In the face of short attacks, it is not uncommon these days for companies to cry foul and defend themselves against what they call false and misleading statements. But are these short sellers involved in something more nefarious? The Department of Justice is reportedly trying to find out through a sweeping criminal investigation.
Federal investigators are scrutinizing an unknown number of hedge funds and research firms — alongside their trading of at least several dozen shorts — to see if any kind of deception or manipulation was involved, Reuters and Bloomberg reported.
The stocks under the spotlight include specialty pharma Mallinckrodt, Luckin Coffee, Banc of California and GSX Techedu, all well-known short targets. Andrew Left’s Citron Research (which actually decided earlier this year it’s getting out of short selling) is one of the dozen or so firms that are part of the inquiry, according to the insiders cited by the two outlets.
So what exactly are the feds looking for?
The wrongdoings could range from misleading the public about who funded supposedly independent research (for example, if a hedge fund pays a researcher to write a scathing report on a company it wanted to short) to violating confidentiality agreements with authors to engineering stock plunges to cause panic.
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