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Fox News contributor Liz Peek and Geltrude & Company founder Dan Geltrude weigh in on student debt and possible government involvement that could follow the Robinhood stock market frenzy.
Federal prosecutors and regulators are investigating whether market manipulation or other types of misconduct fueled the rapid rise in prices of stocks like GameStop Corp last month. GME -0.39% and AMC Entertainment Holdings Inc., AMC -2.24% according to people familiar with the matter.
The Department of Justice’s fraud section and the U.S. Attorney’s Office in San Francisco sought information on activity from brokers and social media companies that were hubs of the trading frenzy, people said. . Prosecutors have subpoenaed information to brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors use to trade GameStop and other stocks, people said.
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GameStop shares fell from around $ 20 to $ 483 over a two-week period in January. The stock has since fallen to around $ 50. It was fueled by an army of bullish individual traders urging each other on Reddit to buy the stocks and squeeze hedge funds that bet the price would drop. Traders who bet that stock prices will go down are called short sellers.
In addition to the Justice Department’s investigation, the Commodity Futures Trading Commission is looking at similar transactions, the people said. The CFTC has opened a preliminary investigation into whether a misconduct has occurred, as some Reddit traders have targeted silver futures and the largest silver-linked exchange-traded fund, the iShares Silver. Trust, SLV 0.08%, said one of the people.
Separately, the House Financial Services Committee is planning a hearing on February 18 to examine what happened with GameStop’s actions. Reddit chief executive Steve Huffman has been invited to testify and plans to appear before lawmakers, he told the Journal on Thursday.
Spokesmen for the Department of Justice and the CFTC declined to comment. A spokesperson for Reddit declined to comment. A spokesperson for BlackRock Inc., which manages the iShares funds, could not be reached immediately for comment.
Some commentators have said that people coordinating on Reddit – much of it in its WallStreetBets forum – have openly engaged in a type of manipulation known as pump and dump. In such a scheme, traders collude to inflate the price of a stock, usually by spreading false information, and then profit by selling their stakes to people deceived by the fraud.
To prove market manipulation, you usually have to show that traders attempted to create an artificial price and acted to achieve it.
Regulators and prosecutors can find out who bought and sold stocks, based on data called “blue cards,” which brokers use to identify the individuals behind the transactions. Linking transactions to public statements is more difficult; Most of the people who have talked about GameStop on websites like Reddit have done so anonymously.
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If an investigation were to show that a few key people were behind the whole effort, it could substantiate a manipulation case, according to securities lawyers. However, indicting hundreds of defendants who traded in small increments and who believed they were at war with hedge funds would not be viable, lawyers said.
Acting SEC Chairman Allison Lee told NPR last week that her agency’s law enforcement division is working “around the clock” to determine if wrongdoing has taken place. Lee said the SEC’s law enforcement division is looking for signs of manipulation, but is also checking to see if brokerages such as Robinhood that had to curb trading during the height of the frenzy and insiders of companies such as GameStop complied with the regulations.
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