What happened
Shares of SOS Limited (SOS 2.88%) soared 28% Wednesday after the Chinese blockchain services company appeared to become the WallStreetBets Reddit Group's latest short-squeeze target.
So what
SOS Limited is attempting to become a powerful force in the Bitcoin (BTC +0.41%) and Ethereum (ETH +2.15%) mining arena. The company recently raised $125 million via a share and warrant offering to buy cryptocurrency mining rigs and fund the construction of a new facility in Hejiang County, Luzhou, Sichuan.
SOS Limited's shares surged Wednesday. Image source: Getty Images.
However, short-sellers -- investors who place bets that can profit when a stock declines in value -- have made serious allegations against SOS. For one, noted short-seller Hindenburg Research has accused SOS of listing a hotel as its principal office and headquarters, fabricating the background of a key employee, and making a host of other dubious claims.
SOS responded by issuing a statement calling these accusations "distorted, misleading, and unsubstantiated."
Now what
Many Reddit traders apparently have decided to side with SOS. Rather than a warning, they've taken the bears' claims as a rallying call for another short-squeeze attempt. By coordinating their share purchases and concentrating their buying power, members of the WallStreetBets Reddit Group are trying to drive up the price of SOS's shares and force Hindenburg and other short-sellers to exit their positions.
Yet while traders have been successful in igniting short squeezes in heavily shorted stocks like GameStop and AMC Entertainment earlier in the year, those stocks gave back much of their gains once the trading frenzy subsided. Many individual investors who bought later in those rallies suffered brutal losses. A similar dynamic could play out with SOS, particularly if some of Hindenburg's claims prove accurate.
