Fox News contributor Liz Peek and Geltrude & Company founder Dan Geltrude weigh the student debt and possible government involvement that could follow the Robinhood stock deal.
Federal prosecutors and regulators are investigating whether market manipulation or other forms of misconduct caused the rapid rise in stock prices such as GameStop Corp. GME -0.39% and AMC Entertainment Holdings Inc., AMC–2.24%, according to people familiar with the matter.
The people of the Department of Justice and the U.S. Attorney’s Office in San Francisco were looking for information about the activity of brokers and social media businesses that were at the center of the trade frenzy. Prosecutors have sued information from brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors used to trade GameStop and other stocks, the people said.
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GameStop shares rose from about $ 20 to $ 483 in two weeks in January. The stock has since fallen to about $ 50. It was fueled by an army of bullish individual traders admonishing each other on Reddit to buy the shares and push hedge funds betting that the price would fall. Traders who bet that stock prices will fall are known as short sellers.
In addition to the investigation by the Justice Department, the commission for futures contracts is investigating similar trades, the people said. The CFTC has launched a preliminary investigation into whether misconduct occurred because some Reddit traders were targeting silver futures contracts and the largest exchange-traded fund linked to silver, one of the people said.
Separately, the House Financial Services Committee is scheduled to hold a hearing on Feb. 18 to investigate what happened to GameStop’s shares. Reddit chief executive Steve Huffman has been invited to testify and plans to appear before lawmakers, he told The Journal on Thursday.
Justice Department and CFTC spokesmen declined to comment. A Reddit spokesman declined to comment. A spokesman for BlackRock Inc., which manages the iShares funds, could not be immediately reached for comment.
Some commentators have said that individuals who coordinate on Reddit – largely in their WallStreetBets forum – are openly engaging in a kind of manipulation known as pumping and dumping. In such a scheme, traders work together to increase the price of a stock, usually by spreading false information, and then making a profit by selling their interests to people who are deceived by fraud.
To prove market manipulation, you usually need to show that traders planned to create an artificial price and act actively.
Regulators and prosecutors can find out who bought and sold stocks, and rely on data known as ‘blue sheets’, which brokers use to identify individuals behind cases. It is more difficult to tie the transactions to public statements; most people who talked about GameStop on sites like Reddit did so anonymously.
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If an investigation would show that a few key people incited the whole attempt, it could, according to the security lawyers, support a manipulation case. However, prosecutors said hundreds of defendants who traded in small increments and believed they were fighting hedge funds were charged.
The acting chairman of the SEC, Allison Lee, told NPR last week that the agency’s enforcement department ‘is working a little now and then’ to determine if any wrongdoing has taken place. Lee said the SEC enforcement department is looking for signs of manipulation, but also to see if brokers like Robinhood who had to stop trading at the peak of insanity and corporate insiders at companies like GameStop comply with the regulations.