Social media services including Facebook Inc and Reddit restrict discussions about weapons, drugs and other illegal activity, but their rules do not specifically mention another lucrative regulated good: stocks.
Some people think they should. Users of a Reddit group, in which 5 million members exchange investment ideas, generated significant profits by gorging on shares of GameStop Corp and other out-of-favor companies that had been shorted by big hedge funds. Investors have used social media for years. Anonymous posts have fueled cryptocurrency pump and dump schemes, according to studies, but that obscure market generated less scrutiny. The “Reddit rally” however, has roiled global stock markets and drawn scrutiny of posts in which thousands of smaller investors trade tips on platforms from Facebook to Instagram to Telegram and Clubhouse.
Individual investors won praise from elected officials and the general public for jabbing powerful hedge funds with a “short squeeze.” Yet critics have emerged, accusing social media users of manipulating markets unlawfully by pumping shares of weak companies. The manager of one Facebook trading community said she has turned down requests to tout individual stocks.
Social media companies are generally not liable for user activity under a statute commonly known as Section 230. Still, their rules bar illegal behavior like facilitating gun and drug transactions or distributing offensive content that could rile advertisers or generate calls for tighter regulation.
Section 230 also has some carve-outs that in theory could lead to a tech company being penalized for user-generated content, including violations of federal criminal law, said Jeff Kosseff, a cybersecurity law scholar who wrote a book on the law.
He noted that the bar is high. The speech itself would need to be a criminal violation of a law that explicitly specified distribution of that speech as illegal.
In addition, First Amendment precedents typically hold that the companies must have knowledge of criminal speech posted on their platforms in order to be held responsible for it, said Kosseff.