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Federal officials are investigating the retail trade phenomenon that boosted shares in GameStop, AMC and other highly sold shares throughout January, the Wall Street Journal reported on Thursday, citing sources familiar with the matter.
Prosecutors and regulators are investigating whether the day trading frenzy was a form of market manipulation or other illicit activity. The Justice Department’s fraud arm and the San Francisco attorney general’s office are seeking information from brokers and social media platforms that fueled commercial activity, the Journal reported.
Robinhood Markets, the discount brokerage popular with investors involved in the rallies, was summoned for its role in the event along with other brokerages, according to the report.
The shares of GameStop and other recently loved companies skyrocketed last month, with members of the subreddit Wall Street Bets furiously accumulating the shares. Posts urging more investors to buy stocks reached the top of Reddit’s “popular” page, exposing even more novice investors to the trend as stocks rose.
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Reddit users have also encouraged trading as a way to generate massive losses in short selling hedge funds. The language on Wall Street bets took on a populist tone that opposed the day-to-day operator to the establishment of Wall Street.
Separately, the Commodity Futures Trading Commission is investigating how the horde of casual investors intended to make offers for silver trading futures and a fund traded on a silver tracking exchange, according to the report. Wall Street Bets brokers returned to silver shortly after GameStop’s stock fell back to earth. More recently, the crowd has chosen cannabis stocks for their next bullish bets.
Proving that the GameStop phenomenon was a case of market manipulation requires authorities to enter an obscure regulatory environment. The authorities would need to prove that investors used online forums to disclose incorrect information and raise the stock at an artificially inflated price. This type of manipulation is commonly known as the pump-and-dump scheme.
Decrypting such a scheme is hampered by the anonymous nature of Reddit accounts. Posts asking more brokers to buy stocks were also largely comical and enthusiastic in nature, and made no statements about the companies’ underlying businesses. While some members of the Wall Street Bets stood out for their extraordinary gains or popular memes, the majority joined the army of faceless day traders.
Lawmakers have also shown an interest in dissecting the event and how it exploded in the mainstream. The Chamber’s Financial Services Committee is due to hold a hearing on the matter on February 18. Congresswoman Maxine Waters of California said last week that she wanted representatives from GameStop and Robinhood to testify along with Keith Gill, a Reddit user who reportedly made millions with GameStop.
Senate Banking Committee Chairman Sherrod Brown indicated last month that he also plans to hold a hearing.
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