Justice Dep't targets short sellers


**Justice Department Targets ‘Spoofing’ and ‘Scalping’ in Short-Seller Investigation**
**Muddy Waters’s Carson Block served with a search warrant in the probe of illegal trading tactics**
**by Liz Hoffman and Justin Baer, The Wall Street Journal, 2/16/2022**

**Federal prosecutors are investigating whether short-sellers conspired to drive down stock prices by sharing damaging research reports ahead of time and engaging in illegal trading tactics.**

**The U.S. Justice Department has seized hardware, trading records and private communications in an effort to prove a wide-ranging conspiracy among investors who bet against corporate shares. One tactic under investigation is “spoofing,” an illegal ploy that involves flooding the market with fake orders in an effort to push a stock price up or down, they said. Another is “scalping,” where activist short-sellers cash out their positions without disclosing it....**

**Spoofing is essentially high-speed bluffing, in which one trader dupes others into transacting at artificially high or low prices. The tactic was outlawed in 2010. ...** [end quote]

Spoofers have been sent to jail in the past. The Justice Dep’t is cracking down.

Old-style investors, who focus on company fundamentals, won’t be caught in a spoofing scheme. But speculators, including fast computer trading programs that may trade large lots on small moves in prices, might fall into the trap.

There is a place for genuine short sellers who are betting that a company’s stock will decline for real business reasons. A short seller blew the lid off Enron’s problems. That’s not spoofing.




Didn’t the SEC some time ago put more onus on brokers to know their shorting clients and police for ‘credible’ traders / trades?

I don’t know enough about the tactic of shorting to be dangerous, but I thought brokers were supposed to catch suspicious / illegal shorting orders.

Or no???

I don’t know enough about the tactic of shorting to be dangerous, but I thought brokers were supposed to catch suspicious / illegal shorting orders.

There are many ways a short order might be illegal. The one that brokers should catch is ‘naked shorts,’ selling stocks that they have not borrowed. But the SEC has a rule that allows getting away with ‘naked shorts.’

The Captain’s rule for detecting fake shorts, if the piece is longer than my attention span most likely it’s a bear raid. It’s a scare tactic to get people to sell, ‘just in case’ which works on people have no idea why they bought the stock in the first place.

The Captain

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All this points out the biggest danger of being a hyperactive daytrader or a momentum “investor”. When you’re trying to be quicker on the trigger than everyone else, you don’t have time to think, research, or analyze anything. You’re easy prey for the manipulators, rumor-mongers, and fake news as well as the usual Wall Street gossip machine.

I cannot believe that people are STILL trying to beat the market by out-trading everyone else. If I cannot compete without being quicker on the trigger than everyone else, then I’m not viable. It seems like SO much work to be on the fast track to poverty.