GameStop surge reportedly under federal investigation for possible manipulation
February 12, 2021
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Several US government agencies are investigating the GameStop stock brouhaha to determine whether there was market manipulation involved, The Wall Street Journal reported. An enthusiastic group of day traders on Reddit’s r/WallStreetBets board encouraged each other to buy the stock and created what’s known as a short squeeze.

The Department of Justice and the San Francisco US attorney are seeking information about activity surrounding GameStop’s stock by brokers and users on Reddit and other social media sites. Prosecutors have subpoenaed information from brokers, including Robinhood, where much of the trading activity occurred, the Journal reported.

During a two-week period that started in January, GME rose by some 500 percent, hitting a high of $483 on January 28th before coming back down. The stock closed Thursday at $51.50. Regulators are likely looking into whether the Reddit activity constituted an illegal pump-and-dump scheme, where traders spread inaccurate information to artificially boost a stock’s price.

The Securities and Exchange Commission is also looking into whether there was manipulation and probing whether Robinhood and other brokerages that temporarily froze or otherwise restricted trading of GME were in compliance with federal regulations.

Robinhood is also facing dozens of lawsuits after it restricted several stocks popular on the r/WallStreetBets subreddit, with people alleging the company sought to “manipulate the market” to help other financial institutions.

The House Financial Services Committee is holding a hearing into the GameStop drama on February 18th, where Reddit CEO Steve Huffman and Robinhood founder Vlad Tenev are expected to appear.

Robinhood did not immediately respond to a request for comment Thursday.

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