In an unprecedented move, Trump Media asks Congress to investigate 8 firms for short selling its stock

Investors in Trump Media could use some Dramamine. The holding company of Donald Trump’s Truth Social has seen its stock take a roller-coaster ride in its short time on the market, with fluctuations ranging from around $66 to $22 in just one month’s time.

There are basically two sorts of investors—the Trump faithful and people who are betting on the company to fail. And the management of Trump Media, last month, began waging war on the doubters.

The first step was asking regulators at Nasdaq to step in to prevent “naked” short sales, calling that “potential market manipulation,” despite the fact that it reported revenues of just $4.1 million last year. Days later, it sent a letter to the heads of various committees at the U.S. House of Representatives, repeating those claims. And on Thursday, it urged several House committee chairmen to investigate eight financial firms for their activities.

Here’s what you need to know about the situation.

What is Trump Media complaining about?

As Trump Media stock began to tumble in the first half of April, officials at the company blamed the fall on naked short sales, saying unnamed entities were illegally selling shares they did not have the right to sell. The company put forth the suggestion that sophisticated market players were taking advantage of retail investors. Trump Media has a large number of retail investors, who have bought shares to support Trump.

What is short selling?

Short selling is a way for investors to bet against a company. An investor will borrow shares and sell them on the open market, speculating that they will be able to repurchase them at a lower amount before returning the initial shares to the original owner. The worse a company does, the more the short seller profits. It’s a high risk/potentially high reward way of playing the market, as many prominent short sellers learned during the height of the meme stock movement. Melvin Capital took a huge loss on GameStop. While the total amount of that loss has never been confirmed, Melvin required nearly $3 billion in capital infusions from other hedge funds during the period.

What is naked short selling?

Naked short selling occurs when a short seller can’t find shares to borrow but still enters a sell order. They’re basically selling nonexistent shares, hoping they can borrow some later. This most often occurs when a stock is at unusual highs.

It’s illegal to do (though there are loopholes some traders can exploit), and it’s very rare these days; but it did occur during the 2007-2009 financial crisis, with many naked short sellers focusing on Fannie Mae and Freddie Mac. That hasn’t stopped companies from making accusations when their shares go a bit crazy.

What is Trump Media asking Congress to do?

Initially, Trump Media made fairly broad accusations of naked short selling without naming names. On Thursday, it made some direct accusations. CEO Devin Nunes, a former Republican member of Congress, asked top House Republicans to seek documents and testimony from eight financial firms: Apex Clearing, Clear Street, Cobra Trading, Cowen and Company, Curvature Securities, StoneX Securities, TradePro, and Velocity Clearing. So far, the House Judiciary, Ways and Means, Financial Services, and Oversight and Reform chairs have not publicly responded to the letter.

Is the stock fluctuation definitely tied to short selling?

There are definitely some short sellers out there, but so far there hasn’t been any proof that any illegal activity is responsible for the fluctuations. The company has issues that would worry most investors. Despite a market valuation of more than $6 billion, it’s not profitable (it lost $58 million last year). It has minimal revenue, reporting just $4 million for the past year, which is why some have dubbed it the “ultimate belief stock.” The company also issued a notification that raises the possibility of millions of additional shares hitting the market soon. And Trump, who just got another $1.8 billion worth of shares in the company, has ongoing legal problems that hang over the company like an albatross.

How have Wall Street firms reacted to these accusations?

None of the firms Nunes named Thursday have issued a public statement yet. But when the company began to toss around naked short selling accusations last month, Citadel Securities, founded by Republican donor Ken Griffin, had some harsh words for the company.

“Devin Nunes is the proverbial loser who tries to blame ‘naked short selling’ for his falling stock price,” a Citadel Securities spokesperson said. “Nunes is exactly the type of person Donald Trump would have fired on [The] Apprentice. If he worked for Citadel Securities, we would fire him, as ability and integrity are at the center of everything we do.”

How has Trump Media protected itself from short selling?

On April 29, the company issued a press release, telling shareholders not to lend their shares to brokerage firms, which it said would cut back on short selling.

How has Trump Media stock performed since it launched this crusade?

Really well, actually. Trump Media began beating the naked short selling drum on April 19. Since then, shares are up nearly 50%. (It’s worth noting the stock had been on the rise for several days before that as well.) Late Thursday, Trump Media stock closed at $48.68, up more than 7% for the day. Since the merger with Digital World Acquisition Corp. was made official in late March, shares are up 34%.