Short sellers of AMC and GameStop shares are afraid of going to jail
Date: 2023-07-16 Author: Karina Ziganova Categories: BLOCKCHAIN, CRYPTO PAYMENTS
The U.S. Department of Justice took on speculators who played AMC and GameStop shares for a short short time. They face a term
As one of these short sellers, Andrew Left, admitted, he fears that he may suffer as part of a new investigation by the US Department of Justice into market manipulation. Meanwhile, he believes that his actions with AMC and GameStop shares were perfectly legal.
Short sellers: prey or predators
Some immediately stated that the only driver of this rally was the purposeful pumping arranged by Reddit users "for fun" to support a loss-making company.
The result was a drop in stock prices after the pump and large losses incurred by many investors. U.S. authorities have launched an investigation into short selling, which they have branded as "predatory."
While federal investigators have not divulged details about who and what is the subject of the investigation, the head of the U.S. Department of Justice's Market Integrity and Major Fraud Division said a few weeks ago that the public would be able to see the results of the short selling investigation
The investigation forced Left and Carson Block, the founder of Muddy Waters, to suspend their activities.
Left, the founder of Citron Research, rose to fame after retail investors staged a deliberate squeeze of short positions in Gamestop stock, which Left and others played short short. As a result of the rally, the shorts suffered huge losses.
Left's actions can be considered market manipulation
Short short holders borrow shares to sell them later and buy them back when the price falls. However, if the price rises, then theoretically there is no limit to the potential losses of the trader.
A short squeeze occurs when the price of a stock rises rather than falls, forcing the trader to offer more funds to maintain an open position. If, instead of offering more funds, the trader closes the position, this leads to an additional increase in price and forces other investors to do the same.
This process, which develops in a spiral, pushing the price higher and higher, is called "short compression".
Active shortists like Left look into all sorts of glitches and irregularities that cause a company's stock price to fall. They then open a position, publish the study, and wait for the stock price to fall. Left himself has already received a ban from the Hong Kong authorities for publishing a report on the crisis of a large Chinese developer Evergrande.
The speed at which research results are disseminated gives CEOs little time to respond. For this reason, the practices of shortists are criticized as unethical at best. According to former federal prosecutor Paul Pelletier, this practice has thrown a number of innocent companies out of business. In addition, U.S. law prohibits trading strategies that artificially cause stock prices to fluctuate.
