AMC Stock (NYSE:AMC) became more than just a “meme stock” earlier this year as investors began squeezing heavily shorted US equity companies. GME and AMC stock were a particular target for short sellers, as both companies looked to struggle in the evolving COVID-19 world.
Lead by the infamous WallstreetBets community on Reddit, AMC has become one of the most searched stocks on Google in 2021. Earlier today, Bloomberg released an article discussing the initiation of a probe from the US Justice Department, investigating the relationships between short sellers and research firms.
The news has taken the Reddit community by storm, as AMC Stock and GME Stock were a targeted movement against big institutions profiting off short selling. In this article, we will discuss the DOJ probe and its potential impact on AMC stock.
AMC Stock: DOJ Probe
What is the DOJ Probe?
According to Bloomberg, The U.S. Department of Justice has begun a criminal investigation into short selling by hedge funds and research firms. The DOJ probe will begin an expansive investigation to try determine whether funds and firms may have improperly coordinated trades or broke other laws to profit. The probe will aim to determine if certain hedge funds tracked stocks targeted by the short seller research firms prior to the publication of reports.
The Bloomberg report was written by Bloomberg’s Katia Porzecanski, Tom Schoenberg and Matt Robinson, citing the news from people familiar with the matter. Federal investigators will examine trading in multiple stocks, including the likes of “well-known short targets”.
The probe news holds significant weight, as everyday investors have called for greater regulation around institutional short selling and short seller reports. Our readers would be aware of multiple companies such as DraftKing and Clover who have been hammered following short seller reports over the past 12 months.
However, the SEC has also been asking for changes in the short selling disclosure since the AMC squeeze. In May, the SEC considered measures to require institutions to disclose more information regarding their short selling trades and the use of derivatives to bet against a stock. Overall, the SEC has been pushing for more regulation in this area to protect the little guy.
How does this impact AMC Stock?
The reported DOJ investigation aims to tackle illegal short selling practises. However, AMC Stock was not mentioned as a part of the enquiry at this stage according to Bloomberg.
Interestingly, AMC was able to drive change on its own accord. Following the GME and AMC rally that shook Wallstreet, Andrew Left, the founder of Citron Research, announced that his firm will be discontinuing the practice of providing short selling reports.
It is worth noting short selling is not illegal, and is regulated by the Securities Exchange Commission in the United States.
In legal terms, short selling is legalised in Rule 10a-1 which was set out in 1937, which stated market participants could legally sell short shares of stock. The issue arises when false information is spread to profit off a short sale, exposing the everyday investor to increased volatility.
With the heavy impact of short seller reports, the rumoured DOJ investigation supposedly aims to ensure there is no connection with short sellers.
The DOJ Investigation and AMC Stock
Based on the information released by Bloomberg, the investigation will look into the short selling practises of Luckin Coffee Stock (LKNCY) and GSX Techedu (GOTU) among others.
At this stage, the Department of Justice is yet to confirm details surrounding the rumoured investigation. Therefore, until further developments we will not know for certain which securities are under watch if any. Furthermore, the probe aims to determine if the practises are within the law, meaning it may not find any foul play.
In saying this, both GME and AMC have been a catalyst in highlighting some flaws on Wallstreet, in particular the practises and ethics behind short selling.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.