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U.S. Justice Dept launches expansive probe into short-selling -sources

Stock Markets Dec 10, 2021 08:41PM ET
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© Reuters. FILE PHOTO: A woman walks past the U.S. Department of Justice Building, in Washington, U.S., December 15, 2020. REUTERS/Al Drago/File Photo

By Svea Herbst-Bayliss

New York (Reuters) - The U.S. Department of Justice has launched an expansive criminal investigation into short selling by hedge funds and research firms, according to three people familiar with the matter.

Investigators are probing the relationships among the hedge funds and firms that publish negative reports on certain companies, often with the aim of sending the stock lower, the people said.

The Justice Department, which declined to comment on Friday, issued subpoenas to dozens of companies early this year, which included requests for funds' trading records, and issued a second round of subpoenas in recent months, according to the three sources.

The Justice Department is scrutinizing trades in dozens of stocks, some of which were the subject of negative reports, the people said.

Bloomberg News first reported the probe on Friday, adding that authorities are examining whether the funds engaged in insider trading or other abuses.

Anson Funds and Marcus Aurelius Value are among the firms under the scanner of the investigators, according to Bloomberg.

The companies did not immediately respond to a request for comment.

Among the stocks whose trading activity the Justice Department is examining are Luckin Coffee (OTC:LKNCY) Inc and GSX Techedu (NYSE:GOTU) Inc, on which Carson Block's Muddy Waters (NYSE:WAT) Capital and Andrew Left's Citron Research circulated research, Bloomberg said.

In a statement, Citron Research said it "knows of no wrongdoing and has cooperated fully with the government's investigation."

Trading in short targets such as Santa Ana, California-based Banc of California (NYSE:BANC) Inc and Mallinckrodt (OTC:MNKKQ) Plc is also being examined, Bloomberg reported.

The Justice Department probe comes after the U.S. securities regulator earlier this year said it is considering measures to require big investors to disclose more about short positions, or bets that stocks will fall and the use of derivatives to bet on other stock moves.

The regulator also moved to protect small investors from trading apps that use features common to video games in order to boost risky trading activity.

The review of rules by the Securities and Exchange Commission was prompted by January's GameStop (NYSE:GME) saga and the meltdown of Archegos Capital.

Citron, one of the world's best known short-sellers, in January said it would publicly stop detailing companies' shortcomings following backlash against it and others who said retailer GameStop's stock is not worth its price.

U.S. Justice Dept launches expansive probe into short-selling -sources
 

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Comments (5)
Robin Hood
RobinHdJr Dec 14, 2021 11:54PM ET
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Short and distort is illegal
Matt Brackley
Matt Brackley Dec 11, 2021 11:32PM ET
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when the best known short sellers turn bull you know what time it is.
Dog Keeper
Dog Keeper Dec 11, 2021 5:03AM ET
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I would suggest to start with Griffins Citadel.
Roger Rabbit
TheDonger420 Dec 11, 2021 5:03AM ET
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The Donger says that you clearly did not read SEC’s report that there was not any wrong doing by them.
Kaveh Sun
Kaveh Sun Dec 10, 2021 10:10PM ET
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How about investigate the media to manipulate the market? like just like the latest omicron covid jojo the market by the media
Don Getty
Don Getty Dec 10, 2021 9:30PM ET
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oh oh the mice are going to be scrammbling - be interesting to see if this is expanded to the bigger hedge funds activity
 
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