Short-selling, a bearish investing practice, has become a target of an expansive U.S. Department of Justice criminal investigation.
The DoJ has issued subpoenas as it examines short-selling by hedge funds and their relationships with research firms that publish negative reports on certain companies, according to three people familiar with the matter.Short-selling entered the spotlight in 2021 as a deluge of retail investors took to social media to criticize the lack of regulation of short-sellers and the havoc they can wreak on company valuations.
Borrowed shares can come from brokers' inventories, or from customers that allow brokers to lend their shares. Until the shares are returned, the short seller pays the lender interest. If the price goes up instead of down, then the lender will end up with a more valuable stock.An investor who has sold borrowed shares must at some point buy back the shares to return them to the lender. The act of buying back shares to cover, or close the trade, is called short-covering.
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