Former SEC Chairman Harvey Pitt said the government can do “very little” to regulate trading unless there is clear evidence of intention to manipulate a stock price following the GameStop frenzy.

The trading app Robinhood made headlines in late January after stocks like GameStop and AMC Entertainment saw an unexpected surge in volatility following web postings on the popular Reddit message board WallStreetBets.

Pitt weighed in on the backlash Robinhood received after pausing trading on some stocks during the short squeeze. He told FOX Business’ “Mornings with Maria” that trading restrictions are “critical” due to past market collapses and the app had to “comply with the law.”

HARVEY PITT: “I think there's a lot of misinformation and also a lot of emotion that's entered into the debate. If you start with the fact that people are entitled to speak their minds about a stock and that's a guaranteed right under the First Amendment, the only question here is: Were any of the individuals touting GameStop taking steps to try and artificially inflate the price of the stock? So I think it's a good thing that the SEC has said they will do a complete review and they will try to figure out who was pushing the stock. That's helpful after the fact. But at the end of the day, unless there's clear evidence that someone was deliberately trying to influence the price of the stock, there's very little that the government can do about this.

With respect to the trading restrictions, Robinhood is subject to all sorts of security requirements. And when the massive trading took hold and Robinhood had a lot of customers that were in that market, Robinhood had to put up much more capital to secure the trading activity of its customers. And at some point, the amount became so large that Robinhood decided to shut down trading. The problem that Robinhood faced was that it's a victim of its own success. It clearly pushed people to buy securities and to engage in trading. And it succeeded. Once it succeeded, it created an environment where what took place with GameStop and AMC and other companies could continue. So all of that, in a sense, means that people should look at the system and be sensible about how these things occurred and what disclosures were made.

The laws are somewhat unbalanced. There is great disclosure when a group of investors band together and exceed the 5% threshold in acquiring equity securities. There is far less disclosure of short positions, and the marketplace thrives on information. But apart from that, there's no difference in the fact that in this case, a number of investors wanted to jump on the bandwagon and buy a stock whose fundamentals did not justify the price that the stock was rising to. That's people's God-given right. You can buy anything you want as long as you know all the facts.

Those restrictions are critical because we've seen huge collapses in the marketplace when there isn't enough security for transactions. Robin Hood has to comply with the law. There may be a question about how well its customers knew about these possibilities. But in my view, as I said, Robin Hood was complying with the law and tailoring or tapering down trading is one way to solve that issue.”