Justice Department has subpoenaed information from Robinhood Markets, others
Feb. 15, 2021
The Department of Justice has opened an investigation into the historic rise of “meme stocks” like GameStop, according to The Wall Street Journal.
Federal investigators are reportedly investigating whether “market manipulation” played a role in the increased volatility and massive stock surge, The Wall Street Journal reported. As part of the investigation, the Department of Justice (DOJ) subpoenaed information from stock market brokers including Robinhood.
The frenzy was triggered by retail investors collaborating on Reddit. The traders drove up the stock price of companies who hedge funds had attempted to “short” or bet against. The plan worked — GameStop’s stock price surged 1,600% in a couple weeks, causing hedge funds like Melvin Capital to lose billions.
In response to meteoric rise of GameStop, Robinhood restricted trading on the meme stocks, causing the price to stall and tumble.
“To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood said in a statement. The company now faces dozens of lawsuits in states including New York, California, Florida and Texas. The lawsuits allege the financial services company violated its contract when it restricted trading.
“Robinhood purposefully, willfully, and knowingly removed [GameStop] and other stocks from its trading platform in the midst of an unprecedented stock rise, thereby depriving retail investors of the ability to invest in the open-market,” one complaint filed in Florida alleges.
Last week, Treasury Secretary Janet Yellen convened a meeting with Security and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve officials over the stock market volatility. The SEC and CFTC are probing whether institutional “trading practices are consistent with investor protection,” the Treasury Department said in a statement issued after the meeting.