Paving The Way To Justice

Cassandra Stamm
Paving The Way To Justice

Probe sought in major short selling scandal

On Behalf of | May 27, 2022 | White Collar Crimes

Short selling controversies gripped the attention of the general public in 2021 when a Reddit group accused major Wallstreet players of market manipulation involving a short squeeze attempt by retail investors. Meanwhile, another controversial short squeeze resulted in criminal charges for a big-name player that same year.

Now there are calls for the United States government to probe a major banking firm due to allegations that an insider tipped off outsiders regarding the investment plans of the firm.

Short squeeze controversy

Short selling involves selling borrowed stocks that an investor thinks will drop in price soon. If the investor is correct and purchases the stock after a price drop the investor makes money. However, if the price goes up, the investor may lose money.

Short selling has long been controversial because of the incentive for short sellers to attempt to manipulate stock prices to make a profit or avoid potentially catastrophic losses when their bets go wrong. Additionally, some activist investors have come under fire for allegedly manipulating stock prices in an attempt to bring down Wallstreet players they believe are engaging in fraudulent activities.

Allegations of market manipulation have led to criminal charges for some short-sellers; however, unaddressed systemic issues involving major Wallstreet players may pose a significant threat to markets.

United States investigation

The U.S. government is currently investigating whether Wall Street bankers have tipped off hedge fund managers regarding pending block trades. The goal of the investigation is to prevent fraud and market manipulation.

Market manipulation by major investors is a threat to not only the portfolios of individual investors but to the markets themselves. The outcome of ongoing government probes could impact markets in a significant way.