Government agencies begin investigating Robinhood, Reddit over GameStop stock
Multiple agencies are reportedly looking into the trading frenzy.
GameStop's roller-coaster ride on the stock market has prompted government investigations.
GameStop's stock price shot through the roof in late January thanks to traders on Reddit. Now at least two government agencies are reportedly investigating why it happened as well as what roles Reddit and trading app Robinhood played in the stock market craziness.
The Department of Justice's fraud section and the San Francisco US attorney's office are seeking information about the trading frenzy from social media companies and trading platforms, according to a report Thursday from The Wall Street Journal. Prosecutors have reportedly subpoenaed information from Robinhood, where many of the trades happened. According to the Journal, Reddit is under investigation by the Commodity Futures Trading Commission (CFTC) as well for its part in possible misconduct with traders at the subreddit r/WallStreetBets who spurred the buying spree of GameStop along with other "meme" stocks.
The Department of Justice and the CFTC declined to comment. Reddit and Robinhood didn't immediately respond to requests for comment.
Shares of GameStop started in January at just over $17 apiece and then hit a peak of $483 each on Jan. 28. Traders on the r/WallStreetBets subreddit bought shares in droves to initiate a "short squeeze" on hedge funds that were betting the stock would fall. Robinhood and other brokerages restricted the trading of GameStop stock on Jan. 28 after regulators required the firms to provide a substantial amount of capital to cover trades, which they didn't have on that day. Since then, the stock has fallen and keeps falling, to $51.10 when trading closed on Thursday.
Congress is already planning a hearing on Feb. 18 about the events. Rep. Maxine Waters, a Democrat from California, told Cheddar on Feb. 3 that her committee would hear from Reddit, GameStop, Robinhood and others involved.