The US Justice Dept. launches a comprehensive investigation into short-selling sources

December 10 (Reuters) – The US Department of Justice has launched a comprehensive criminal investigation into the short sale of hedge funds and research firms, according to two people familiar with the case.

Investigators are examining companies̵[ads1]7; trade records, public reports that companies have issued on certain stocks, and the network of relationships some may have used to push stocks down, the people said.

The Ministry of Justice, which declined to comment on Friday, issued subpoenas to more than two dozen companies earlier this year and is investigating trades in dozens of shares, according to the two sources.

Bloomberg News first reported the investigation on Friday, adding that the authorities are investigating whether the funds were involved in insider trading or other abuses.

Anson Funds and Marcus Aurelius Value are among the companies under the scanner of investigators, according to Bloomberg.

The companies did not immediately respond to a request for comment.

Among the stocks whose trading activity the Department of Justice is investigating are Luckin Coffee Inc and GSX Techedu Inc (GOTU.N), which Carson Blocks Muddy Waters Capital and Andrew Lefts Citron Research circulated research on, Bloomberg said.

In a statement, Citron Research said they “know of no offense and have fully cooperated with the government’s investigation.”

Short-term trades such as Santa Ana, California-based Banc of California Inc (BANC.N) and Mallinckrodt Plc (MCDG.MU) are also being investigated, Bloomberg reported.

The Department of Justice’s investigation comes after the U.S. Securities and Exchange Commission earlier this year said it was considering measures to require large investors to reveal more about short positions, or bets that stocks will fall and the use of derivatives to bet on other stock movements.

The regulator also moved to protect small investors from trading apps that use features common to video games to increase risky trading activity.

The review of rules by the Securities and Exchange Commission was prompted by the January GameStop (GME.N) saga and the meltdown of Archegos Capital.

Citron, one of the world’s most famous short sellers, said in January that it would stop detailing the companies’ shortcomings after a setback against it and others who said the retailer GameStop’s shares were not worth the price.

Reporting by Niket Nishant and Noor Zainab Hussain in Bengaluru and Chris Prentice in Washington; Edited by Shailesh Kuber and Nick Zieminski

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