With more than 20,000 comments on the WallStreetBets Reddit page for GameStop stock, individual day traders have been hyping the stock for some time, clearly aware that several hedge funds had large positions in the stock.
That makes great copy, but like always, the truth is a bit more nuanced than that. It’s about time the little guys got to join in the fun and give Wall Street a taste of its own medicine. After all, hedge fund stock operators have colluded to manipulate stock prices and short companies into the ground forever, right? This time the retail investors banded together and pushed the stock higher, forcing the hedge funds to buy back shares and cover their shorts, which pushed price even higher in so doing. With more shares short in GameStop than were outstanding, hedge funds simply got too big in the stock, and they got caught. It’s a classic David versus Goliath story, and everyone loves rooting for the underdog, particularly when it’s against the fat cats of Wall Street. Many have portrayed this story as a band of merry men going after the big bad hedge funds of Sherwood Forest. Over the past few days, I have been captivated by this violent market whipsaw, with shares moving 100 percent to 200 percent day in and day out. But all that juice looks to have been squeezed by now. As we all know, a social media fueled trading frenzy sent the share price surging in the most extreme short squeeze I have personally ever witnessed. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.Īt the time of this article, Shacknews primary shareholder Asif A.Over the last week, financial media has exhaustively covered GameStop’s wild ride from roughly $77 on January 25th to $70 - where it trades as I type - roundtripping a move as high $483 per share in between. This article is only meant for educational purposes, and should not be taken as investment advice. The washed up hedge fund and its manager may still have one more loss to recognize once the SEC investigation wraps up. Time will tell if Gabe Plotkin and Melvin Capital Management broke the law, but the firm has already crapped out twice in an increasingly embarrassing manner. GameStop's short interest was well above 100% last year, and the systemic lack of risk disclosure from funds, brokers, and market makers made matters much worse for everyone involved. Today's news of an SEC investigation into the disclosure of Melvin's positions comes against the backdrop of many European GME investors worried about their split dividend shares and the messaging from Depository Trust Company (DTC) has not inspired any confidence. The final straw was a huge $1.3 billion long bet on Facebook's stock that dropped nearly 50% in the first part of 2022. After receiving billions of dollars in a capital infusion to keep the firm afloat in January 2021, investors had clearly lost faith in Plotkin. After failing as both a long-short hedge fund and then as a long-only fund, Plotkin desperately pitched investors to yet one more pivot back to a short hedge fund. Melvin Capital Management shut down all hedge fund operations in May 2022, after its pivot to being a long-only fund also failed. The GameStop shareholder movement loves to bankrupt corrupt Wall Street hedge funds, with Melvin Capital Management being their favorite piñata. The SEC also wants to find out more information on the risk disclosures made by Gabe Plotkin's fund to its clients. The focus of the investigation is on if the fund misled their investors when they raised money last year after their GameStop (GME) short position exploded in the firm's face. The Securities and Exchange Commission (SEC) has reportedly opened an investigation into Melvin's risk management policies and investor disclosures.Īccording to a report from WSJ, the SEC reached out to failed hedge fund Melvin Capital's investors in recent months. It seemed impossible for things to get worse for Gabe Plotkin and his hedge fund Melvin Capital Management, but this failed company is the gift that keeps on giving.
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