Meta Materials, a functional materials and nanocomposites producer that became a darling of the meme stock community, may or may not be under investigation by the Securities and Exchange Commission (SEC), says Chair Gary Gensler.
Late last year, Meta Materials was targeted by retail investors after gaining the attention of meme traders. Shares rallied as much as 143 percent over three months, topping $2.
Heading into 2023, Meta Materials planned to spin off Next Bridge Hydrocarbons, a subsidiary the firm owned entirely. The entity informed the Financial Industry Regulatory Authority (FINRA) on Dec. 7 that it intended to convert its over-the-counter (OTC) Meta Materials preferred shares (MMTLP) to shares of what would eventually become Next Bridge. Meta announced a day later that it received notice of a revision of the corporate action by FINRA.
FINRA halted trading of MMTLP on its OTC equities list on Dec. 9 and reopened it on Dec. 13. MMTLP shares were canceled by the issuer on Dec. 14. Many traders were taken aback by the decision, with some asserting that Meta Materials had engaged in market manipulation amid elevated short interest.
FINRA issued a statement in March confirming that it did not cancel any MMTLP shares.
“FINRA did not cancel the MMTLP shares. The issuer, Meta Materials, canceled the shares effective Dec. 14,” the regulatory agency said.
“In fact, FINRA does not and cannot cancel any securities that are issued by a company—this was an action of the issuer. However, just as FINRA assigns symbols to unlisted securities, FINRA also can unassign or ‘delete’ a symbol, for example, where it is no longer needed to quote or trade a security. In this case, FINRA deleted the MMTLP symbol on Dec. 13 in light of the imminent cancellation of the shares as announced by the company in connection with the Next Bridge / MMTLP corporate action.”
In April, Meta announced that it would offer shares of its common stock and warrants to buy shares of its common stock in an underwritten public offering. The company said that it would use the net proceeds from the corporate action for working capital and general corporate purchases. The underwritten public offering of more than 83 million shares was priced at $0.30 a share.
SEC on Meta Materials
In an exchange with SEC Chair Gensler, Sen. Mike Crapo (D-Idaho) explained that many investors have requested information regarding what happened, the inability to sell the stock, and any potential Internal Revenue Service implications through Freedom of Information requests.Mr. Gensler noted that the SEC and FINRA are separate organizations, and it did not seek any advice, clarity, or permission to halt Meta Materials shares.
“The SEC’s role is to investigate many things in the capital markets. We don’t speak to specific investigations, but we do on a regular basis, examine them raw for compliance with their rules and examine them on a regular basis,” Mr. Gensler said during a Senate Banking Committee hearing on Sept. 12.
While the SEC is aware of what happened surrounding Meta Materials, Mr. Gensler asserted that he cannot speak to any specific investigation to protect the financial markets.
After a bumpy start to 2023, Meta Materials’ performance in the second quarter deteriorated. On a year-over-year basis, revenues plunged 39 percent, net income plummeted 1,300 percent, and diluted earnings per share declined 829 percent. Net profit margin was down an astounding 2,200 percent.
Rumors of the Death of Meme Stocks
Now that less liquidity is traveling throughout the financial system and interest rates are at their highest levels in more than two decades, the days of the meme rally might be over.Several stocks that enjoyed enormous gains during the 2021 and 2022 meme-stock mania have come crashing down to earth. The beleaguered AMC movie chain operator, for example, had recorded triple-digit percentage gains, but now it is down 95 percent. While GameStop is up nearly 2 percent year to date, shares are off about 80 percent from their 2021 peak. Bed Bath & Beyond shares have crashed about 98 percent following a few social media-driven rallies.
But while the retail traders still holding these stocks are deep in negative territory, especially if they purchased near the top, market analysts say there has been a “resurgence” in meme stocks.
The year “2023 has seen the resurgence in meme stocks with new players coming onto the scene,” wrote Daniela Hathorn, the senior market analyst at Capital.com, in a note. “Despite the 2021 fan-favorites having been crushed since their heyday, it’s common to see traders flock to the popular meme stocks in case they are also part of the resurgence in risk appetite.”
The Roundhill MEME Exchange-Traded Fund (ETF), an investment vehicle with a combination of stocks that maintain heavy social media activity and high short interest, is up close to 38 percent year to date, to nearly $35.
