While the dust starts to settle around the GameStop meme stock phenomenon, investigations into the hedge funds, trading platforms and the Reddit community that sparked it are only just getting started. Many people have already lost a lot of money, but even more could be at stake if lawmakers and regulators discover that actual laws have been violated.
Yesterday, the Wall Street Journal reported that the Department of Justice’s fraud division and the US attorney’s office in San Francisco both sought information “from brokers and social media companies who were hubs for the trading frenzy.” In theory, all the cases resulting from these investigations would be criminal, which would be more difficult for regulators to prove, but would also entail a heavier burden for possible misconduct.
But like the Wall Street Journal reports, the Commodity Futures Trading Commission and Securities and Exchange Commission also investigate what happened to GameStopAs civil regulators, they can fine some of the traders or companies involved. Massachusetts securities regulators are also reportedly involved, with the Commonwealth Secretary’s office suing Reddit trader DeepFuckingValue, aka former insurance marketeer Keith Gill. to testify at a state hearing later in the month
All these coas Congress prepares to hold its own hearings on how folks like Gill and others on the WallStreetBets subreddit managed to take advantage of big bets placed by hedge funds and commission-free trading apps like Robinhood to get GameStop stock early in the days of the low double figures to pump January to over $ 400 a share during the peak of the meme stock bubble. Rep. Maxine Waters, the Chairman of the House Financial Services Committee, Gill previously requested to also attend the House hearing on GameStop scheduled for February 18.
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Yesterday, The New York Times reported that Reddit director Steve Huffman would also testify at the hearing. A representative from Citadel, one of the hedge funds at the center of trading, is also expected to attend, alongside a possible appearance of founder and CEO, billionaire Kenneth C. Griffin. In addition to Citadel Melvin Capital, a hedge fund that gambled on large short positions in GameStop and other companies (and lost billions in the process), Citadel’s sister company Citadel Securities, which he also founded, is one of the market makers responsible for running a large some of the stock trading people conduct on platforms such as Robinhood. Waters has also previously suggested calling a representative of Melvin and Robinhood co-founder and CEO Vlad Tenev to attend the hearing as well.
Robinhood came under fire from angry users and several members of Congress afterward stopped trading GameStop and other meme stocks on its platform, which it later said it did because it didn’t have enough cash on hand to cover the trades users made on the extremely volatile stock. The trade squeeze was followed by some serious declines in the value of GameStop’s bloated stock price and was eventually followed by its relative collapse (it’s currently around $ 50, which is both much higher than a year ago and much lower than its peak last month).
Due to Citadel’s connection to both Robinhood and a hedge fund shorting in GameStop stocks and Robinhood’s abandonment of GameStop trading, there are many questions about the timing of events and who won and lost as a result. GameStock’s stock debacle also revealed bigger issues surrounding the absurd but seemingly completely legal ways people can try to make money on Wall Street. by placing wild bets and then form a subculture around them on Reddit. We’ll see if Congress or anyone else actually manages to get to the bottom of what was going on, let alone fix it.