Justice Department targets ‘spoofing’ and ‘scalping’ in investigation of short sellers

Federal prosecutors are investigating whether short sellers conspired to drive down stock prices by sharing damaging research reports in advance and engaging in illegal business tactics, people familiar with the matter said.

The US Department of Justice has seized equipment, business records and private communications in a bid to prove a wide-ranging conspiracy among investors betting against company stocks, the sources said. One tactic under investigation is “spoofing,” an illegal scheme that involves flooding the market with false orders in an effort to drive a stock’s price up or down, they said. Another is “scalping,” where activist short sellers cash in on their positions without disclosing it.


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