The Department of Justice has reportedly opened an investigation into whether market manipulation was behind the enormous rise in stock value for companies like GameStop and AMC Theatres in January.
Federal prosecutors have subpoenaed information regarding the topic, The Wall Street Journal reported Thursday, citing sources familiar with the investigation.
The Journal reported that both the Justice Department’s fraud section and the San Francisco U.S. attorney's office are seeking information from brokers and social media companies, and have subpoenaed brokers from the stock trading app Robinhood.
Many retail traders bought up large amounts of GameStop shares last month before Robinhood placed a temporary ban on buying shares from GameStop and AMC.
To prove market manipulation, investigators must find evidence that traders planned to create an artificial price, noted the Journal. If the investigation finds that a few key individuals were behind the sudden rise in stock value, a case could be made for market manipulation.
Retail investors, people who do not buy and sell stocks as their profession, gathered together in January through online forums like Reddit and bought up hundreds of GameStop shares, causing what is called a short squeeze, forcing investors who had bet against the stock to buy up large shares in order to prevent further losses.
GameStop’s stock price reached $483 in January, the Journal noted. As of Thursday, its price has dropped down to $49.
Apart from the DOJ and the U.S. attorney’s office, the Commodity Futures Trading Commission (CFTC) is also looking into similar trading, the Journal reported, as is the Securities and Exchange Commission (SEC).
A spokesperson for the DOJ declined to comment when reached by The Hill.
The House Financial Services Committee has scheduled a hearing on the Reddit-fueled stock rise for Feb. 18. Robinhood CEO Vlad Tenev, representatives from financial industry trade groups and Reddit executives are expected to speak at the hearing.
House Financial Services Committee Chairwoman Maxine WatersMaxine Moore WatersBiden administration defends handling of Haitians amid uproar DHS suspends horse patrols but ramps up Haiti repatriation flights Maxine Waters: What we witnessed with Haitian migrants takes us back hundreds of years MORE (D-Calif.) has said that the hearing will "examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors."