GameStop Frenzy Under Investigation
Shares of GameStop and AMC Entertainment have been on a wild ride this year. In January, GameStop’s stock saw over a 2,300% increase in two weeks, and AMC Entertainment’s stock saw an 800% increase in two weeks. Considering GameStop was a struggling company, and AMC Entertainment was facing the harsh repercussions of the pandemic, many investors were surprised to see such massive growth in the struggling companies.
Institutional investors at Hedge Funds held a pessimistic outlook for GameStop and AMC’s financial health, so the investors shorted the two stocks. Retail investors on the social media platform Reddit noticed the number of shorts placed on the two stocks and figured if enough people bought GameStop and AMC, the stocks would skyrocket in what is known as a short squeeze.
Members of the infamous subreddit WallStreetBets created hundreds of posts telling investors to buy the two stocks.
On Thursday, The Wall Street Journal reported that the United States Justice Department is opening an investigation to determine whether market manipulation was the cause of the sudden rise in price for companies like GameStop and AMC Entertainment. The DOJ is looking to see whether traders colluded to make an artificial price. Some speculate traders on Reddit colluded in a pump and dump scheme. A pump and dump scheme are when investors collude to spread false information to pump up a stock’s price before selling or dumping their shares to investors who were tricked by the scheme.
There will likely be more developments in the coming weeks, so we’ll be sure to keep you updated with our daily Crunch.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.