As the dust begins to settle around the GameStop meme stock phenomenon, investigations into hedge funds, trading platforms and the Reddit community that powered it are just beginning. Many people have already lost a lot of money, but even more could be at stake if lawmakers and regulatory agencies find out that real laws have been violated.
Yesterday, The Wall Street Journal reported that the Justice Department’s fraud section and the San Francisco attorney general’s office were seeking information “from brokers and social media companies that were centers for the commercial frenzy.” In theory, any cases that arise from these investigations would be criminal, which would be more difficult for regulators to prove, but would also carry heavier charges for any potential offenses.
But as the Wall Street Journal reports, the Commodity Futures Trading Commission and the Securities and Exchange Commission are also investigating what happened to GameStop. As civilian regulators, they may end up fining some of the traders or companies involved. Massachusetts securities regulators are also allegedly involved, with the Community Secretary’s office subpoenaing Reddit trader DeepFuckingValue, also known as former insurance trader Keith Gill, to testify at a state hearing later this month.
All this withmonth as Congress prepares to hold its own hearings on how people like Gill and others on the subreddit WallStreetBets managed to take advantage of big bets made by hedge funds and commission-free trading apps like Robinhood to pump low double-digit GameStop shares into early January, to more than $ 400 per share during the height of the meme stock bubble. Congresswoman Maxine Waters, chairman of the Chamber’s Financial Services Committee, Gill previously requested to also attend the Chamber hearing on GameStop scheduled to take place on February 18.
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Yesterday, The New York Times reported that Reddit executive Steve Huffman would also testify at the hearing. A representative of Citadel, one of the hedge funds at the center of the deal, is also expected to attend, in addition to a possible appearance by its founder and CEO, billionaire Kenneth C. Griffin. In addition to Citadel Melvin Capital, a hedge fund that bets big short sales GameStop and other companies (and lost billions in the process), sister company Citadel Securities, which he also founded, is one of the market makers responsible for executing of a large part of the stock trading that people do on platforms like Robinhood. Waters also previously suggested calling a representative from Melvin and Robinhood’s co-founder and CEO, Vlad Tenev, to attend the hearing.
Robinhood was attacked by angry users and several members of Congress after that halted GameStop trading and other meme actions on its platform, which later said yes because it did not have enough money to cover the trades that users were doing with the extremely volatile stocks. The crackdown on trading was followed by a series of severe drops in the inflated price of GameStop’s stock price and was finally followed by its relative collapse (currently around $ 50, which is as much higher than a year ago as much lower than its peak last month).
Because of Citadel’s connection to Robinhood and a hedge fund selling GameStop shares and Robinhood’s halt in GameStop trading, there are many doubts about the timing of the events and who won and lost because of them. The GameStock stock disaster also highlighted major issues surrounding the absurd, but apparently completely legal, ways in which people can try to make money on Wall Street. placing wild bets and then form a subculture around them on Reddit. We’ll see if Congress or anyone else can really find out what’s going on, let alone fix it.