Report: Feds Investigating Meme Stock Frenzy For Market Manipulation

This article was originally published on this site


Federal authorities are investigating whether massive gains in “meme stocks” like GameStop in January were caused by market manipulation or other illegal behavior, the Wall Street Journal reported Thursday. 

Key Facts

Both the Justice Department and the San Francisco U.S. attorney’s office have requested information from online brokers like Robinhood and the social media companies involved in the saga, the Journal reported, citing people familiar with the situation. 

The Journal reported that the Commodities Futures Trading Commission has opened an investigation into the trading of silver futures and a silver ETF, which also saw major gains as Reddit traders set their sights on the commodity.

As shares continued to climb at the end of January, White House press secretary Jen Psaki said the Biden administration and Treasury Department were monitoring the situation.

Key Background

In January, individual traders from online communities like Reddit’s r/WallStreetBets forum and users of popular online brokerage apps like Robinhood were a driving force behind the meteoric rise of a handful of previously unpopular stocks. The traders pitted themselves against major hedge funds who had bet that the price of stocks in struggling companies like GameStop, AMC Entertainment, and Blackberry would fall in a practice called short selling. The rapid surge of interest from retail investors pushed the price of those stocks to record levels, and hedge funds like Melvin Capital faced massive losses as a result. At the peak of the frenzy, Robinhood restricted trading on shares of GameStop and a handful of other stocks, prompting a swift backlash from lawmakers and multiple class-action lawsuits from traders who said they had missed out on gains.

Crucial Quote

“We need to make sure that the decisions that [brokers] make when they look to restrict or limit trading are compliant with regulations, that they’re transparent to their customers and that they’re consistently and fairly applied,” acting SEC Chair Allison Herren Lee told NPR earlier this month.

Big Number 

2,300%. That’s how much shares of GameStop climbed this January, from a relatively steady price of about $20 per share to an eye-watering high of $483 per share at the peak of the frenzy. Shares are now trading at about $50. 

Further Reading

GameStop Mania Is Focus of Federal Probes Into Possible Manipulation (Wall Street Journal)

Biden Administration To Look At GameStop Legal Questions As Lawmakers Rally For Change On Wall Street (Forbes)

Meme Stock Saga Officially Over? GameStop Short Interest Plunged 70% Amid $20 Billion Loss (Forbes)

GameStop Saga Continues As Reddit Users Battle Wall Street–Here’s The Latest In The Wild 2,300% Stock Surge (Forbes)