WASHINGTON – Federal prosecutors and regulators are investigating whether market manipulation or other misconduct led to the rapid rise in stock prices such as GameStop Corp. and AMC Entertainment Holdings Inc. last month, 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.
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 has occurred, as some Reddit traders have targeted silver futures and the largest exchange-traded fund linked to silver, the iShares Silver Trust said.
The Wall Street Journal reported that the Securities and Exchange Commission is also reviewing the trading frenzy. The SEC and CFTC are civil regulators. The burden of proof in a regulatory enforcement action is lower than in a criminal case.