The U.S. stock market saw an army of retail investors take on hedge funds in January, fueling a surge in the prices of GameStop and AMC Entertainment, among other stocks. The Wall Street Journal exclusively reported on the 11th that federal prosecutors are investigating whether there was market manipulation or other illegal misconduct.
The Wall Street Journal previously reported that the SEC had launched an operation, while sources familiar with the matter said the federal Justice Department’s Fraud Division and the federal prosecutor’s office in San Francisco had issued subpoenas to brokerage firms and social media companies to obtain information on trading activity at Robin Hood Markets, the hub of the trading frenzy.
In addition, the CFTC is also reviewing similar transactions, targeting those involved in speculating in silver futures and the iShares Silver Trust ETF, to conduct a preliminary investigation into whether there was misconduct, including users who used Reddit to coordinate.
GameStop’s stock price was only about $20, but an army of bullish retail investors called in the online forum Reddit to buy against short-selling hedge funds, inspiring the stock to soar to $483 a share in 2 weeks, and now it has fallen back to about $50.
Some commentators believe that users coordinating the buying of shares on the Reddit subforum Wall Street Bets are in fact openly engaging in a manipulative practice called “pump and dump”. In other words, the parties involved conspire to quickly raise the price of the stock by spreading false positive news, and then dump the stock at a high level for a huge profit, followed by a sharp drop in the stock price. However, to prove market manipulation, it is usually necessary to explain the conspiracy to create artificial prices and the specific actions taken.
The federal Justice Department, CFTC, Reddit and BlackRock, which runs the iShares Silver Trust, all declined to comment.
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