Federal prosecutors are turning up the heat on the Reddit GameStop squeeze.
The Wall Street Journal reported Thursday that “the Justice Department’s fraud section and the San Francisco U.S. attorney’s office have sought information about the activity from brokers and social-media companies that were hubs for the trading frenzy.”
Federal prosecutors and regulators, the Journal reported, “are investigating whether market manipulation or other types of misconduct fueled the rapid rise last month in prices of stocks such as GameStop Corp. and AMC Entertainment Holdings Inc.”
Prosecutors, according to the Journal, have subpoenaed information from brokers such as Robinhood Markets Inc.
The WSJ also reported that the Commodity Futures Trading Commission “has opened a preliminary investigation into whether misconduct occurred as some Reddit traders targeted silver futures and the largest exchange-traded fund tied to silver, the iShares Silver Trust.”
Nicolas Morgan, partner at the global defense firm Paul Hastings, told ThinkAdvisor on Thursday in an email message that “given the amount of attention this issue is receiving, it is not surprising that criminal authorities are investigating. They will have a higher burden of proof than the SEC, which can only bring civil claims, and the criminal authorities and civil authorities will be working with the same evidence.”
The SEC showed today “that it is capable of suspending trading of a stock being touted on social media when there is evidence of violations of the federal securities laws” when it suspended trading of SepctraScience, Morgan said.
The SEC “cited ‘since late January 2021, certain social media accounts may be engaged in a coordinated attempt to artificially influence SCIE’s share price.’ We have seen no such allegation by the SEC about GameStop,” Morgan added.
SEC’s Lee Weighs In
Acting SEC Chair Allison Herren Lee said Feb. 1 on NPR that with respect to potential manipulation in the markets, the agency’s enforcement division is working “around the clock right now to figure that out.”
Added Lee: “This is our bread and butter at the SEC. We know how to do this. Now, this one has a little bit of a different spin to it. It’s going to be a little bit more challenging because of the nature of it, but our enforcement division will rise to that challenge.”
More State Probes
The attorneys general of Texas and New York moved on Feb. 1 to investigate trading in GameStop shares, prompting one legal expert to predict further actions nationwide.