The US Department of Justice is targeting dozens of prominent short-selling investment and research firms in a sweeping federal investigation that has gone on since last year, according to several reports, with prosecutors probing potentially illegal trading tactics.
Federal prosecutors have seized hardware, trading records and private communications as part of a broad investigation into whether short-sellers used illegal trading tactics to drive down stock prices by sharing damaging research reports ahead of time, The Wall Street Journal reported on Wednesday.
The Justice Department has been collecting information on nearly 30 short-selling firms, as well as three dozen individuals associated with them, since late last year, Bloomberg similarly reported several weeks ago.
Several of the illegal trading tactics under investigation, sources told the WSJinclude “spoofing”—essentially flooding the market with fake orders to drive a stock price up or down—and “scalping,” where activist shareholders cash out positions without disclosing it.
Several prominent short-sellers have already been caught up in the sample, including Muddy Waters’ Carson Block, who reportedly received an FBI search warrant that extended to his phones last October.
Federal agents in early 2021 also showed up at the home of and seized computers belonging to Andrew Left, the founder of Citron Research, according to Bloomberg, which first reported the vast DOJ investigation earlier this month.
Prominent firms and short-sellers also mentioned in DOJ requests for information include Melvin Capital and founder Gabe Plotkin, researcher Nate Anderson and Hindenburg Research, as well as Sophos Capital Management and Jim Carruthers, among others.