The recent price volatility in the share price of some stocks has caught the attention of the Securities and Exchange Commission (SEC).  On Friday, the U.S. regulator warned traders and said it is investigating possible wrongdoing that caused the market instability.

The recent market activity on GameStop stock led to a more than 2000% rise from its previous value a year ago. This was mainly caused by the trading activities of a group of Reddit WallStreetBets forum members.

Retail and institutional traders at loggerheads

The market frenzy forced Robinhood to seek for over $1 billion cash injection from its investors to have enough funds for market clearinghouses. When Robinhood limited trades on AMC, GameStop, and other stocks, the small retail investors from Reddit came hard on the company.

The retail investors are at market war with the billionaire hedge funds, who they feel are trying to influence a sharp fall in the market price of some stocks. Some f the critics said the move by Robinhood showed how the retail traders are living in an unfavorable market influenced by the big money spenders.

However, Robinhood defended its decision, saying it was made to protect the market against price volatility.

Most of the over 6 million forum members trade in one form of stock or the other. They usually engage in a massive buying spree of particular stocks, which fuels the rise of such stock. But this time, the SEC is investigating whether any of the market players broke the rules by way of manipulating stock prices in any way.

As a result of the unusual surge in the value of some stocks, some hedge funds caught off guard have lost massively.

The recent short squeeze rally has also led some hedge funds to sell their large-cap portfolio holding to recover their losses.

SEC warns about price manipulation

In a statement credited to the SEC, the commission said it’s currently “working with regulatory partners” to ensure that investors are protected from any unethical conduct in the market.

The SEC also warned that high stock price volatility can undermine market confidence and expose investors to massive losses.

However, the commission did not mention which trading service the investigation will focus on but only stated it will investigate actions with disadvantaged investors.

The commission is also investigating the recent buy limits placed by online platforms and stock apps. The restrictions were placed to stop small investors from buying a certain quantity of volatile stocks like GameStop and other troubled companies.