The Department of Justice has opened a probe into the stock market frenzy that led to the meteoric rise of “meme stocks” such as GameStop, according to The Wall Street Journal.
Federal investigators are reportedly looking into whether market manipulation played a role in the increased volatility and meme stock surge, The Wall Street Journal reported. As part of the investigation, the Department of Justice (DOJ) subpoenaed information from stock market brokers including Robinhood, the popular investment platform that many investors used to buy GameStop, AMC Entertainment and others.
The saga was triggered by retail investors collaborating on Reddit. The traders drove up the stock price of companies whose stock hedge funds had attempted to “short” or bet against. The plan worked — GameStop’s stock price surged 1,600% in a couple weeks — and caused hedge funds like Melvin Capital to lose billions of dollars.
Legal experts have cast doubt on whether the investors committed a crime by causing the stock prices to skyrocket in the manner they did.
“They may be ganging up, but it doesn’t seem like there are a lot of material misrepresentations being made,” University of Michigan law professor Adam Pritchard told the Daily Caller News Foundation last week.
“These people may just be stupid. But there are a bunch of them and they’re encouraging each other,” Pritchard said. “It’s not a crime to be stupid.”
In the wake of the frenzy, Robinhood has faced significant scrutiny. As stock prices surged, Robinhood restricted trading on the meme stocks, causing prices to reverse course and tumble.
Several Republican and Democratic elected officials joined together to criticize Robinhood’s restriction of trading. House Financial Services Committee Chair Democratic Rep. Maxine Waters said her committee would conduct a hearing with Robinhood executives present.
Robinhood also faces more than 30 lawsuits in states including New York, California, Florida and Texas. The lawsuits allege the financial services company violated its contract when it restricted trading.
“Robinhood purposefully, willfully, and knowingly removed [GameStop] and other stocks from its trading platform in the midst of an unprecedented stock rise, thereby depriving retail investors of the ability to invest in the open-market,” a Florida complaint said.
Treasury Secretary Janet Yellen convened a meeting with Security and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve officials last week over the stock market volatility. The SEC and CFTC are investigating whether institutional “trading practices are consistent with investor protection,” the Treasury Department said in a statement following the meeting.
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