The Justice Department and other federal organizations are conducting investigations into the rise of GameStop stock earlier this year. Last week, the Wall Street Journal reported that federal prosecutors were looking into whether market manipulation or other types of criminal misconduct helped lead to the unexpected rise in the stock prices of GameStop and other companies. Specifically, the Wall Street Journal notes that subpeonas were issued to brokers like Robinhood to gather information about the heavy volume of trading that occurred in late January, leading to a spike in prices and national attention.
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In addition, the Commodity Futures Trading Commission, a civil organization, is also looking into possible misconduct from individual traders and brokers. Massachusetts securities regulators have also subpoenaed a prominent member of the /r/WallStreetBets 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 about the GameStop stock issue this week, with representatives from Reddit and Citadel, a hedge fund who shorted GameStop stock heavily, expected to attend.
The hearings and investigations are the latest developments in a story that briefly dominated financial headlines earlier this year. GameStop and other so-called “meme stocks” saw their prices rapidly rise in value as individual investors bought the stock in an alleged attempt to push back on hedge funds who held heavy short positions in those companies. A short position is a series of transactions where an investor makes money if the price of the stock falls in value. However, the heavy trading volume surrounding GameStop created a “short squeeze,” a market phenomenon in which a stock’s price spikes 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 struck back at powerful companies who often took advantage of the financial markets with little consequence. GameStop’s stock price eventually dropped from its nearly $500 high, but it still remains significantly higher than its price at the beginning of the year.
The GameStop phenomenon has not only created interest from Hollywood, we’ve also seen a mix of feel good stories and unexpected beneficiaries from the stock trading frenzy.
