WASHINGTON – Federal prosecutors and regulators are investigating whether market manipulation or other forms of misconduct over the past month caused the rapid rise in the prices of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. have fueled, according to people familiar with the matter.
The Department of Justice’s fraud department and the U.S. attorney’s office in San Francisco have requested information about the activity from brokers and social media companies that were hubs for the trading frenzy, the people said. Prosecutors have information from brokers such as Robinhood Markets Inc. subpoena, the popular online brokerage that many individual investors used to trade GameStop and other stocks, the people said.
GameStop shares rose from about $ 20 to $ 483 over a two-week period in January. The stock has since fallen to about $ 50. It was fueled by an army of bullish individual traders urging each other on Reddit to buy the stock and squeeze hedge funds betting the price would fall. Traders who bet that stock prices will fall are known as short sellers.
In addition to the Justice Department investigation, the Commodity Futures Trading Commission is investigating similar trades, the people said. The CFTC has opened a preliminary investigation into whether any misconduct has occurred as some Reddit traders targeted silver futures and the largest exchange-traded fund tied to silver, the iShares Silver Trust, one said.
The Wall Street Journal has reported that the Securities and Exchange Commission is also reviewing the trading frenzy. The SEC and CFTC are civil regulators. The burden of proof in a regulatory enforcement action is lower than in a criminal case.