UPDATE 2-Brazilian reinsurer IRB rises 18% with investors inspired by GameStop

(Updates with closing prices)

SAO PAULO, Jan 28 (Reuters) - Brazilian reinsurer IRB Brasil Resseguros rose 18% on Thursday, closing at 7.67 reais, as some Brazilian retail investors mimicked their U.S. counterparts in trying to squeeze short sellers.

Rio de Janeiro-based Squadra Investimentos last year uncovered accounting irregularities at IRB, forcing a management overhaul, one of the rare cases in Latin America’s largest market of a short seller targeting a particular company. The reinsurer is suing former management.

In a Facebook group called IRBR3 Forum Investing, with 8,300 members, investors have been discussing their moves and show the brokers that are buying the stock, with an open invitation to others to join WhatsApp and Telegram groups to further discuss strategy.

In the messages, they say their intention is to mimic U.S. retail investors using derivatives and coordinating buying in social media forums, pitting them against hedge funds and other short sellers.

For example, shares of video game retailer GameStop Corp rallied 1,700% over six days. On Thursday, they lost 23%.

It was unclear, however, when the Brazilian group had formed and whether its members were also using options to bet on the reinsurer, which in early January said it was hiring a consulting firm to help it plot a strategic overhaul.

Compliance and investigations lawyer Yuri Sahione, with Cescon Barrieu law firm, said the investors’ conduct in the social media groups may be considered market manipulation.

“Investors may be investigated and prosecuted for creating artificial demand for a stock,” he said.

Brazilian securities industry regulator CVM said in an e-mail to Reuters that it would analyze the sharp rise in the stock. (Reporting by Tatiana Bautzer and Carolina Mandl; Editing by Steve Orlofsky, Grant McCool and Richard Chang)