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Your Evening Briefing: Day Traders Cheer U.S. Short-Seller Probe

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The WallStreetBets forum on the Reddit

The WallStreetBets forum on the Reddit

Photographer: Tiffany Hagler-Geard/Bloomberg

Hedge fund short sellers are under renewed scrutiny, and this time it’s by the U.S. government, not WallStreetBets. The Justice Department has launched an expansive criminal investigation into short selling by hedge funds and research firms, scrutinizing their symbiotic relationships and hunting for signs that they improperly coordinated trades or broke other laws to profit. The scope is wide-ranging: federal investigators are examining trading in at least several dozen stocks, including well-known short targets such as Luckin Coffee and Banc of California. It’s not clear which firms if any may emerge as targets of the probe. The investigation opens a new front in an already treacherous era for short-sellers, clobbered by the pandemic and cooked by retail traders. The latter have taken to social media to gloat, saying they “told you so.”

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