How Do Hedge Funds Manipulate The Stock Market?

Hedge funds have been manipulating the stock market for decades.

But it wasn’t until now that a community has risen to raise awareness of market injustices.

The shorting of both AMC and GameStop stock have uncovered a number of nefarious strategies used against retail investors.

What is the SEC doing to regulate these financial entities?

We’re here to find out.

Welcome to Franknez.com – The blog that fights for retail investors. Today we’re discussing how hedge funds manipulate the stock market.

Let’s get started!

Overleveraging Borrowed Shares

Hedge funds have an incredible supply of short shares available to borrow.

This advantage has allowed them to manipulate a stock’s share price by initiating short-ladder attacks.

While supply and demand are pushing a stock’s price up, hedge funds short the stock using an insane amount of leverage.

This predatorial strategy has yet to be announced as illegal nor has it been addressed by the SEC.

Off Exchange Trading

Hedge funds and market makers are getting away with being able to trade and swap stock in foreign exchanges where the stock’s price isn’t required to be disclosed.

They’re taking retail orders and, in a way, manipulating the circulating supply by not reporting accurate transactions.

We’ve seen this happen with Barclays, Citadel, and giant banks.

Reports by FINRA have been made public detailing multiple fines on Barclays for inaccurate books and records.

Barclays is one of Citadel’s clearing houses.

Off exchange trading where transactions aren’t displayed on the list market such as the NYSE is a massive problem the SEC is still trying to figure out.

Though the SEC attempted to implement the D-Limit order that will allow stocks to trade under IEX, they had immense pushback from hedge funds and market makers alike.

Citadel sued the SEC on this matter.

Related: 95% of Retail Orders Don’t Go Through the Lit Exchange

Naked Shorting

AMC and GameStop have had an incredible amount of FTDs, or failure-to-delivers.

These are orders that have not been executed in options, and are usually a result of a ‘short party’ not owning or not having all of the underlying asset.

This has led retail investors to the educated assessment that synthetic shares are floating in the market; shares known as naked shares used to short a stock.

According to Investopedia, “Despite being made illegal after the 2008–09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems.”

Naked shorting has gone mainstream with CNBC’s Melissa Lee and Fox Business’s Charles Payne bringing light to this predatorial practice in the market.

Retail investors have used their voice to address these issues to the SEC for years but the agency has only turned a blind eye to the issue.

For example, every time the SEC has addressed new transparency requirements, the industry has been able to delay or completely bypass any of the proposals.

In 2025, the SEC also scaled back on its use of the Consolidated Audit Trail (CAT) system, a vital tool designed to enhance market transparency and protect investors.

The CAT system was established in the wake of the infamous “Flash Crash” of 2010, which highlighted significant gaps in market oversight.

The goal of the CAT is to provide regulators with comprehensive and timely data on trading activities across various markets, enabling them to detect fraud, manipulation, and other forms of wrongdoing.

Bad actors have been able to manipulate the markets thanks to easing regulations that play in their favor.

Related: GTII Pursues Legal Action Against Naked Shorts

The Use of Mainstream Media Outlets

Financial outlets like The Fool make recommendations on what to invest in, and what to stay away from.

We’ve seen the headlines countless times.

The Motley Fool is a source that provides its subscribers with hand-picked stocks with potential gains.

During the meme stock frenzy of 2021, financial media outlets including The Fool, YahooFinance, InvestorPlace, Benzinga, and others, were steering investors in the wrong direction.

GameStop and AMC stock was heavily shorted, meaning there was a potential for a short squeeze, yet these outlets warned with all their might to refrain from buying them.

Franknez.com was the only financial blog publishing the short interest data, technical analysis, and community momentum in favor of squeeze short sellers.

Wall Street’s influence is seen in various media outlets. At one point, they wrote AMC Entertainment had filed for bankruptcy, a blatant lie which was later redacted.

Their mission is simple: to sway the public in order to sway the markets.

Related: Famous Short Seller Said Market Manipulation Was Like “Taking Candy From a Baby”

Brokerage-Related Restrictions

I’m sure you’ve all heard of the Robinhood scandal.

This is another form of manipulation in the stock market caused by the halt of purchasing or even selling a stock.

Robinhood prevented its users from buying stocks such as AMC and GME (GameStop), and others during GME’s bull run.

As meme stocks began to skyrocket, Robinhood claimed it had no liquidity to cover such funds; it was a complete mess.

Hedge funds, including Ken Griffin’s Citadel were down billions of dollars. Some consequently closed shortly after.

However, regulators and third parties were able to inject brokers with liquidity, stop the bleeding, and halt retail investors completely from buying more stock.

As a result, the stocks were hit bad. Oh, and guess what? While the stocks were coming down from the halt, Citadel was able to overleverage their short bets and make up the billions of dollars they lost, all thanks to that halt.

A House of Cards, r/superstonks (Reddit Post)

A Redditor posted an insane amount of DD on Reddit during that time.

This long form post discusses the transition from paper filled orders in the stock market to the use of computers going tracing back to the mid 80s.

The post reveals the beginning of issuing naked shares.

We’re also learning that a lot of transaction are being held by the actual institutions that are shorting these stocks.

Robinhood also routes more than half of its customers to Citadel.

This information has now been disclosed via the Washington Post.

You can read the full Reddit post here.

Also Read: AMC Entertainment CEO Now Says Momentum Will Continue

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