WASHINGTON – 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. and AMC Entertainment Holdings Inc., 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.
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, one of the people said.
The Wall Street Journal reported that the Securities and Exchange Commission is also reviewing the commercial frenzy. The SEC and the CFTC are civilian regulators. The burden of proof in a regulatory oversight action is less than in a criminal case.