GameStop rally fueled by Reddit is said to be undergoing a federal investigation for possible market manipulation – Robinhood has been recalled

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Federal authorities are investigating the phenomenon of retail trade that has boosted shares GameStopAnd the AMC, And other stocks that were short sold during January, the The Wall Street Journal reported Thursday, citing sources familiar with the matter.

Prosecutors and regulators investigate whether the day trading frenzy was a form of market manipulation or other illegal activity. The newspaper reported that the fraud arm of the Justice Department and the Attorney General’s office in San Francisco are seeking information from brokerage firms and social media platforms that have fueled trading activity.

According to the report, Robinhood Markets, the discount brokerage firm popular among investors participating in the rallies, was called up for its role in the event along with other brokers.

Shares of GameStop and other unpopular companies recently rose last month as members of the Wall Street Bets forum Fiercely piled up in stocks. Posts urging more traders to buy shares have reached the top of the “popular” Reddit page, exposing more novice investors to the trend as stocks rise.

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Reddit users also welcomed trading as a way to pay off huge losses in hedge funds for short selling. The Language in Wall Street Bates Take a populist tone That pitted the day trader against Wall Street.

Separately, the Commodity Futures Trading Commission is investigating how a crowd of informal investors outbid silver through futures trading and an ETF to track silver, according to the report. Wall Street Bates traders turned to silver shortly after GameStop stocks plunged to the ground. Recently, the crowd targeted cannabis stocks for their next bullish bets.

Proving the GameStop phenomenon was a case of market manipulation requiring authorities to delve into an opaque regulatory environment. Officials will need to demonstrate that investors used online forums to spread incorrect information and lift shares to an artificially inflated price. This type of manipulation is generally known as a pump and vacuum system.

Decoding such a scheme has become more difficult due to the anonymous nature of Reddit accounts. The posts calling for more traders to buy shares were also highly comical and enthusiastic in nature and lacking claims about the companies’ core business. While some members of the Wall Street Bates distinguished themselves by their huge gains or popular memes, most of them mingled with the army of faceless daily traders.

Lawmakers also showed an interest in anatomy of the event and how it exploded into the mainstream. The House Financial Services Committee is due to hold a hearing on February 18 on the matter. Rep. Maxine Waters from California said last week that she wanted to Representatives of GameStop and Robinhood To testify with Keith Gill, a Reddit user who allegedly reaped millions from GameStop’s career.

Sherrod Brown, chair of the Senate Banking Committee, indicated last month that he also aimed to hold a hearing.

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