This post is also available in: Español

There has been much discussion about how apps and social media limit users’ freedom of expression and information, posing multiple challenges, including legal and financial ones.

Events in the financial markets over the last few weeks have drawn attention to this matter again. Some companies’ shares skyrocketed, including GameStop, ACM and BlackBerry. This rise resulted from a group of people’s coordinated action through the Reddit message board WallStreetBets.

At first, this group had 100,000 members, but it reached 6 million users. They coordinated on Reddit to invest small amounts for a short time in apparently low-rated companies, thus creating a huge retail investment flow at the expense of Wall Street funds who had shorted the stock.

After causing millions in losses on the market, brokerage apps like Robinhood and Interactive, which allow users to invest in these assets, restricted small investors from buying any more shares in companies affected by this peak. They only restricted small traders from buying more shares, allowing large funds to trade normally, which triggers the following questions: To what extent are these brokerage apps entitled to decide who is allowed to trade through them and thus on the market? Are these apps limiting users’ freedom of expression and information?

There have been many articles taking a stance on whether this is a market manipulation case by a surprise guest (organized groups of retail investors). Gabriel Rauteberg, Assistant Professor of Law at the University of Michigan, emphasizes how hard it is to prove that these coordinated actions qualify as market manipulation. In his view, to prove market manipulation there should be evidence that WallStreetBets provided clear instructions or misleading information that were decisive for the investors’ decisions.

The Spanish Securities and Exchange Commission (CNMV) has clarified that, if this case had occurred in Spain, the coordinated action would constitute market manipulation. The CNMV also recalled that market manipulation is a punishable offence under articles 302 of the Spanish Securities Market Act (administrative penalties) and 284 of the Criminal Code (criminal penalties).

Aside from financial regulatory matters, let us examine the potential liability and responses of these brokerage apps. In our view, subject to EU and Spanish law, the following legal aspects must be considered:

  • First, article 16 of Act 34/2002, of July 11, on Information Society Services refers to the liability of data hosting service providers. This provision clearly states that service providers will not be liable for any information stored at the recipient’s request if they are not aware that the activity or stored information (i) is unlawful; or (ii) causes damage to third party assets.

    In the case at hand, the apps could not be aware that the comments on the message board could constitute an infringement. But the question remains, related to our technological era: what is the limit on the liability of these apps, or of their managers and users, arising from an opinion or an instruction? Think of how the price of Bitcoin rose 20% after Elon Musk changed his Twitter bio to #Bitcoin.
  • Second, within the EU legal framework, the European Commission’s draft regulation known as the Digital Services Act (DSA) will be extremely important in these cases. The DSA focuses on online service providers to further control them and enhance security to prevent infringements.

    The DSA’s new approach will require paying more attention to the activity on these apps and to potential infringements. The Gamestop case evidences that liability regimes will be very important in the future, regarding the liability of (i) digital activities (e.g., coordinated action to alter stock market values); and (ii) the provision of digital services enabling those digital activities.

Authors: Mònica Ferrer y Octavi Oliu

This post is also available in: Español



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