Wall Street’s top cop, Gary Gensler, needs to stop spinning the SEC’s wheels on futility and end the meme stock craze.

If you spend any time on social media, you may have heard that there is a big investment out there. They are the shares of Bed Bath & Beyond, the bankrupt home furnishings company.

Long after announcing liquidation plans over the summer, the legendary Carl Icahn was said to see value in stocks that were about to disappear from the face of the earth. The remaining parts of it were already sold to Overstock, the shares were delisted and were about to become terminal at the end of September, meaning they would no longer exist even in a stockbroker’s trading account. And yet Ryan Cohen, the billionaire activist investor who sold his stake last year, was reportedly ready to give another chance to a business that had just evaporated.

If you believed any of that, you might as well believe in the latest Elvis sighting, of course. And yet, many people, captivated by Reddit and X Spaces stock research, poured money into a stock just before it was completely “wiped” from the face of the investing planet.

That’s bad. What’s even worse is that there are people who are supposed to police these things at the Securities and Exchange Commission and they’re not. Instead, Wall Street’s top cop, Gary Gensler, continues to tilt at windmills like he’s Don Quixote, spinning the SEC’s wheels on useless initiatives like climate disclosures for public companies and fixing stock market pipes that don’t. they need repair.

The madness of the crowds, of course, has been eroding clear investment analysis since the beginning of time: the South Sea bubble of 1720, the dot-com crash of 2000 and the banking crisis of 2008 were among them. the most damaging in history, where small investors lose generational wealth due to investment tricks, fads and frauds.

The same goes for the meme stock craze of 2020 and 2021. Meme stocks were stocks of troubled companies, often losing money, that caught fire when the Federal Reserve was printing money, the public was inundated with stimulus checks and the markets only saw one direction and that was up.

Retail investors, using their commission-free Robinhood accounts, thought they had found the equivalent of gold: With free money and leverage, they could drive up shares of some of the most speculative stocks in history.
They could even create “short squeezes” on hedge funds that were betting against these companies, forcing them to cover their positions and drive stocks up even further. It all had the added benefit of putting at least one hedge fund, Melvin Capital, out of business and causing massive losses to others.

Speculators crushed

That little game worked for a while, but those days are long gone. Hedge funds got smart and discovered they could trade on the craze of the meme crowd and strategically short the shares of these companies.

They made a fortune, while meme investors were soon crushed.

What we have now is something much more dangerous because irrational exuberance is on another level. Bed Bath & Beyond could never have made a cent more for its shareholders for all the reasons listed above.

And unfortunately, there are other wild trades bouncing around the stock hype circuit that could also blow up in the faces of people gullible enough to believe the social media hype.

Mullen Automotive, a highly speculative electric vehicle maker trading at 19 cents, has a crazy Twitter/Reddit cheer squad that is quite active. Another troubled electric vehicle maker, Nikola, has a stock that’s trading just above the dollar, but it’s also getting plenty of traction among the delusional investor class.

Then there’s AMC, one of the OGs of social media-led irrational exuberance. The struggling movie theater chain barely makes any money, but its loyal investors, who call themselves the “Apes,” still love the stock. They believe it’s only a matter of time before another short squeeze occurs and stocks head “to the moon.”

Sorry, it would take a Taylor Swift “Eras Tour” blockbuster movie every week to safely get AMC out of its balance sheet mess. The smart money knows: The stock is down 99% since hitting $72 in 2021. It closed Friday trading at $7.43, which translates to about 74 cents after accounting for the alchemy of a 1 for 10 reverse stock split.

This is all dangerous stuff brought on by the cultism found in today’s stock market.

Small investors are being hit by their own folly, while some dubious stock investors who fueled irrational exuberance made quick money.

Fortunately, there are real, simple solutions available to the SEC. In the case of Bed Bath & Beyond, Gensler could have ceased all stock trading the moment the company, over the summer, announced that capital would be wiped out in its liquidation. He should be prepared to do it when the next one comes along.

With AMC and the others, Gensler could put management and stock promoters on notice that they will be responsible for giving any false hope about the stock’s prospects.

That is if Gensler stops working at windmills and starts doing his job.

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