Justice Department Targets ‘Spoofing’ and ‘Scalping’ in Short-Seller

Federal prosecutors are investigating whether short-sellers conspired to drive down stock prices by sharing damaging research reports ahead of time and engaging in illegal trading tactics, people familiar with the matter said.

The U.S. Justice Department has seized hardware, trading records and private communications in an effort to prove a wide-ranging conspiracy among investors who bet against corporate shares, the people said. One tactic under investigation is “spoofing,” an illegal ploy that involves flooding the market with fake orders in an effort to push a stock price up or down, they said. Another is “scalping,” where activist short-sellers cash out their positions without disclosing it.