Daily Management Review

US DOJ launches investigation on market manipulation after Reddit traders riot


Prosecutors have already requested information on GameStop and AMC stock trades in a criminal case of market manipulation. The Securities and Commodity Futures Trading Commission is also looking into the actions of Reddit traders with stocks and silver futures.

Gregory Varnum
Gregory Varnum
The US Department of Justice has launched an investigation into possible financial market manipulation in connection with the rapid rise in share prices of companies such as online video game retailer GameStop and movie theatre chain AMC Entertainment Holdings. This was reported by The Wall Street Journal (WSJ), citing sources close to the investigation.

According to the newspaper's interlocutors, the Justice Department's anti-fraud unit and prosecutors in San Francisco have requested information on stock transactions from the brokers and Internet companies that were at the centre of the so-called Reddit traders' riot. Prosecutors specifically requested such information from Robinhood, an online broker popular with traders. 

It was the service that retail securities players used to trade shares of GameStop, AMC and other companies. GameStop shares rose in value from $20 to $483 a share for a fortnight in January. Since then, they have fallen to around $50. The jump in the value of the securities was caused by the actions of retail traders, who encouraged each other on the online Reddit site to buy shares and options on them and "squeeze out" hedge funds that are betting that the price of the securities will fall. 

The WSJ's interlocutors told that in addition to the DOJ, the trades carried out by Reddit traders are also investigated by the Commodity Futures Trading Commission (CFTC). 

It has launched a preliminary investigation to determine whether the investors who coordinated their Reddit purchases targeting silver futures and the largest silver-linked exchange-traded fund, iShares Silver Trust, were acting lawfully, one of the newspaper's sources said. Earlier, the WSJ reported that the Securities and Exchange Commission (SEC) was conducting a similar investigation into the "trading frenzy".

source: wsj.com