Short sellers don’t typically have a reputation for making lots of friends. Over the past couple of years, many pressed some buttons by attacking reputations of company targets in research reports and on social media. They were also cast as villains by retail investors congregating on Reddit who fueled last year’s “meme stock” short squeeze.
Now dozens of short-sellers are embroiled in an expansive U.S. Department of Justice probe over potential trade abuses. As reported by Bloomberg recently, nearly 30 investment and research companies and three dozen individuals associated with them are part of the inquiry. It’s not clear yet who on the list is considered a “target” of the probe and who might just have information relevant to the investigation.
It’s also not clear yet what the specific allegations of wrongdoing might be. According to The Wall Street Journal, the possible conduct may include “spoofing,” a ploy to use fake orders to manipulate prices of stocks, or “scalping,” in which activist traders may recommend others take a position while secretly cashing out. Investigators are reportedly working closely with Columbia Law Professor Joshua Mitts, who has been highly critical of the impact of “pseudonymous” short sellers on the market.
Elon Musk (who has his own issues with securities regulators) welcomed the probe, possibly because it includes two investors that have shorted Tesla stock in the past. Musk is a longtime…
