Thursday, February 4, 2021


It’s David versus Goliath. Main Street versus Wall Street. Redditors versus hedge funds.

Americans were enthralled in the last week or so watching the battle over GameStop play out on the stock market. Led by the Reddit Community known as r/WallStreetBets, small investors have been investing heavily in GameStop Corps (GME). This created a short squeeze causing hedge funds who shorted the stock to lose billions of dollars while raising the price of stock temporarily into the triple digits. 

This kind of coordinated investing among hundreds of thousands of individuals is only possible because of the Internet and the forums it provides. Not only do tens of thousands of individuals need to be convinced to purchase just a few shares of the stock, but those individuals also need near-instantaneous communication to react to the rapidly evolving market dynamics. Calls to “hold the line” and not sell off the shares of GameStop have been spread far and wide over social media over the last week. No Internet forums, no revolt of the Redditors.

But these new investment tactics have not been without their critics and hiccups. The app Robinhood, which enabled much of the trading, has limited sign ups and trades reportedly from a lack of capitalization. Meanwhile, the Securities and Exchange Commission has vowed an investigation into market manipulation. But despite these efforts to quell the rebellion, the Redditors’ coordinated meme posting persisted.

Who do we have to thank for that? None other than the Wolf of Wall Street himself: Jordan Belfort.

Jordan Belfort’s company Stratton Oakmont was infamous for “pump and dump” schemes where they would bid up the price of low-cost stocks and then dump them taking the profits and leaving others holding the bag.

Even in the early days of the Internet these sorts of illegal tactics had caught the eye of investors online. The Reddit of the day was an online service known as Prodigy. MoneyTalk was a popular message board on Prodigy where people posted about stocks and finances. In 1994, one poster described the Stratton Oakmont as “a cult of brokers who either lie for a living or get fired” along with accusations of other illegal activity.

Stratton Oakmont wasn’t too keen on someone calling a spade a spade, so they sued for defamation. But they didn’t sue the anonymous poster who had written the truth about the firm, instead they sued Prodigy for hosting their speech. Because Prodigy moderated their message board, something not all other websites at the time did, New York Supreme Court found them liable for defamation though no one at Prodigy had written about Stratton Oakmont.

This injustice of holding a website for speech created by their users was the catalyst for a law that would change the Internet forever, known as Section 230 of the Communications Decency Act. Section 230 states that the creator of content, not the website that hosts it, is liable for the content. In other words, no more suing websites for user created content.  

It’s no exaggeration to say that Section 230 is in large part responsible for the modern Internet we have today. Everything from YouTube to Pinterest to, of course, Reddit relies on the fact that websites cannot be sued for hosting user created content.

So not only has Section 230 allowed for the creation of the Internet ecosystem of YouTube videos, Discord chats, and Reddit posts that have fueled this drama, but it has also ensured they’ve stayed up. This is what’s often missed in the heated political debates about Section 230; the law applies to far more speech than mere politics. 

Given the other issues the Reddit traders have faced, it’s not a stretch to believe that, if it weren’t for Section 230, any website hosting content on the Gamestop short squeeze would’ve been hit with lawsuits like Prodigy was by Stratton Oakmont. Imagine the lawsuits alleging market manipulation from well-financed hedge funds. Would Reddit have deep enough pockets to fight off these lawsuits? Most likely Reddit, and any other company hosting “hold the line” users, would’ve all just removed the content and shut down the forums of discussion to prevent further legal action. 

While it looks like the frenetic trading of Gamestop and other meme stocks is over, the democratization of trading is just beginning. But without Stratton Oakmont and Section 230, this movement would have never been possible in the first place. Jordan Belfort made a fortune screwing over the little guys, but he also inadvertently gave the little guys the tools to fight back.

• Eric Peterson is a writer living in New Orleans. You can follow him on Twitter @Eric_Peterson.

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