Following the January 2021 “meme stock” explosion of retail investors, significant hedge funds have been under investigation by the Security Exchange Commission and Department of Justice for violating the RICO Act.
The government subpoenaed over 30 Investment and research companies that have short positions on symbols $GME (GameStop), $AMC (AMC Theaters), $BBBY (Bed Bath and Beyond) and $SNDL (Sundial Growers) for racketeering charges.
Institutions Such As Citadel, Robinhood, Citron Research, MelvinCapital and Muddy Waters are under investigation by Bloomberg Business.
These institutions have been charged for racketeering due to utilizing a Short and Distort method, “spoofing” and “naked shorting” these stocks.
The practice of Short and Distort is unethical and illegal and is defined as going short on a particular stock and then spreading fear about the future of that stock to drive the price down.
Spoofing utilizes high-frequency algorithmic trading back and forth between institutions to create an artificial move in the price of a stock.
Naked shorting is the practice of short-selling stocks that do not exist.
Short selling is the method of a trader making profit by selling shares lent to them into the market, then repurchasing them at a lower price. The trader takes in the price difference as profit.
Naked short selling is a predatory tactic of market manipulation. Synthetic shares are flooded into the market, creating more supply than the corporation’s ever issued and creating selling pressure that is not feasible.
Financial institutions can employ these methods and take advantage of retail investors through Payment For Order Flow (PFOF)which explains how retail investors obtain investments.
If someone were to open a trading app on their phone and purchase a stock, the company that runs that app does not hold the stocks they are looking to buy.
They would have an arrangement with a Wall Street institution that would work similarly to a warehouse. app would buy the stock from a Wall Street fund and then take profit for buying from them rather than the stock exchange.
This relationship is that of Citadel and Robinhood. Citadel has a secondary business under its corporation, Citadel Securities.
Citadel Securities is a market maker, they handle more than 40% of all retail investment trading. Citadel Securities operates Citadel Connect, a dark pool.
People use dark pools as a place to buy and sell shares for market makers and institutions without affecting the price of a stock.
Gary Gensler, Chairman of the Security Exchange Commission stated on Feb. 14 “90 – 95% of retail order flow is active in the dark pool,” on Fox Business.
This admission from Chairman Gensler led to a full-on investigation from the Department of Justice on Feb. 25 for predatory naked short selling and market manipulation.
Racketeering is a charge lawmakers created in 1970 to convict criminal organizations and their leaders that were multiple times removed from the crimes.
This case is a historical moment because this is the first time authorities have used the law outside of criminal enterprises. .
RICO is a charge that, when investigated, shows evidence of an initial crime and systems that show conspiracy, aiding and abetting and intent.
As this story develops and eventually comes to trial, this will create history and possibly paint Wall Street as America’s most heinous criminal organization.
