By Juliet Chung, and Susan Pulliam, and Dave Michaels
The U.S. Securities and Exchange Commission is looking into Melvin Capital Management risk controls and investor disclosure after the hedge fund was crippled by the meme-stock rally last year, said people familiar with the matter.
The regulator has contacted investors in the hedge fund in recent months as part of an investigation into what Melvin founder Gabriel Plotkin and other senior executives told them in the wake of the meme-stock rally in January 2021, and whether it misled investors when it raised money last year.
The SEC has obtained from Melvin, which has largely returned its clients’ money , its general communications with investors and has sought information about what the firm disclosed about the risks of its investment strategy to clients, the people said.
The investigation is in its early stages and may not lead to any formal claims of wrongdoing. It is being handled by the enforcement division’s asset-management unit in Washington, D.C., the people said. The SEC and other law-enforcement authorities have investigated the frenzied trading in early 2021 that sent shares of GameStop Corp. /zigman2/quotes/203755179/composite GME +3.71% and others soaring. It couldn’t be learned whether the broader inquiries are related to the SEC’s probe of Melvin.
Melvin lost $6.8 billion in January 2021, or more than half its assets under management, as retail and other investors banded together to target the fund’s short positions. The meme-stock frenzy died down by the end of January and Melvin raised new money from investors.
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