Feds Probing Traders Behind GameStop Frenzy

(PatrioticPost.com)- A lot of people made a lot of money trading stocks for GameStop and AMC Entertainment this year — and a lot of people lost a lot of money, too.

That kind of stuff happens all the time in the stock market. But, what made this case so unique was not only the meteoric rise of the stocks — and impending drop — but the fact that it was fueled by amateur investors.

Because of this, it has drawn the attention of federal regulators. Now, the fraud section of the Department of Justice and San Francisco’s U.S. Attorney’s office are conducting an investigation into the situation. They have requested information from social media companies and stockbrokers related to the “trading hysteria,” according to a Wall Street Journal report.

GameStop was traditionally a very low-priced stock. But, individual day traders banded together to push the price of the stock through the roof in only a few short weeks. Those traders got together on a forum on Reddit, a social media site. They concocted the plan to fight back against hedge funds who were “shorting” GameStop stock by buying up a bunch of the shares and sending the price skyrocketing.

Many other people got in on the act, buying the stock low and then selling not long after, once the stock exploded.

According to the WSJ report, federal investigators have sent subpoenas for information to Robinhood, the trading app where a large number of the traders bought shares in GameStop.

That app also found itself in a little bit of controversy during the whole situation, too, as they halted trading on GameStop temporarily out of nowhere. That drew the ire of many people, including Tesla CEO Elon Musk, who called them out on social media.

On the other side of the argument, Wall Street pundits accused Robinhood of participating openly in what’s known as a “pump and dump” scheme. This happens when traders inflate a stock’s price artificially — in other words, based on no information that the company will actually do well in the future. Then, these same traders sell off the stock once the price goes much higher, thereby profiting substantially from the whole practice.

The challenge for investigators, though, is that for them to prove any criminal activity happened, they’d have to show that traders conspired as a group to capitalize off the inflated stock price. It’s not certain whether people just coming together to talk about good stocks to buy would be enough in this case.

The WSJ did explain, though, that if federal investigators find any of this evidence, they could bring market manipulation charges against them. Those charges would not likely be levied against any of the day traders who simply got in on the action and bought GameStop stock as it was increasing.

The Journal also said that investigations into the situation are underway at the Commodity Futures Trading Commission and the Securities and Exchange Commission. These two boards don’t have to reach the same standard as the DOJ, though, as they are civilian oversight boards.