a release about what they are shorting and why they are shorting it, trusting that this will influence other investors and traders to follow suit.

Is the r/WallStreetBets subreddit breaking the law by driving up site traffic?

The r/WallStreetBets subreddit is a stock-trading community on Reddit that made headlines in January 2021 for driving up the stock price of GameStop and causing a surge in site traffic to the subreddit. While the activities of the group have raised legal questions, it is unclear if the group is breaking the law by driving up site traffic alone.

The r/WallStreetBets subreddit is known for its profane and irreverent nature, with users often speaking in "bro-code" and posting offensive memes. The group is mostly made up of young, male amateur investors who are interested in making money on the stock market and sticking it to the Establishment. While the group's activities may be unconventional, it is not clear that they are illegal.

In the case of GameStop, members of the subreddit coordinated to buy options en masse, creating a "short squeeze" that forced hedge fund Melvin Capital, which had bet against the stock, to buy GME to cover its position. This resulted in a massive loss for Melvin Capital and caused a surge in site traffic to the subreddit as tens of millions of visitors flocked to participate in the action.

While the activities of the group may have crossed a line into market manipulation, it is a legal grey area. Some legal experts argue that the group's actions may violate securities laws, while others claim that they are simply taking advantage of loopholes in the system. It is worth noting that the Securities and Exchange Commission (SEC) has taken an interest in the group's activities and is likely monitoring the situation.

In conclusion, while the r/WallStreetBets subreddit may be pushing the boundaries of what is legally acceptable, it is unclear if they are breaking the law by driving up site traffic. The group's activities highlight the need for clearer regulations in the age of social media and online communities, where coordinated action can have a significant impact on financial markets.

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