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Once upon a time there was a revolutionary electric company that, as far as the powers that be were concerned, was definitely not telling “dozens of outright lies” or running an “intricate fraud.” Then, short-seller Hindenburg Research said it was doing both of those things and much more besides, and when the Justice Department decided to have a look-see, it found that it was in fact doing those things, or at least enough of them to throw the book at the company's founder.

You think this might give Merrick Garland & co. an appreciation for the role short-sellers play in the markets and for the fact that, in this case, anyway, Hindenburg more or less did prosecutors’ jobs for them. But no: Now that Garland has really got a taste for his new job, he’s going for everyone with gusto, no matter how useful.

The probe, run by the department’s fraud section with federal prosecutors in Los Angeles, is digging into the symbiotic relationships between funds and researchers, hunting for signs that they improperly coordinated trades or broke other laws to profit, according to people familiar with the matter.

The government is examining how the investors handle information and set up their bets, especially in the run-up to publication of reports that move stocks. Authorities are looking for signs that money managers sought to engineer startling stock drops or engaged in other abuses, such as insider trading, said two of the people, asking not to be named because the inquiries are confidential….

Underscoring the inquiry’s sweep, federal investigators are examining trading in at least several dozen stocks, including well-known short targets such as Luckin Coffee Inc., Banc of California Inc., Mallinckrodt Plc and GSX Techedu Inc.

Ah, yes, notable non-fraud Luckin Coffee. Good place to start. Suffice it to say, next year doesn’t look like it will be any better than this one for our old buddy Andrew Left, even if he has given up the miserable and thankless short-selling game.

They’re scrutinizing the involvement of about a dozen or more firms -- though it’s not clear which ones, if any, may emerge as targets of the probe. Toronto-based Anson Funds and anonymous researcher Marcus Aurelius Value are among firms involved in the inquiry, the people said. Other prominent firms that circulated research on stocks under scrutiny include Carson Block’s Muddy Waters Capital and Andrew Left’s Citron Research.

Hedge Funds Face Expansive Short-Selling Probe, Exciting Critics [Bloomberg]

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