Alma Angotti, Guidehouse Co-Leader of the Global Investigations and Compliance Practice, joins Yahoo Finance to discuss the potential probe into GameStop’s stock volatility.

Video Transcript

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JULIE HYMAN: Well, the heads of the Securities and Exchange Commission, the Federal Reserve, the Federal Reserve Bank of New York, and the Commodity Futures Trading Commission, all of them are expected to convene this week at the request-- and she'll be there, too-- of new Treasury Secretary, Janet Yellen. All of this to do with the volatility surrounding GameStop. But what will, what can regulators do about this situation?

We're joined by Alma Angotti. She's co-leader of the Global Investigations and Compliance Practice at Guidehouse. Alma, thank you for being here. What questions do these regulators need to ask when they, first of all-- because we'll get to the market structure question in a moment-- when they, first of all, need to figure out if any laws have been violated?

ALMA ANGOTTI: So it's very important, Julie, that everyone realized that, especially, the SEC is going to look at each bucket of participants. So they will look at the retail investors to make sure that they followed all the rules that apply to them. They'll look at the broker dealers to make sure that they followed all the rules that apply to them. And they'll look at the hedge funds to make sure that they follow all the rules that apply to them. And to the extent that there is manipulative activity on the part of any participant, net capital violations, short selling violations, then the regulators will take care of that specifically.

Now, if nobody did anything wrong, and this is how the market works in this situation, then the regulators will have to think about, is this the way we want the market to work in this situation? So that is the progression. And I'm sure they're very busy right now trying to figure out exactly what happened beyond what's been publicly discussed.

MYLES UDLAND: Yeah, and to that last point, Alma, I think that the conversation right now seems to be in this place of there's nothing, let's say, obvious about why something was done incorrectly other than the price went up a lot and came down a lot and it sort of screwed everything up. So how does the SEC try to think about the message it wants to project to companies that want to list on US public markets? And how might that factor play into these conversations?

ALMA ANGOTTI: Well, so it's important to remember that the SEC is a disclosure regime. So the one-- so the thing they're going to be focusing on is, was there any false, misleading information that was being put forth that affected the price? That would be a manipulation issue. Were any of the buyers being paid to tout the stock, to say, "buy GameStop," or were they just saying everybody should buy this stock?

So I think they're going to be trying to make sure that the participants in the market know that the rules are being followed, the rules as they exist now, and then they'll decide if those are-- if they need additional rules to manage volatility like this. Remember, the SEC doesn't typically protect investors from themselves. They want to make sure that investors have as much information as possible to make the decision they want. And sometimes, that's a loss.

BRIAN SOZZI: You know, I do want to look at this from the other side. With all these regulatory eyes on these companies, what should their leaders be doing now? I was talking to a couple former CEOs, and they have told me that they are generally stunned that not any of these executives at GameStop and AMC that have been part of this market volatility, they haven't said really anything.

ALMA ANGOTTI: Well, it's very hard if you're GameStop to know what to say to make sure that you're not saying something that turns out to-- that can be viewed as false and misleading. "We aren't as valuable as you think we are" is a hard thing for a company to say. But what I tell my clients to do in situations of stress, like market volatility or some sort of unusual activity, is this is a good time to go back and check your controls so that you can make sure that everything that you had in place to manage volatility, to manage a short squeeze, to manage net capital issues, that those were all in place and they worked properly. So that's what the company should be doing internally, behind the scenes.

JULIE HYMAN: And Alma, what about the online brokers here? As we were talking about earlier in the show, the Robinhood CEO, Vlad Tenev, came out in a blog post and said that the clearing, the clearing times should be compressed to instant. What effect do you think that would have on the system, on the clearing and settlement system? And would that be a positive change?

ALMA ANGOTTI: You know, that is just a great question. And I think it would be a positive change. And this is a little bit off the topic, but that's one of the advantages of the folks that are considering putting securities on the blockchain is there would be instantaneous settlement, and you wouldn't have that lag. Because if you have two days to settle a transaction, a lot can happen in that two days. And so that is what the broker dealers have to protect against so that they keep their own financial condition in shape. That's a big investor protection regime is the financial health of the market participants.

MYLES UDLAND: You know, Alma, I'm sure that you're limited in what you can say, but you made a very interesting comment about how a company doesn't want to come out and say, "our stock isn't worth what it is, what it's trading at." Are you hearing from clients who are worried that they would get stuck in a similar situation now that we have seen this come up with this kind of force?

ALMA ANGOTTI: Well, I am very certain that if they find themselves in this situation, they are talking to their securities lawyers as much as they're talking to their PR people to decide, what can we say that won't be viewed as moving the price inappropriately one way or the other? It's a fine balance.

JULIE HYMAN: It's a fine balance, and it seems like many, most all, of these CEOs up until now are opting not to be a part of the discussion.

ALMA ANGOTTI: Not to say anything, mhm.

JULIE HYMAN: Yes, exactly. Alma, thank you so much for your perspective and your expertise on this. Alma Angotti is co-leader of the Global Investigations and Compliance Practice at Guidehouse. Thank you again.

ALMA ANGOTTI: Thank you very much for having me.