The Big Spoof?

📉📈 The Justice Department is investigating whether some short-sellers used illegal trading tactics while sharing damaging research reports to cash in on their bets against companies’ stocks, per the WSJ. The group being investigated reportedly includes renowned short-sellers Carson Block and Andrew Left.

• Previous analysis suggests that in the moments around the release of certain short-seller reports, heavy volumes of sell orders were sent to stock exchanges and then canceled within fractions of a second – a tactic known as ‘spoofing.’
• Spoofing is essentially high-speed bluffing where one trader dupes others into buying or selling at artificially high or low prices.
• They do so by placing large buy/sell orders, then quickly canceling and doing the opposite of whatever they just committed to, reaping the benefit of the market’s reaction to their initial (fake) order.
• The practice was outlawed in 2010, around the time when a spoofing-inspired ‘flash crash’ caused US markets to lose and then quickly regain nearly $1 trillion in value. By 2020, the DOJ had charged 20 people with spoofing-related crimes and collected more than $1 billion in fines.

+Dig deeper: What is short-selling?