Department of Justice to Double Down on Short Selling Practices
The Department of Justice (DOJ) is doubling down on short selling practices in the coming months according to a top department official, per Yahoo Finance.
The recent crisis of U.S. regional banks attracted fresh scrutiny by criminal prosecutors and regulators of short sellers, who had previously come under review in the wake of the “meme stock” craze of 2021.
Remarks on Wednesday by the chief of the Justice Department fraud section’s market integrity team was the first time that a DOJ official has talked openly about this relatively new area of focus.
Short selling, including via options, is a priority for prosecutors, Avi Perry, the chief of the market integrity team, said at a Practicing Law Institute event in New York.
“You’ll see some more activity from us involving short sellers sometime in the next few months,” he said.
Perry declined to comment further when Reuters asked for details on whether the agency expected to bring charges.
Reuters reported in recent weeks that prosecutors and other regulators are looking at short-selling activity in bank shares, which have whipsawed following three bank failures since March.
Yahoo Finance reports that the Justice Department and the U.S. Securities and Exchange Commission have been investigating potential manipulation by short sellers and hedge funds around the publication of negative research reports.
Though retail investors will be quick to point out that no proper regulation has been enforced on hedge funds to protect average investors.
“The broad probe is an example of the agency’s efforts to use data to root out potential misconduct by traders and to dig more deeply into securities markets.”
Perry also said that cases against executives who misuse corporate trading plans and spoofing remain priority areas.
JPMorgan CEO Urges SEC to Ban Shorting Bank Stocks
JPMorgan (NYSE:JPM) CEO Jamie Dimon is urging the SEC to ban shorting bank stocks.
Days after White House press secretary Karine Jean-Pierre said President Biden’s administration was looking into short seller activity around bank shares in the United States, triggering predictions of a possible ban, JPMorgan CEO has expressed his view that short-selling of bank stocks should, indeed, be prohibited.
Specifically, Jamie Dimon believes that regulators “vigorously” go after unscrupulous short-sellers, or anyone doing anything wrong in terms of stock options, derivatives, and short-sales, as he told Bloomberg TV anchor Francine Lacqua in an interview published on May 11.
Asked by the host whether the regulators need to look at the activities of bank stock short-sellers – or traders that profit on betting that certain shares will fall – Dimon said:
“My folks would tell me that’s not the problem, the short-selling ban.
If you actually analyze stocks and short sales, it doesn’t seem that big of a deal.
I think they may be partially wrong because, as you know, some people are unscrupulous and use other means to go short.”
Finbold says JPMorgan CEO believes that the US Securities and Exchange Commission “has the enforcement capability to look at what people are doing by name, and if someone’s doing anything wrong, people in collusion, or people going short and they’re making a tweet about a bank,” he hopes the SEC is looking into it.
JPMorgan Holds Bigger Short Positions Than Its Total Assets
Dr. Stephen Leeb, one of the world’s top money managers, says that JPMorgan’s gold derivate short positions are so numerous and large that they likely exceed the entirety of the bank’s assets on hand – “which is a very dangerous position in which to be.”
“Should the price of gold ever shoot up from its current price by, say, another $1,000 in the coming weeks or months due to an unexpected “black swan” event, banking giant JPMorgan Chase would more than likely find itself underwater due to the massive gold derivative short positions it currently holds,” says Planet Today.
“What I lose sleep over is how much exposure does a bank like JPMorgan have to the [gold] derivative market,” Leeb is quoted as saying, adding that it is an “open secret” in the gold market that JPMorgan is heavy in gold derivative short positions.
“This is not fraudulent, but it’s an open secret. In fact, it’s no longer a secret because they’ve been penalized so much for it.
They’re trying to control the price of gold.”
When a stock or commodity is short sold, the short seller is on the hook for delivering that stock or commodity at a later date.
The goal is to make a profit between the current price and a future lower price.
In this case, JPMorgan appears to be selling the precious metal short using derivatives, which is effectively keeping the price of gold artificially low, says Planet Today.
The retail community is appalled by JPMorgan’s hypocrisy.
It will come as no surprise if the Department of Justice targets short sellers such as JPMorgan.
Related: JPMorgan Is Freezing Customer Bank Accounts in New Scandal
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