As of recently the Department of Justice has been increasingly probing firms affiliated with short selling stocks. This includes firms such as Melvin Capital, Orso Partners, Sophos Capital Management, and Citron Research. In 2021 federal agents reportedly raided the home of Andrew Left, the Founder of Citron Research.
Left has been featured on CNBC and Bloomberg, discussing many favorite “short” positions. The New York Times has nicknamed Andrew Left the “Bounty Hunter” of Wall Street, as he is famously known for his publications of firms that are suspected of being overvalued or participating in fraud. It appears as though the Gamestock (GME) short position in 2021 may be the primary focus of the DOJ.
Reportedly, the FBI had confiscated computers from Left’s home in 2021. Left comments on the unfolding situation,
“I’m cooperating and I have full faith in the system and the First Amendment”.
Over the last year, retail investors and reddit users have increasingly speculated on the possibility of illegal trading activities and tactics used by large firms. This includes “Spoofing”, which is described by investopedia.com as “A form of market manipulation in which a trader places one or more highly visible orders but has no intention of keeping them.” As well as “Scalping” — which is when shareholders cash out positions without disclosing it.
Bloomberg reports that the DOJ is making ways through probing a number of firms, and investigating whether hedge funds and research firms have colluded. So far it’s been reported that 30 investment firms have had their records subpoenaed.
The DOJ is still actively probing, however it’s important to note that no formal accusations or charges have been surfaced yet. Probing purely means that it’s being further investigated and does not mean formal charges will be filed. On top of this prosecutors are also looking into racketeering charges involved in short seller’s probe which is putting more stress and pressure on short sellers and making retail investors impatiently excited to see what happens next!