After Reddit Users Drove Up GameStop, the SEC Cracks Down on Social Media Touting

The SEC suspended trading of an inactive company after a potentially coordinated attempt on social media to drive up its shares.

Yuri Gripas/Bloomberg

Yuri Gripas/Bloomberg

Within weeks of the GameStop saga, the Securities and Exchange Commission has suspended trading in SpectraScience on concern social media accounts were artificially influencing the stock price of the inactive company.

SpectraScience shares and trading volume have risen since January 21 despite no publicly available news from the company, according to an SEC statement Thursday. The Minnesota-based company hasn’t filed any periodic reports since 2017, and its most recent website and phone number are “non-functional,” the U.S. securities regulator said.

The SEC is cracking down on trading influenced by social media accounts after retail investors on Reddit drove up GameStop’s stock in a bid to take down hedge fund firm Melvin Capital. The hedge fund had wagered through a short-selling position that the video game retailer’s share price would fall.

“This is a reminder that investors should exercise tremendous caution when investing based on social media or a sudden surge of enthusiasm for a particular security, especially where that interest does not appear tied to any news about the company or industry,” Melissa Hodgman, acting director of the SEC’s division of enforcement, said in the statement on SpectraScience.

At the end of January, the regulator issued an alert cautioning investors about “hot” stocks and the risk of unanticipated losses from short-term trading in “heavily-promoted” companies. The SEC also warned that financial “manias” can end in widespread “panic” selling, and that investors engaged in short selling risk unlimited losses.

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SpectraScience, which the SEC described as delinquent in its reporting, trades over the counter under the ticker SCIE. The SEC’s order to suspend trading of the company did not the name the social media accounts that “may be engaged in a coordinated attempt to artificially influence SCIE’s share price.”

Efforts to reach the company by phone for comment were unsuccessful, with a recorded message indicating the phone number was disconnected or no longer in service.

In its 2016 annual report filed with the SEC, SpectraScience said it focused on developing its WavSTAT Optical Biopsy System, which it said “optically illuminates tissue in real-time to distinguish between normal and pre-cancerous or cancerous tissue.” The company has not filed annual reports for any subsequent years.

“The SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met,” according its statement Thursday.