Ok to settle the question, here is a definition of "front-running" according to Wikipedia:
Front running, also known as
tailgating, is the prohibited practice of entering into an equity (
stock) trade,
option,
futures contract,
derivative, or
security-based swap to capitalize on advance, nonpublic knowledge of a large ("block") pending transaction that will influence the price of the underlying security.
So let's break it down, in order to be found guilty of front running, WSB's action would have to satisfy two criterias:
1) He has to have advanced nonpublic knowledge and
2) There has to be a large (block) pending transaction that will influence the price of the underlying security.
So let's examine the 1st criteria. Does WSB have any advanced knowledge of any transactions let alone large block pending transactions? In order to know in advance, he would have to prophetize with certainty that there would be any transactions, large transactions that would follow after he bought the stock. Would this be possible at the time when he's buying his own stocks of all those shorted stocks? Did he have the crystal ball that after he bought the stocks, there would be large block of pending transactions that will make the price of the stock go up? The answer is obviously no. Second, not only he has to have advance knowledge but the knowledge also has to be nonpublic, i.e. insider information. Did WSB have the insider information when he was buying the shares of Gamestock? And as a result that there would be large transactions that will push the stock up? The answer again is no. With "no" to both answers, WSB's action would not satisfy the first criteria.
Let's look at the 2nd criteria. Assuming that WSB somehow "knew" in advance in secret that there would be transactions happening, buying transactions that is to the same stock that he just bought. But would it be large (block) pending transactions that will influence the price of the underlying security? I mean for all we know, those transactions were from little nobody, mom and pop investors, people buying 100 or two hundred shares either through possible option exercising or outright buying the shares. Besides a few 10K block transactions, were there really "large (block) pending transactions that will influence the price of the underlying security"? Hardly any. So with "no" to this answer, WSB's action would fail to satisfy this criteria as well.
With failure to satisfy both criteria, WSB' action would not constitute "front running". And as a matter fact, WSB action is exactly the same as a professional
short-seller who may accumulate a short position and then publicize the reasons for shorting the stock. And according to Investopedia:
"This seems perilously close to a short-seller's version of a
pump-and-dump scheme, in which a speculator hypes (or bashes) an investment for personal gain. There is a distinction, however. The short-seller in this example reveals the personal financial stake at the time of the recommendation."
Which is exactly what WSB did except in the other direction. Instead of dissing the company, he was promoting the company and the stock. When he was presenting the stock on Reddit, he clearly revealed his own ownership of the stock. He never had any attempts at hiding the fact that he had a personal stake in the stock ownership and would benefit greatly, just like everyone else from the appreciation of the stock. So if the shorts never gotten into trouble for shorting the stock and then dissing the company to make everybody short the stock as well (like what Melvin Capital did to Gamestop in the first place) with disclosure of the financial stake in the stock, then WSB would also be fine doing the opposite, buying the stock and then showing genuine interest in the company and the stock to make everybody to buy the stock while disclosing the financial stake in the stock at the same time. What's good for the goose is good for the gander. Plus WSB is not even dumping the stock. He's unloaded some positions but he's keeping the majority of the positions there.
I hate to say this to our beloved ET founder but I disagree in this case. I think WSB will be fine although SEC will try their hardest to make his life a living hell of course in prosecuting him just to show taxpayers that they are working. They are very good at that but at the end, it will be much ado about nothing.
