Two of the biggest hedge funds targeted by investors on Reddit that are pushing GameStop’s stock price waved expensive flags of defeat and sold their investments, losing millions of dollars.
On Wednesday, the stock price of GameStop (GME), the video game retailer, skyrocketed by 134%, an impressive 748% increase in just a week after Reddit investors launched a chaotic short-squeeze attack on increase the price and hinder the main investors.
Wall Street’s hedge funds, including Citron Research and Melvin Capital, had sold the shares, meaning they bet against it and needed the price to fall for their investments to be successful.
The meeting place for Internet investors, the popular subreddit r / WallStreetBets (WSB), gained one million extra members in just one day, as its GameStop momentum gained media attention and memes followed.
Andrew Left of Citron Research, who called redditors a “furious mob” last week after they tried to hack his Twitter account and harassed his family after saying that GME will drop to $ 20, released a video statement on Wednesday. He confirmed that Citron Research closed its short position at GME, which basically means it sold its investment, choosing to cut its losses before the price went up further.
“I can’t take another call,” says Left in the video. “How are you? Are you alright? Are you in business? What about GameStop? Should I shorten it here? People I haven’t spoken to in 20-30 years – it caught America’s attention. “
“I’m fine. Citron Capital is fine,” he says. “I covered most short sales in the 1990s, at a loss, 100%, I had a small, manageable position and I let it go.”
This means that Left sold most of its investment when the shares were selling in the $ 90 range. It closed at $ 330 on Wednesday.
Left also says in the video that, as a long-time activist investor, he respects the WSB and the redditors who contract hedge funds, and recognizes that the market is changing.
“Although we have been called boomers many times in the past week, we understand the change in market dynamics and, with that, we will be more careful when it comes to short trading,” said Left. “It doesn’t mean the industry is dead, it just means you have to be more specific.”
Melvin Capital announced that it had sold out GME on Wednesday morning. The news from Melvin Capital was announced on CNBC by Andrew Ross Sorkin, who said he had spoken with the fund manager, Gabe Plotkin.
“They came out of stock yesterday afternoon. They suffered a very big loss, ”said Sorkin, who added that he did not know the total loss.
On Monday, Melvin received more than $ 2 billion in emergency cash to help stabilize the fund and allow it to close the short position, the Wall Street Journal reported.
Still, some WSB redditors did not believe that Melvin had closed his position and encouraged investors not to sell the GME.
After the flurry of activity on Wednesday, TD Ameritrade, one of the free brokerage apps commonly used by young investors, briefly restricted trading on some stocks, including GameStop and AMC (another target of the WSB crowd) “on interest in mitigating risk for our company and customers. “This frustrated many who saw a halt as Wall Street companies prevented investors from doing business that would increase their personal wealth.
Adena Friedman, Nasdaq’s CEO, said his stock market would possibly temporarily halt trading so that investors could “recalibrate” if one of the stocks was being targeted online in a similar way to what happened with GameStop.
“If we see a significant increase in conversation on social media channels,” Friedman told CBNBC, as reported by Mediate, “we also compare that with unusual commercial activity, [and] potentially suspend these actions so that we can investigate the situation, to be able to get involved with the company and to give investors a chance to recalibrate their positions. “
Senator Elizabeth Warren, who has long struggled to hold Wall Street accountable, called on big financial agents to go crazy when ordinary investors use the same techniques against hedge funds that companies used to build their own wealth.
“For years, the same hedge funds, private equity firms and wealthy investors dismayed by GameStop’s dealings have treated the stock market as their own personal casino, while everyone else pays the price,” she said.