“Federal prosecutors are investigating whether market manipulation or other types of criminal misconduct fueled the rapid rise last month in prices of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc.,” WSJ writes.
In Case You Forgot: GameStop, AMC and other struggling consumer firms saw incredible gains, stemming from conversations on the r/WallStreetBets Reddit forum, where “where individual investors discussed bidding up certain stocks with high short positions, causing a rapid rise in price as short sellers scrambled to cover their positions.”
Now, the Justice Department wants to make sure there wasn’t a fraud perpetrated. Together with the San Francisco U.S. attorney’s office, they’re seeking information “about the activity from brokers and social-media companies that were hubs for the trading frenzy.”
- Most notably, prosecutors have subpoenaed information from Robinhood.
- The Commodity Futures Trading Commission is running a similar probe to determine if any misconduct occurred.
On The Horizon: “Separately, the House Financial Services Committee plans a hearing on Feb. 18 to examine what happened with GameStop’s shares. Reddit Chief Executive Steve Huffman was invited to testify and plans to appear before lawmakers, he told the [WSJ] on Thursday.”
- “Proving market manipulation generally requires showing that traders schemed to create an artificial price and took action to accomplish it.”
But Was It Really? LEX Markets Head of Trading Michael Friedman says no, and that there doesn’t appear to be evidence to support otherwise. Instead, it was simply an opportunity seized on a grand scale.
- “If an investigation were to show that a few key individuals instigated the whole effort, that could buttress a manipulation case, according to securities lawyers. However, charging hundreds of defendants who traded in small increments and believed they were warring with hedge funds wouldn’t be viable, the lawyers said.”
I actually think there is a lot of precedent to be set here.
Legally, a Schedule 13D must be filed with the SEC when a person or “group” acquires more than 5% of any class of a company’s shares. This is there to provide transparency about why a group of shareholders are buying a stock, whether it be for a hostile takeover or another reason.
If people on internet forums can coordinate buying a huge percentage of a Company’s stock, does that constitute a “group”?