The Department of Justice and other federal organizations are investigating the emergence of GameStop stock earlier in the year. Last week, reported the Wall Street Journal that federal prosecutors investigated whether market manipulation or other forms of criminal behavior helped lead to the unexpected rise in stock prices in GameStop and other companies. Specifically, the Wall Street Journal notes that subpeonas were issued to brokers like Robinhood to gather information on the heavy trade that took place in late January, leading to an increase in prices and national attention.
In addition, the Commodity Futures Trading Commission, a civilian organization, is also investigating possible misconduct by individual traders and brokers. Massachusetts Securities and Exchange Commission has also summoned a prominent member of / r /WallStreetBet’s Reddit Community, requesting that he testify at a state hearing later this month. The US House Financial Services Committee is also set to hold a hearing on the GameStop share issue this week with representatives from Reddit and Citadel, a hedge fund that shorter GameStop shares are strongly expected to attend.
The hearings and investigation are the latest developments in a story that briefly dominated economic headlines earlier this year. GameStop and other so-called “meme stocks” saw their prices rise rapidly in value as individual investors bought the stock in an alleged attempt to push back on hedge funds that had heavy short positions in these companies. A short position is a series of transactions in which an investor makes money if the share price falls in value. However, the heavy trading volume around GameStop created a “short squeeze,” a market phenomenon in which a stock’s price increases as short sellers buy up available stocks to try to hedge their losses. The story became popular as many saw it as a “David vs. Goliath” story in which individuals retaliated against powerful companies that often exploited the financial markets with little consequence. GameStops stock price eventually fell from its nearly $ 500 high, but it still remains significantly higher than its price at the beginning of the year.
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