Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

U.S. criminal authorities are gathering information on contacts between dozens of short-selling hedge funds

and prominent bearish research providers right now as they investigate

possible trading abuses in the stock market relating to short selling. According to the press,

the FBI seized computers from the home of the well-known short-seller Andrew Left, the founder

of Citron Research back in early 2021. In more recent months,

the Justice Department subpoenaed other market participants seeking information on their

communications, calendars, and other records. The Department of Justice is not the only government

agency investigating possible wrongdoing.

The SEC has also sent requests for information to many of these firms.

Right now, no one's been accused of any illegal activity, and it is quite common for investigations to be opened without leading to any charges.

The SEC is a US regulatory agency

whose purpose is to maintain a fair securities market and to protect investors from various types of fraud.

They can conduct investigations and bring civil actions, but they don't have the authority to send a criminal perpetrator to jail.

The SEC would need to work with a criminal authority like the Department of Justice in order for that to happen.

The list of names who've received requests for information include some of the best-known firms that publish negative research and investment funds that

seek to profit when individual stock prices fall. Among them are Muddy Waters, Melvin Capital,

Hindenburg Research and Citron Research. The Justice Department's probe is being run by the

fraud section with federal prosecutors

in Los Angeles and there's no indication right now that the authorities have come to any

conclusions at all.

According to Bloomberg, they've been examining trading in dozens of stocks as well as the

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