Report: Feds Investigating Meme Stock Frenzy For Market Manipulation
Sarah Hansen, 11 February 2021
Federal authorities are investigating whether massive gains in “meme stocks” like GameStop in January were caused by market manipulation or other illegal behavior, the Wall Street Journal reported Thursday.
In January, individual traders from online communities like Reddit’s r/WallStreetBets forum and users of popular online brokerage apps like Robinhood were a driving force behind the meteoric rise of a handful of previously unpopular stocks. The traders pitted themselves against major hedge funds who had bet that the price of stocks in struggling companies like GameStop, AMC Entertainment, and Blackberry would fall in a practice called short selling. The rapid surge of interest from retail investors pushed the price of those stocks to record levels, and hedge funds like Melvin Capital faced massive losses as a result. At the peak of the frenzy, Robinhood restricted trading on shares of GameStop and a handful of other stocks, prompting a swift backlash from lawmakers and multiple class-action lawsuits from traders who said they had missed out on gains.
