Fox News contributor Liz Peek and Geltrude & Company founder Dan Geltrude assess student debt and possible government involvement that may follow Robinhood’s stock trading frenzy.
Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct have fueled last month’s rapid rise in stock prices like GameStop Corp. GME -0.39% and AMC Entertainment Holdings Inc., AMC -2.24% according to people familiar with the matter.
The Justice Department’s fraud section and the San Francisco attorney general’s office sought information about the activity of brokers and social media companies that were the centers of the commercial frenzy, people said. Promoters have been subpoenaing information from brokers like Robinhood Markets Inc., the popular online brokerage that many individual investors use to trade GameStop and other stocks, people said.
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GameStop’s stock rose from about $ 20 to $ 483 over a two-week period in January. Since then, the stock has dropped to around $ 50. It has been fueled by an army of optimistic individual brokers urging each other on Reddit to buy the shares and squeeze the hedge funds that were betting the price would fall. Traders who bet that stock prices will fall are known as short sellers.
In addition to the Department of Justice investigation, the Commodity Futures Trading Commission is examining similar transactions, people said. The CFTC opened a preliminary investigation to see if the misconduct occurred, as some Reddit traders were targeting silver futures and the largest silver-traded fund, the iShares Silver Trust, SLV 0.08%, said one of the people.
Separately, the House’s Financial Services Committee plans a hearing on February 18 to examine what happened to GameStop’s shares. Reddit Chief Executive Steve Huffman has been asked to testify and plans to appear before lawmakers, he told The Journal on Thursday.
Spokesmen for the Justice Department and the CFTC declined to comment. A Reddit spokeswoman declined to comment. A spokesman for BlackRock Inc., which manages the iShares funds, was not immediately available for comment.
Some commentators have said that the individuals who coordinate Reddit – mainly on their WallStreetBets forum – are openly involved in a type of manipulation known as pump and dump. In such a scheme, traders conspire to inflate the price of a share, usually by spreading false information, and then profit by selling their shares to people deceived by the fraud.
Proving market manipulation usually requires showing that traders planned to create an artificial price and took steps to achieve it.
Regulators and developers can find out who bought and sold shares, based on data known as “blue sheets”, which brokers use to identify the individuals behind the trades. Linking negotiations to public statements is more difficult; most people who talked about GameStop on sites like Reddit did it anonymously.
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If an investigation showed that some important individuals instigated all the effort, it could support a case of manipulation, according to securities lawyers. However, prosecuting hundreds of defendants who negotiated in small installments and believed they were at war with hedge funds would not be feasible, lawyers said.
SEC acting president Allison Lee told NPR last week that her agency’s oversight division is working “24 hours a day” to determine if an offense has occurred. Lee said the SEC’s oversight division is looking for signs of manipulation, but also looking to see if brokers like Robinhood, which had to contain trade at the height of the frenzy, and corporate insiders at companies like GameStop have complied with regulations.