US action on short-sellers likely in 'next few months' -DOJ official

A Wall St. sign is seen in New York

By Chris Prentice

WASHINGTON (Reuters) - Short-selling, the practice of seeking to profit off bets that a stock will fall, is a key focus for U.S. prosecutors, and there will be more activity by the Justice Department in coming months, a top department official said on Wednesday.

The recent rout in shares of U.S. regional banks brought 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, Reuters and other media outlets have reported.

But 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 Practising 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.

Since at least 2021, 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.

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 - a type of futures market manipulation technique - remain priority areas.

(Reporting by Chris Prentice; editing by Michelle Price and Leslie Adler)