As the dust begins to settle around GameStop’s meme stock phenomenon, the investigations into the hedge funds, trading platforms, and Reddit community that powered it are just beginning. Many people have already lost a lot of money, but even more could be at stake if legislators and regulatory agencies discover that actual laws have been violated.
Yesterday, the Wall street journal reported that the fraud section of the Department of Justice and the San Francisco United States attorney’s office were looking for information “from brokers and social media companies that were centers of the commercial frenzy.” In theory, any case arising from these investigations would be criminal, which would be more difficult for regulators to prove, but would also carry heavier charges for any potential crime.
But as the Wall street journal reports, the Commodity Futures Trading Commission and the Securities and Exchange Commission they are also investigating what happened to GameStop. As civil regulators, they could end up fining some of the traders or companies involved. Massachusetts securities regulators are also involved, with the Commonwealth Secretary’s office citing Reddit trader DeepFuckingValue, aka former insurance trader Keith Gill. testify at a state hearing later in the month.
All this comonth as Congress prepares to hold its own hearings on how the likes of Gill and others on the WallStreetBets subreddit managed to take advantage of the big bets made by hedge funds and commission-free trading apps like Robinhood to pump GameStop stock from the two Low digits in early January to over $ 400 a share during the height of the meme stock bubble. Rep. Maxine Waters, Chair of the House Financial Services Committee, Gill previously requested that he also attend the House hearing on GameStop scheduled for February 18.
Yesterday, The New York Times reported that Reddit executive Steve Huffman would also testify at the hearing. A representative from Citadel, one of the hedge funds at the center of the deal, is also expected to attend, as well as a possible appearance by its founder and CEO, billionaire Kenneth C. Griffin. In addition to Citadel Melvin Capital, a hedge fund that bet big short positions in GameStop and other companies (and lost billions in the process), Citadel’s sister company Citadel Securities, which he also founded, is one of the creators. responsible for executing a large part of the stock trades people make on platforms like Robinhood. Waters also previously suggested calling in a representative for Melvin and Robinhood co-founder and CEO Vlad Tenev to attend the hearing as well.
Robinhood was attacked by angry users and various members of Congress after that. stopped trading GameStop and other meme actions on its platform, which later said yes because it did not have enough money available to cover the operations that users were doing with the extremely volatile stocks. The crackdown on trading was followed by a series of severe drops in the value of GameStop’s inflated stock price and was eventually followed by its relative collapse (currently at around $ 50, which is much higher than a year ago and much lower than its peak last month).
Due to Citadel’s connection to Robinhood and a hedge fund shorting GameStop shares and Robinhood’s suspension of GameStop operations, there are many questions about the timing of the events and who won and lost because of them. The GameStock stock debacle also highlighted larger issues around the absurd but seemingly completely legal ways people can try to make money on Wall Street. making wild bets and then forming a subculture around it on Reddit. We’ll see if Congress or someone else can get to the bottom of what was happening, let alone fix it.