**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.