DOJ Launches “Expansive” Criminal Investigation of Short Sellers

The Federal Docket

December 15, 2021

Last week, media outlets reported that the Department of Justice has launched “an expansive criminal investigation into short selling by hedge funds and research firms.” Among other things, the government is studying the relationships between hedge funds and the sources that publish reports that affect how a company’s stock price is performing. In other words, the government is scrutinizing whether firms that publish negative reports on certain companies are colluding with hedge funds that are shorting those companies’ stocks, and investigators are also looking into potential insider trading and other abuses.

The investigation is being run by the DOJ’s office in Los Angeles, and subpoenas have already been sent out. Some firms have already been identified as potential targets, including Anson Funds, Marcus Aurelius Value, Luckin Coffee, GSX Techedu, and others. The investigation comes after SEC officials announced they were considering additional regulations requiring investors to disclose more information regarding short selling and after the short squeeze involving Gamestop in January 2021. Already, some firms have stopped or reduced their practices of publishing reports that recommend shorting stocks in certain companies.

It remains to be seen whether the DOJ’s aggressive posture will result in indictments and criminal prosecutions.

Tom Church - Tom is a trial and appellate lawyer focusing on criminal defense and civil trials. Tom is the author of "The Federal Docket" and is a contributor to Mercer Law Review's Annual Survey in the areas of federal sentencing guidelines and criminal law. Tom graduated with honors from the University of Georgia Law School where he served as a research assistant to the faculty in the areas of constitutional law and civil rights litigation. Read Tom's reviews on AVVO. Follow Tom on Linkedin.

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